MODULE-1_FUNDAMENTALS-OF-AUDITING-AND-ASSURANCE-SERVICES.pdf

CHAPTER 1: FUNDAMENTALS OF AUDITING AND ASSURANCE SERVICES OPERATIONS AUDIT RTCANLAS OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS OPS AUD_CHAPTER 1:AUD...

CHAPTER 1: FUNDAMENTALS OF AUDITING AND ASSURANCE SERVICES OPERATIONS AUDIT RTCANLAS OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS LEARNING OBJECTIVES 1. Define assurance and assurance engagements and give examples. 2. Discuss the five elements of assurance engagements. 3. Classify assurance engagements according to structure and according to level of assurance provided. 4. Discuss the meaning of assertion-based engagements and give examples. 5. Identify examples of non-assurance engagements and describe each one briefly. OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS  refers to the practitioner’s satisfaction as to the reliability of an assertion being made by one party for use by another party. OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS ASSURANCE ENGAGEMENTS PSAE 3000 states that assurance engagements are intended to enhance the credibility of information about a subject matter by evaluating whether the subject matter conforms in all material respects with suitable criteria. Assurance Engagement – an engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria. OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS ELEMENTS OF ASSURANCE ENGAGEMENTS 1. Three-party relationship 2. Appropriate subject matter 3. Suitable criteria 4. Sufficient appropriate evidence 5. Written assurance report OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS 1. THREE-PARTY RELATIONSHIP A. The Practitioner B. The Responsible Party C. The Intended Users OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS 2. APPROPRIATE SUBJECT MATTER Subject matter – the nature of the assertion for which the practitioner gathers sufficient evidence. Subject Matter Information- the outcome of the evaluation or measurement of a subject matter against the established criteria. OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS 3. SUITABLE CRITERIA Characteristics of Suitable Criteria (RUN CR) 1. Reliability 2. Understandability 3. Neutrality 4. Completeness 5. Relevance OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS 4. SUFFICIENT APPROPRIATE EVIDENCE Considerations when planning and performing the engagement (NTE): a. Quantity and quality b. Materiality c. Assurance Engagement Risk d. Cost-benefit consideration e. Professional Skepticism OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS 5. WRITTEN ASSURANCE REPORT Types of Opinion 1. Unmodified/ Unqualified 2. Qualified 3. Adverse 4. Disclaimer of opinion OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS The opinion to be expressed by the auditor depending on the evidence obtained may include either of the following: TYPE COMMON PHRASE USED Unmodified or unqualified Present fairly, in all material respect Modified Except for Adverse Do not present fairly, in all material respect Disclaimer of opinion We do not express a conclusion OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS FOUR TYPES OF SERVICES There are four types of services that are normally performed in connection with the entity’s FS. These are: 1. Audit 2. Review 3. Compilation 4. Agreed-Upon Procedures OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS  TYPE AUDIT REVIEW AGREED-UPON COMPILATION PROCEDURES Objective To express an To enable the CPA to report To carry out audit procedures To assist the client opinion on the whether anything has come to agreed on with the client and in the preparation FS his attention that would indicate any appropriate third parties of the FS the FS are not presented fairly. identified in the report Level of High/ Moderate/Limited None None Assurance Reasonable provided by the CPA Type of Report Positive Negative assurance Description of procedures Identification of Issued assurance performed and actual financial (opinion) findings information compiled Basic Risk Inquiry and analytical As agreed Assemble FS Procedure assessment procedures. It does not include based on client’s procedures, test assessing control risk, test of data. of controls, and records and of responses to substantive inquiries by obtaining tests corroborating evidence. Independence Required Required Not Required Not Required Requirement OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS  ASSURANCE vs NON-ASSURANCE ASSURANCE ENGAGEMENT NON-ASSURANCE ENGAGEMENT Output: assurance in the form of an Output: recommendation on how to opinion use the information Three-party contract Two-Party contract Improve the quality or credibility of Provide comments, suggestions or the subject matter recommendations on how to use the information Provided by independent Independence is not required professional Audit, review, examination of Agreed-upon procedures, financial information, performance compilation bookkeeping, review and other attestation. preparation of tax returns, MAS OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS LEVELS AND FORMS OF ASSURANCE The levels (high or moderate) and forms (positive or negative) of assurance provided by the practitioner are dependent on the type of assurance engagement being rendered. The following are types of assurance engagement As to assurance provided: 1. Reasonable assurance engagement – positive form 2. Limited assurance engagement – negative form OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS As to structure: 1. Attestation engagements – practitioner is engaged to issue, or does issue, a written communication that expresses a conclusion about the reliability of a written assertion that is the responsibility of another party. 2. Direct Engagement- the responsible party does not present the subject matter information. Instead, the practitioner directly measures or evaluates the subject matter against specific criteria and reports on the findings OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS REPORTS ON PROSPECTIVE FINANCIAL INFORMATION Prospective financial information is financial information based on assumptions about events that may occur in the future and possible actions of the entity. There are two types: 1. Forecast - PFI prepared on the basis of the assumptions as to future events which mgmt. expects to take as of the date the information is prepared (best-estimate assumptions) 2. Projections – PFI prepared on the basis of hypothetical assumptions or a mixture of best-estimate and hypothetical. OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS PSAE 3400 states that the auditor, when examining PFI, should obtain sufficient appropriate evidence that PFI are reasonable, properly prepared and presented, and on consistent basis. When reporting on the reasonableness of management’s assumptions, the auditor normally provides only moderate level of assurance. OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS --End of Chapter 1-- OPS AUD_CHAPTER 1:AUDITING AND ASSURANCE SERVICES_RTCANLAS