The shareholders of Store and Quary Ltd namely Obodai and Obosie are residing abroad. They appointed directors to see to the day to day running of the company. The directors produced the financial statements of the company which show a true and fair view. Other relevant information regarding directors’ pay and benefits, going concern and management of risk have been provided by the directors. In order to know the accuracy of the information provided, the shareholders engaged your firm Standard and Co. Chartered Accountants to perform an assurance engagements.
Required:
i) Explain an assurance engagement as provided by IAASB. (2 marks)
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An assurance engagement is one in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the subject matter information (that is, the outcome of the evaluation or measurement of a subject matter against criteria).
ii) Explain FOUR (4) elements of an assurance engagement. (4 marks)
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- A three party relationship – The three party are the intended user, the responsible party and the practitioner.
- A subject matter: This is the data to be evaluated that has been prepared by the responsible party. It can take many forms including financial performance (e.g. historical financial information, non-financial performance (e.g. key performance indicators), processes (e.g. internal control) and behavior (e.g. compliance with laws and regulations).
- Suitable criteria: The subject matter is evaluated or measured against criteria in order to reach opinion.
- Evidence: Sufficient appropriate evidence needs to be gathered to support the required level of assurance.
- An assurance report: A written report containing the practitioners’ opinion is issued to the intended user, in the form appropriated to a reasonable assurance engagement or a limited assurance engagement.
iii) Describe the differences between reasonable assurance engagement and limited assurance engagements. (4 marks)
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- Reasonable assurance engagement is where a high, but not absolute level of assurance is given. The object of a reasonable assurance engagement is a reduction in assurance engagement risk to an acceptably low level in the circumstances of the engagement as the basis for the assurance practitioner’s conclusion. The conclusion would usually be expressed in a positive form. In order to give reasonable assurance, a significant amount of testing and evaluation is required to support the conclusion.
Limited assurance is a lower level of assurance. The nature, timing and extent of the procedures carried out by the practitioner in a limited assurance engagement would be limited compared with what is required in a reasonable assurance engagement. Nevertheless, the procedures performed should be planned to obtain a level of assurance which is meaningful in the practitioner’s professional judgment. - For a limited assurance engagement the conclusion conveys whether, based on the procedures performed and evidence obtained, a matter (s) has come to the practitioner’s attention to cause the practitioner to believe the subject matter information is materially misstated. This would usually be expressed in a negative form of words.