assurance

Which three of the following are key elements of a general assurance engagement?

• A user

• A subject matter

• Suitable criteria

• 
  An assurance file

Answer explanation

A key element of an assurance engagement is sufficient appropriate evidence, but is not generally mandatory that this evidence is recorded in an assurance file. (It is mandatory to record audit evidence, however.)

Which three of the following describe aspects of the expectations gap with respect to the external audit?

• 
  Users do not understand the meaning of the audit opinion

• 
  Users are not aware of the limitations of the audit process

• 
  Users do not appreciate that reasonable assurance is a low level of assurance

• Users do not understand what the audit process involves

Answer explanation

Reasonable assurance is a high, but not absolute, level of assurance. The other options available represent various aspects of the expectations gap which is the gap between what the assurance provider understands he is doing and what the user of the information believes he is doing.

Which two of the following are limitations of the provision of assurance?

• 
  Assurance work is carried out by people independent of the entity

• Sampling is used in assurance work

• Client systems have inherent limitations

• Unqualified staff may be used on assurance engagements

Answer explanation

The answer is not option A as the fact that assurance work is carried out by independent people is a strength of assurance provision. Option D is also incorrect as the use of unqualified staff increases the detection risk of the auditor as opposed to being an inherent limitation of the provision of assurance. Work carried out by less qualified staff should always be supervised, directed and reviewed by more senior personnel

In any...

• A,C,E

• C,E

• B,C

• A,B,D,C

Answer explanation

It is the practitioner who will provide the opinion on whether the subject matter complies with the criteria after the evidence has been gathered and evaluated accordingly. The opinion prepared will be issued to the user

Which one of the following statements best describes the evidence obtained and the opinion given in a reasonable assurance engagement?

• 
  Sufficient appropriate evidence and a negatively worded opinion

• Sufficient appropriate evidence and a positively worded opinion

• A lower level of evidence and a negatively worded opinion

• A lower level of evidence and a positively worded opinion

Answer explanation

Sufficient appropriate audit evidence is gathered and a positively worded opinion issued in a reasonable assurance engagement. A lower level of evidence coupled with a negatively worded opinion applies to a limited assurance engagement.

For each of the following statements, select whether they are true or false.

A statutory audit gives reasonable assurance that the financial statements give a true and fair view.

A True

B False

A negative assurance conclusion gives a limited level of assurance.

C True

D False

Reasonable assurance is absolute assurance of the correctness of the subject matter.

E True

F False

• true true false

• true false true

• false true true

• false true false

Answer explanation

A True

The statutory audit provides reasonable assurance through a positively worded assurance conclusion whereas in a non-statutory assurance engagement such as a review engagement, limited assurance is provided with the issue of the negatively worded assurance conclusion. This can be seen in the wording of the two conclusions. The positively worded assurance conclusion includes wording 'the financial statements give a true and fair view', whereas the negatively worded assurance conclusion includes the wording 'nothing has come to our attention', emphasising the limited nature of the assignment.

The correct answer is:

C True

A negatively worded assurance conclusion includes the wording 'nothing has come to our attention', which emphasises the limited nature of the assignment.

The correct answer is:

F False

Reasonable assurance is high assurance provided on the truth and fairness of the subject matter as opposed to absolute assurance of the correctness of the subject matter.

Jones LLP is the external auditor of Blue plc, a listed company. The directors of Blue plc have requested that Jones LLP carry out a review engagement assessing the effectiveness of its corporate governance policies against the UK Corporate Governance Code.

For the above review engagement, select which part of the engagement description constitutes the subject matter, which describes the suitable criteria and which party is the responsible party.

The subject matter

A Blue plc's corporate governance policies

B The UK Corporate Governance Code

The suitable criteria

C Blue plc's corporate governance policies

D The UK Corporate Governance Code

The responsible party

E Jones LLP

F The directors of Blue plc

• A,D,F

• B,C,F

• A,C,F

• A,D,E

Answer explanation

A Blue plc's corporate governance policies

The subject matter under examination is the company's corporate governance policies.

The correct answer is:

D The UK Corporate Governance Code

These policies are to be assessed against the UK Corporate Governance Code, which is the suitable criteria.

The correct answer is:

F The directors of Blue plc

The responsible party is Blue plc, the party commissioning the report, who has the responsibility to apply the UK Corporate Governance Code. Jones LLP is the practitioner, responsible for gathering the appropriate evidence and issuing an appropriate opinion

For each of the following statements relating to the provisions of the Companies Act 2006, select whether they are true or false.

An individual or firm is eligible for appointment as statutory auditor if the individual or firm is a member of a recognised supervisory body and is eligible for appointment under the rules of that body.

A True

B False

A person may not act as a statutory auditor of a company if that person is an officer or employee of the company.

C True

D False

• true true

• true false

• false true

• false false

Answer explanation

A True

The Companies Act 2006 states that a statutory auditor must be a member of a recognised supervisory body.

The correct answer is:

C True

The Companies Act 2006 states that an officer or employee of the client is ineligible as auditor.

Which one of the following best describes the concept of assurance?

Assurance refers to:

• an assurance firm's high level of satisfaction as to the reliability of an assertion being made by one party for the use of another party

• an assurance firm's satisfaction as to the reliability of an assertion being made by one party for the use of another party

• 
  a user's satisfaction as to the reliability of an assertion being made by another party

• an assurance firm's limited level of satisfaction as to the reliability of an assertion being made by one party for the use of another party

Answer explanation

Assurance refers to an assurance firm's satisfaction as to the reliability of an assertion being made by one party for the use of another party. This assurance is then expressed in an assurance report with a negative or positive conclusion given as appropriate to that particular engagement.

Which three of the following are benefits of an assurance report on financial information?

An assurance report:

• enhances the credibility of the information being reported on

• 
  reduces the risk of management bias in the information being reported on

• 
  attests to the correctness of the information being reported on

• draws the attention of the user to deficiencies in the information being reported on

Answer explanation

An assurance report does not 'attest(s) to the correctness of the information being reported upon'. Even a reasonable assurance engagement (which gives more assurance than a limited assurance engagement) does not provide a guarantee that the information being reported on is correct. Assurance can never be absolute as this statement implies.