Lecture on Assurance and External Audit

Introduction

• Topic: Assurance and External Audit
• Key areas covered:
  • Definition of Assurance
  • External Audit
  • Five elements of an Assurance Engagement
  • Levels of Assurance

Definition of Assurance

• Assurance: Practitioner evaluates a subject matter (responsibility of another party) against criteria to express a conclusion to the user.
  • Key terms: Practitioner, Subject matter, Responsible party, Conclusion, User.
• External Audit: Example of providing assurance.
  • Practitioner: External Auditor
  • Subject Matter: Financial Statements
  • Responsible Party: Client Management
  • Conclusion: Audit Opinion
  • Users: Shareholders or other intended users

Purpose of Assurance

• Provides confidence to users in decision-making.
• Enhances credibility of financial information.

Five Elements of an Assurance Engagement

1. Three Parties: Practitioner, Responsible Party, User
2. Subject Matter
3. Suitable Criteria
4. Sufficient Appropriate Evidence
5. Written Assurance Report

Levels of Assurance

• Defined by IAASB:
  • Reasonable Assurance:
    • Requires sufficient appropriate evidence.
    • High level of detail and a positive report (e.g., external audit).
  • Limited Assurance:
    • Moderate level of assurance and detail.
    • Negative report or opinion.

Additional Services by Auditors

• May review information as a separate assignment (e.g., cash flow forecasts).
• Limited assurance in reviews, especially for future events.

Conclusion

• Assurance: Giving an opinion on something.
• External Auditors are assurance providers.
• Elements of assurance engagement and levels of assurance are crucial.

Lecture on Ethics for Accountants

Introduction

• Importance of ethics in accountancy.
• Ethics maintain the reputation of the profession.
• IFAC's Code of Ethics: Fundamental principles.

Fundamental Principles of Ethics

• O: Objectivity - Avoid bias, maintain independence.
• P: Professional Behavior - Comply with laws, maintain standards.
• P: Professional Competence and Due Care - Maintain knowledge and competence.
• I: Integrity - Be straightforward and honest.
• C: Confidentiality - Protect client information.

Importance of Ethics for Auditors

• Consider ethical implications when accepting or continuing assignments.
• Decline or resign if ethical standards are threatened.

Conclusion

• Follow fundamental principles to maintain credibility.
• Ethics guide behavior and decision-making in accountancy.

Lecture on Corporate Governance

Introduction

• Discuss the impact of corporate governance on external audits.
• Focus on the UK Corporate Governance Code.

Principles of Corporate Governance

1. Leadership: Board responsible for the organization's success.
2. Effectiveness: Board should have skills and information.
3. Accountability: Ensure risks are identified and managed.
4. Remuneration: Fair director pay, attract the right talent.
5. Shareholder Relationships: Clear communication.

Role of the Audit Committee

• Responsible for financial reporting and system control matters.
• Comprised of non-executive directors.
• Responsibilities include reviewing internal controls, communicating with auditors, and ensuring reliability of financial statements.

Conclusion

• Corporate governance provides a framework for accountability and decision-making.
• Audit committees enhance confidence and credibility in financial reporting.

Lecture on Internal and External Auditors

Introduction

• Differences between internal and external auditors.

Internal Auditor's Role

• Advise management and improve control systems.
• Review control activities, examine compliance, identify risks.

Differences Between Internal and External Auditors

• Independence: External auditors are independent; internal auditors are part of the entity.
• Scope: External focuses on financial statements; internal on control systems.
• Objectives: External forms an opinion; internal advises management.

Conclusion

• Internal auditors play a key role in reviewing systems and advising management.
• External auditors provide an independent opinion on financial statements.

Lecture on Audit Process and Risk

Introduction

• Overview of audit process and audit risk.

Audit Process Steps

1. Acceptance: Determine if client is suitable.
2. Engagement: Formalize agreement.
3. Planning: Identify risks, plan audit.
4. Assess Controls: Evaluate client's systems.
5. Substantive Testing: Test transactions and balances.
6. Completion and Review: Ensure sufficient evidence, form opinion.
7. Audit Report: Prepare and present opinion.

Audit Risk

• Inherent Risk: Risk due to entity's nature.
• Control Risk: Risk due to poor controls.
• Detection Risk: Risk auditor will not detect misstatements.

Conclusion

• The audit process requires careful planning and understanding of risks.
• Mitigating audit risk is crucial for forming an accurate opinion.

Lecture on Audit Documentation

Introduction

• Importance of audit documentation.

Purpose of Audit Documentation

• Proves audit was planned and performed according to standards.
• Assists future audits and supports audit opinion.

Completion of Audit Files

• Planning: Document decisions and strategy.
• Audit Performance: Evidence collected during testing.
• Completion: Final review and evidence of work.

Conclusion

• Documentation is vital for proving the quality and accuracy of an audit.

Lecture on Fraud in Auditing

Introduction

• Auditors' responsibilities relating to fraud.

Types of Fraud

• Fraudulent Financial Reporting: Deliberate misstatements.
• Misappropriation of Assets: Theft of company assets.

Responsibilities and Procedures

• Auditors must assess fraud risk and design procedures to detect fraud.
• Report any findings and consider impact on audit report.

Conclusion

• Auditors have a duty to identify and report fraud.
• Procedures must be designed to assess and detect fraud risk effectively.

Lecture on Auditor's Use of Technology

Introduction

• Use of computer-assisted audit techniques (CAATs) in auditing.

CAATs Overview

• Test Data: Assessing control systems by entering dummy data.
• Audit Software: Substantive testing and data analysis.

Benefits and Drawbacks

• Benefits: Saves time, reduces human error, efficient.
• Drawbacks: Cost, data security concerns, client apprehension.

Conclusion

• CAATs enhance audit efficiency and accuracy.
• Auditors must weigh benefits against costs and risks.

Lecture on Completing the Audit

Introduction

• Overview of completion stage in auditing.

Activities in Completion Stage

1. Overall Review: Ensure consistency and completeness.
2. Evaluation of Misstatements: Review and discuss with client.
3. Subsequent Event Review: Identify and adjust for post-year events.
4. Going Concern Review: Assess entity's ability to continue.
5. Written Representations: Obtain confirmations from management.

Conclusion

• The completion stage is critical for ensuring all audit work is finalized accurately.

Lecture on the Audit Report

Introduction

• Understanding the audit report and its importance.

Contents of the Audit Report

• Title, Addressee, Audit Opinion, Basis for Opinion, Key Audit Matters, Other Information, Management and Auditor Responsibilities, Reporting Responsibilities, Signature, Date.

Forming an Opinion

• Assess whether financial statements are true and fair.
• Decide on modifications based on material misstatements or lack of evidence.

Communication to Governance

• Formal communication through the engagement letter, management letter, and audit report.

Conclusion

• The audit report is the formal conclusion of the audit process, communicating the auditor's opinion and findings.