- •Explain the five elements of an assurance engagement
- •Describe the types of assurance engagement
- •Briefly describe what internal auditing is
- •Outline the stages of an audit
- •Define professional scepticism
- •Describe the limitations of external audits
- •Explain the relationship between International Standards on Auditing and national standards
- •Analyse the structure and roles of audit committees and discuss their benefits and limitations.
- •Define and apply the fundamental principles of professional ethics of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.
- •Define and apply the conceptual framework, including the threats to the fundamental principles of self-interest, self-review, advocacy, familiarity and intimidation (многовато текста)
- •Discuss the safeguards to offset the threats to the fundamental principles
- •1. Self – interest threat
- •2. Self – review threat
- •Provision of non – audit services in general
- •Preparing accounting records and financial statements
- •Valuation services
- •Describe the auditor's responsibility with regard to auditor independence, conflicts of interest and confidentiality
- •Justify the importance of engagement letters and their contents
- •Explain the need for, and the importance of, audit documentation.
- •Describe the form and contents of working papers and supporting documentation.
- •Importance of working papers
- •Describe and explain the five components of internal control
- •Discuss the limitations of internal control components
- •Explain how auditors record internal control systems including the use of, narrative notes, flowcharts, internal control questionnaires and internal control evaluation questionnaires
- •Internal control questionnaires and internal control evaluation questionnaires
- •Define and explain the concepts of materiality and performance materiality
- •Define audit sampling and explain the need for sampling
Describe the limitations of external audits
An external audit has a number of limitations which reduce its usefulness:
Sampling – it is not practical for an auditor to test 100% of transactions and so they have to apply sampling methodologies in selecting balances/transactions to test. Therefore, there could be an error in an item not selected for testing by the auditor.
Subjectivity – financial statements include judgemental and subjective areas and therefore the auditor is required to use their judgement in assessing whether the financial statements are true and fair.
Inherent limitations of internal control systems – an internal control system is operated by people and hence is liable to human error. In addition, there is the possibility of controls override by management and of collusion and fraud. It is impossible to remove all of these inherent limitations and as the auditor relies on the internal control systems, this can reduce the usefulness of the audit.
Evidence is persuasive not conclusive – the opinion is based on audit evidence gathered; however, while this evidence can indicate possible issues affecting the audit opinion, evidence involves estimates and judgements and hence does not give a definite conclusion.
Audit report format – the format of the opinion is determined by International Standards on Auditing (UK and Ireland). However, the terminology used is not usually understood by non-accountants. This means that users may not actually understand the audit opinion given.
Historic information – the audit report is often issued some time after the year end, and so the financial information can be quite different to the current position. In the current marketplace where companies’ financial positions can change quite quickly, the audit opinion may no longer be relevant as it is out of date
Another source:
External audits and review engagements are examples of assurance engagements. An external audit provides only reasonable assurance because of the inherent limitations of the audit, such as the fact that not all the transactions in the accounts can be tested and that judgement is required in the audit of provisions. Review engagements only provide negative assurance. This means that nothing has come to the attention of the auditor which indicates that the accounts have not been prepared according to the applicable framework.
Limitations of the external audit:
Not all items in the financial statements are tested.
Judgement is required.
There are limitations in the accounting and control systems.
The audit report is often issued a while after the statement of financial position date.
Explain the relationship between International Standards on Auditing and national standards
Relationship between ISAs and national regulation
The relationship between ISAs and national regulation is not examinable under the current ACCA F8 syllabus. This section has been included for your reference only.
ISAs do not override the local regulations referred to above governing the audit of financial or other information in a particular country.
(a) To the extent that ISAs conform with local regulations on a particular subject, the audit of financial or other information in that country in accordance with local regulations will automatically comply with the ISA regarding that subject.
(b) In the event that the local regulations differ from, or conflict with, ISAs on a particular subject, member bodies should comply with the obligations of members set forth in the IFAC Constitution as regards these ISAs (ie encourage changes in local regulations to comply with ISAs).
The IAASB also publishes other papers, such as Discussion Papers, to promote discussion on auditing, review, other assurance and related services and quality control issues affecting the accounting profession, present findings, or describe matters of interest relating to these engagements.