Lecture #3: Assurance Frameworks, Analytical Procedures
• What is right or wrong
• What is required to become an audit professional
• Midterm question
o We do we need a code of conducts
o Ranking of alternatives for an ethical dilemma
What is an assurance engagement?
• An assurance engagement is…
o an engagement where, pursuant to an accountability relationship between
two or more parties, a practitioner is engaged to issue a written communication
expressing a conclusion concerning a subject matter for which the accountable
party is responsible.
• Not always F/S!
• An accountability relationship …is a prerequisite for an assurance engagement.
• exists when:
o (the accountable party) is answerable to and/or is responsible to another party
(the user) for a subject matter
Someone is accountable to someone else about something
You are responsible for someone about something
What can you provide assurance on?
• Environmental impact
o Pollution – don’t go over a threshold
• Grants and contribution (charity)
o Use of funds – permissible use of the fund
• Composition of products o Content – acceptable level of health content
• Efficiently of operations
o Assessment – seeing how efficient they are at their work
• How does the practitioner form a conclusion?
o Bench marks
• Conditions that….
• There are three underlying conditions that affect demand by users for information.
Identify and discuss these concerns.
Levels of Assurance
• Two distinct levels of assurance - a high level and a moderate level.
o No way of having absolute assurance
• What are some evidence for high assurance
o Independent conformation
o Inspection, observation
o Inquiry and analysis
What is a Review?
• In a review engagement, practitioner = moderate level of assurance
o Design test to give out a moderate assurance
Moderate assurance – Reviews
• When do you use a review?
• Level of Assurance?
o No assurance
o Directory note (not sure)
True or False (midterm questions)
• “Not all engagements performed by practitioners are assurance engagements…”
o Accountability relationship needs to exist in all assurance engagement
• Before undertaking an assurance engagement, need to have reason to believe that that
engagement can be completed in accordance with the relevant standards
o Missing information
o Unclear opening balance
• Why is that?
o You need to be able to reach a conclusion with high assurance
Gen stds cont…
• SM is or will be within the collective professional expertise of the practitioner and
other persons performing the assurance engagement.
Use of Specialists
• Checks only certain accounts
• Reasons for it
o What auditors are going to do and managements responsibilities
o Helps flush out areas of mis-understandment and areas of confusion
o Who as access to the records o Responsibility for internal controls
o Auditor’s potential liabilities
• Two responsibilities under the Gen Std
o Due care
Imposing responsibility on everybody (including specialist)
o Objective state of mind
Remain unbiased in carrying out resp in forming conclusion
• The assurance engagement should be performed with due care and with an objective
state of mind.
• The practitioner should identify or develop criteria that are suitable for evaluating the
• What are criteria?
Characteristics of Criteria
• Suitable criteria for conclusions
Contribute to the finds,
Achieved consistent result
Free from bias that would case misuse of information
What the subject matter signify
o Completeness All the information
o You can’t give assurance without criteria as guidelines
o Laws and regulations
o Consider the affect that it can have on your report
Developing Criteria… 10 minutes
• Lib-Inc. manufactures injection moulding equipment
• 6 manufacturing centres, 1 distribution centre in Southern Ontario
• Head office is Ottawa, responsible for plant layouts
• Injection moulding machines, operators are key to business
• Each shop employs 25-35 people
• Key ingredient is plastic
• Your firm has been engaged to perform an operational audit of the equipment layout in
plants for a company.
• Required: What are some specific criteria, stated in the form of questions that might be
used to evaluate plant layouts? How would you develop your criteria?
o Capacity: Number of employees per machine
o Is layout of the material facilitate production
Is it close to the machines
o Is the equipment place so that waste is disposed easier
o Is equipment operating at X% of level of X amount of year
o Is safety of employee endangered by the layout of equipment o Traveling time from moving goods to one machine to another
o What has Ottawa has done in terms of their contribution to the layout
• Responsibilities: The work should be adequately planned and
• The practitioner should ensure any other persons performing the assurance engagement
are properly supervised.
Performance Standards (midterm question)
• Need a general strategy and a detailed approach to the execution of the engagement.
• Factors including:
• objective of the engagement;
• criteria to be used in the engagement;
• planned level of assurance;
• possible sources of evidence;
• preliminary judgments about materiality and
• expertise required, including the nature and extent of specialist involvement.
• Planning and supervision continue as the engagement progresses.
• Nature, extent, timing vary ( exp and nature of engmt)
• Plans may need to be changed as the engagement progresses.
• I.e.: pharm in NB
Sufficient, Appropriate audit evidence
• Assurance is obtained through obtaining sufficient, appropriate audit evidence
• The concepts of sufficiency and appropriateness of evidence are interrelated.
• Sufficiency –measure quantity
• Appropriateness – measure of quality
REPORTING STANDARDS • Management provides assertions to auditors regarding the economic actions and events
of the company. Explain what is meant by the term “assertions” and what they are.
• The assertion evaluates, using suitable criteria, the subject matter for which the
accountable party is responsible
• Management asserts financial statements are correct with regard to
o existence or occurrence of assets, liabilities or transactions,
o completeness of information in the financial statements,
o rights and obligations at a point in time,
o appropriate valuation or allocation,