ACCA F8 真题整理1

List and explain the elements of an assurance engagement.（2010.6.2a）

Explain the five elements of an assurance engagement.（2013.6.5a）5分

Elements of an assurance engagement

In accordance with ISAE 3000 Assurance Engagements other than Audits or Reviews of Historical Financial Information, anassurance engagement will involve three separate parties:

– The intended user who is the person who requires the assurance report.

– The responsible party, which is the organization responsible for preparing the subject matter to be reviewed.

– The practitioner (i.e. an accountant) who is the professional who will review the subject matter and provide theassurance.

A second element is a suitable subject matter. The subject matter is the data that the responsible party has prepared andwhich requires verification.

Suitable criteria are required in an assurance engagement. The subject matter is compared to the criteria in order for it to beassessed and an opinion provided.

Sufficient appropriate evidence has to be obtained by the practitioner in order to give the required level of assurance.

An assurance report is the opinion that is given by the practitioner to the intended user and the responsible party.

(i) Explain the purpose of review engagements and how these differ from external audits; and (2 marks)

(ii) Describe the level of assurance provided by external audits and review engagements. (2 marks)（2015.6.5a）

(i)Review engagements

Review engagements are often undertaken as an alternative to an audit, and involve a practitioner reviewing financialdata, such as six-monthly figures. This would involve the practitioner undertaking procedures to state whether anythinghas come to their attention which causes the practitioner to believe that the financial data is not in accordance with thefinancial reporting framework.

A review engagement differs to an external audit in that the procedures undertaken are not nearly as comprehensive asthose in an audit, with procedures such as analytical review and enquiry used extensively. In addition, the practitionerdoes not need to comply with ISAs as these only relate to external audits.

(ii)Levels of assurance

The level of assurance provided by audit and review engagements is as follows:

External audit – A high but not absolute level of assurance is provided, this is known as reasonable assurance. Thisprovides comfort that the financial statements present fairly in all material respects (or are true and fair) and are free ofmaterial misstatements.

Review engagements – where an opinion is being provided, the practitioner gathers sufficient evidence to be satisfiedthat the subject matter is plausible; in this case negative assurance is given whereby the practitioner confirms thatnothing has come to their attention which indicates that the subject matter contains material misstatements.

Identify and explain the level of assurance provided by an external audit and other review engagements.(3 marks)（2012.6.1c）

Levels of assurance

The level of assurance provided by audit and other review engagements is as follows:

Audit

External Audit – A high but not absolute level of assurance is provided, this is known as reasonable assurance. This providescomfort that the financial statements are true and fair and are free of material misstatements.

Other review engagements

Other review engagements where an opinion is being provided, the practitioner gathers sufficient evidence to be satisfied thatthe subject matter is plausible; in this case negative assurance is given whereby the practitioner confirms that nothing hascome to his attention which indicates that the subject matter contains material misstatements.

Explain the kind of assurance you could give in the context of the request by the bank. (4 marks)（2009.12.4d）

You would inform management that it would not be possible to give a report on the accuracy of the cash flow forecast. Theforecast is an assessment of cash flows in the future which is uncertain, particularly in the second year.

The bank should be informed that the kind of report that you could give is a limited assurance or negative assurance report.You would be able to state in your report the kind of work you had carried out, the assumptions that management had madeand then to give a negative form of assurance in which you would state, among other things, that nothing had come to yourattention that would cause you to believe that the assumptions do not provide a reasonable basis for the cash forecast. Youcould then go on to say that the forecast has been properly prepared on the basis of the assumptions.

This is assuming that this kind of opinion is appropriate in the light of the work you have performed.

In the context of the cash flow forecast, define the term ‘negative assurance’ and explain how this differsfrom the assurance provided by an audit report on statutory financial statements. (4 marks)（2008.6.5d）

Negative assurance

Negative assurance means that nothing has come to the attention of an auditor which indicates that the cash flow forecastcontains any material errors. The assurance is therefore given on the absence of any indication to the contrary.

In contrast, the audit report on statutory financial statements provides positive or reasonable assurance; that is the financialstatements do show a true and fair view.

Using negative assurance, the auditor is warning users that the cash flow forecast may be inaccurate. Less reliance cantherefore be placed on the forecast than the financial statements, where the positive assurance was given.

With negative assurance, the auditor is also warning that there were limited audit procedures that could be used; the cashflow relates to the future and therefore the auditor cannot obtain all the evidence to guarantee its accuracy. Financialstatements relate to the past, and so the auditor should be able to obtain the information to confirm they are correct; hencethe use of positive assurance.

When reporting on a cash flow forecast, explain the term ‘negative assurance’ and why this is used. (4 marks)（2006.12.1c）

The term negative assurance means that the auditor has carried out work on the cash flow but that the accuracy of the forecastcannot be confirmed. The auditor will report that the cash flow appears to be reasonable, but not that it shows a true andfair view. The auditor is therefore not confirming that the cash flow is correct, rather that there is nothing to indicate it isincorrect.

This type of report is appropriate for a forecast because it relates to the future. It is therefore not possible to state that theforecast is materially correct in terms of truth and fairness because the forecast has not been tested against the future. Theactual results are therefore uncertain. It may not be correct simply because future conditions do not agree with those underwhich the forecast was prepared.

Define materiality and determine how the level of materiality is assessed. (5 marks)（2010.6.2b）

Materiality is defined as follows:

‘Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably beexpected to influence the economic decisions of users taken on the basis of the financial statements.’

In assessing the level of materiality there are a number of areas that should be considered. Firstly the auditor must considerboth the amount (quantity) and the nature (quality) of any misstatements, or a combination of both. The quantity of themisstatement refers to the relative size of it and the quality refers to an amount that might be low in value but due to itsprominence could infl uence the user’s decision, for example, directors’ transactions.

In assessing materiality the auditor must consider that a number of errors each with a low value may when aggregated amountto a material misstatement.

The assessment of what is ma terial is ultimately a matter of the auditors’ professional judgement, and it is affected by theauditor’s perception of the financial information needs of users of the financial statements.

In calculating materiality the auditor should also consider setting the performance materiality level. This is the amount set bythe auditor, it is below materiality, and is used for particular transactions, account balances and disclosures.

As per ISA 320 materiality is often calculated using benchmarks such as 5% of profi t before tax or 1% of gross revenue. Thesevalues are useful as a starting point for assessing materiality.

Explain the concepts of materiality and performance materiality in accordance with ISA 320 Materiality inPlanning and Performing an Audit. (5 marks)（2013.6.3a）

Materiality and performance materiality

Materiality and performance materiality are dealt with under ISA 320 Materiality in Planning and Performing an Audit.Auditors need to establish the materiality level for the financial statements as a whole, as well as assess performancemateriality levels, which are lower than the overall materiality.

Materiality is defined in ISA 320 as follows:

‘Misstatements, including omissions, are considered to be material if they, individually or in the aggreg ate, could reasonablybe expected to influence the economic decisions of users taken on the basis of the financial statements.’

In assessing the level of materiality, there are a number of areas that should be considered. First the auditor must considerboth the amount (quantity) and the nature (quality) of any misstatements, or a combination of both. The quantity of themisstatement refers to the relative size of it and the quality refers to an amount that might be low in value but due to itsprominence could influence the user’s decision, for example, directors’ transactions.

As per ISA 320, materiality is often calculated using benchmarks such as 5% of profit before tax or 1% of total revenue ortotal expenses. These values are useful as a starting point for assessing materiality.

The assessment of what is material is ultimately a matter of the auditor’s professional judgement, and it is affected by theauditor’s perception of the financial information needs of users of the financial statements and the perceived level of risk; thehigher the risk, the lower the level of overall materiality.

In assessing materiality, the auditor must consider that a number of errors each with a low value may, when aggregated,amount to a material misstatement.

In calculating materiality, the auditor should also set the performance materiality level. Performance materiality is normallyset at a level lower than overall materiality. It is used for testing individual transactions, account balances and disclosures.The aim of performance materiality is to reduce the risk that the total of errors in balances, transactions and disclosures doesnot in total exceed overall materiality.

Tutorial note: Award marks for ISA 320 definition of performance materiality below:

‘Performance materiality m eans the amount or amounts set by the auditor at less than materiality for the financialstatements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected andundetected misstatements exceeds materiality for the financial statements as a whole. If applicable, performance materialityalso refers to the amount or amounts set by the auditor at less than the materiality level or levels for particular classes oftransactions, account balances or disclosures.

Explain the concept of TRUE and FAIR presentation. (4 marks)

True and Fair presentation

Financial statements are produced by management which give a true and fair view of the entity’s results. The auditor inreviewing these financial statements gives an opinion on the truth and fairness of them.

Although there is no definition in the International Standards on Auditing of true and fair it is generally considered to have thefollowing meaning:

True– Information is factual and conforms with reality in that there are no factual errors. In addition it is assumed that to betrue it must comply with accounting standards and any relevant legislation. Lastly true includes data being correctlytransferred from accounting records to the financial statements.

Fair– Information is clear, impartial and unbiased, and also reflects plainly the commercial substance of the transactions ofthe entity.