Chapter 1
Assurance and auditing: an overview
Learning objectives
1.1 Understand the framework for assurance engagements and the types of assurance engagements
that can be provided.
1.2 Define auditing and appreciate the fundamental principles underlying an audit.
1.3 Appreciate the attributes of accounting information and understand the reasons giving rise to
demand for assurance.
1.4 Explain the concept of the expectation gap, especially in the areas of auditors’ report messages,
corporate failures, fraud and communicating different levels of assurance, and appreciate the
relationships between the auditor, the client and the public.
1.5 Appreciate the role of auditing standards and their authority under the Corporations Act 2001.
1.6 Obtain an overview of other applications of the assurance function, including compliance
engagements, performance engagements, comprehensive engagements, internal auditing and
forensic auditing, as well as providing assurance on subject matter other than historical financial
information.
Major chapter sections
The framework for assurance engagements and the types of assurance engagements
Auditing—definition and fundamental principles
Attributes of accounting information and the demand for assurance
The auditor–client–public relationship and the expectation gap
The role and authority of auditing standards
Other applications of the assurance function
Lecture plan
When students arrive at the first lecture, they usually have little understanding of what assurance and
auditing entail. We find that the first class is very important for capturing students’ attention and
stimulating their interest in the subject. (Generally, they have also not read Chapter 1 before the first
class.)
It is important to summarise the many things that are currently happening with the auditor’s role,
especially with the demand for an expanded information set, and with those in charge of resources
being made more accountable for their actions.
You can also introduce some of the recent initiatives of the profession, such as the revised form
auditor’s report, to show how auditors are attempting to communicate better with their constituency.
This provides the opportunity to emphasise how important the auditing and assurance profession is
currently perceived to be with regard to the role it plays in society, and to set the scene for what
students can expect during the course. You should outline the learning objectives for this chapter and
walk the students through the flowchart of the overall auditing and assurance framework.
[Use slides 1-2 to 1-3]
LO 1.1: Understand the framework for assurance engagements and the types of assurance
engagements that can be provided.
With increasing demands for assurance to cover a wide range of subject matters, the International
Auditing and Assurance Standards Board (IAASB) recently released a revised framework for
assurance engagements. This framework covers audits as well as reviews of historical financial
information, and also other assurance engagements, such as assurance on corporate social
Instructor Resource Manual t/a Auditing and Assurance Services in Australia 7e by Gay & Simnett
© McGraw-Hill Education (Australia) 2018
Chapter 1 1
, responsibility reports or greenhouse gas reports, both of which are increasingly demanded by society.
This framework provides independent and expert auditors with criteria against which to examine
reports.
This section helps students understand the fundamentals of auditing and assurance before tackling the
course. It also shows how the framework relates to both financial report audits and other assurance
services.
The section:
provides an explanation of assurance engagement and its five elements
outlines the need for members of the profession to be independent; that is, without interests that
may create risks of material bias with respect to the quality or content of information, and to
exercise professional judgment and professional scepticism to maintain the quality of assurance
services.
Slide 1-6 contains a diagrammatic depiction of the parties to an insurance engagement, which can
be found at Figure 1.2 of the textbook.
[Use slides 1-4 to 1-9]
Types of assurance standards
To help students gain a deeper understanding of assurance, this section looks at the types of
assurance standards and pronouncements. It reviews the two different types of assurance: reasonable
assurance engagements (an audit) and limited assurance engagements (a review). This synopsis of
audits and reviews will be useful for students to compare and contrast.
This section also outlines the difference between attestation and direct engagements.
[Use slides 1-10 to 1-13]
LO 1.2: Define auditing and appreciate the fundamental principles underlying an audit
We have used and expanded on the definition in A Statement of Basic Auditing Concepts here
because it nicely captures the major components and the important parts of the audit process
(outlined on slide 1-15), rather than simply stating the objective. Students should be encouraged to
compare this definition with the one contained in the Auditing and Assurance Standards Board
(AUASB) glossary/ISA Glossary of Terms. It should be pointed out that these definitions are similar,
although the profession’s definition is more technical and does not use the word assertion
(recognising that there are direct engagements as well as attestation engagements).
[Use slides 1-14 and 1-15]
Fundamental principles underlying an audit
To understand the evolution of auditing as a discipline, it is important for students to understand the
principles that have dictated such developments. Students, who are the future of the auditing
profession, are expected to be instilled with these principles and adhere to them when working in the
profession.
The section will examine the:
fundamental ethical principles
fundamental auditing principles.
[Use slides 1-16 to 1-18]
LO 1.3: Appreciate the attributes of accounting information and understand the reasons giving
rise to demand for assurance
Instructor Resource Manual t/a Auditing and Assurance Services in Australia 7e by Gay & Simnett
© McGraw-Hill Education (Australia) 2018
Chapter 1 2
Assurance and auditing: an overview
Learning objectives
1.1 Understand the framework for assurance engagements and the types of assurance engagements
that can be provided.
1.2 Define auditing and appreciate the fundamental principles underlying an audit.
1.3 Appreciate the attributes of accounting information and understand the reasons giving rise to
demand for assurance.
1.4 Explain the concept of the expectation gap, especially in the areas of auditors’ report messages,
corporate failures, fraud and communicating different levels of assurance, and appreciate the
relationships between the auditor, the client and the public.
1.5 Appreciate the role of auditing standards and their authority under the Corporations Act 2001.
1.6 Obtain an overview of other applications of the assurance function, including compliance
engagements, performance engagements, comprehensive engagements, internal auditing and
forensic auditing, as well as providing assurance on subject matter other than historical financial
information.
Major chapter sections
The framework for assurance engagements and the types of assurance engagements
Auditing—definition and fundamental principles
Attributes of accounting information and the demand for assurance
The auditor–client–public relationship and the expectation gap
The role and authority of auditing standards
Other applications of the assurance function
Lecture plan
When students arrive at the first lecture, they usually have little understanding of what assurance and
auditing entail. We find that the first class is very important for capturing students’ attention and
stimulating their interest in the subject. (Generally, they have also not read Chapter 1 before the first
class.)
It is important to summarise the many things that are currently happening with the auditor’s role,
especially with the demand for an expanded information set, and with those in charge of resources
being made more accountable for their actions.
You can also introduce some of the recent initiatives of the profession, such as the revised form
auditor’s report, to show how auditors are attempting to communicate better with their constituency.
This provides the opportunity to emphasise how important the auditing and assurance profession is
currently perceived to be with regard to the role it plays in society, and to set the scene for what
students can expect during the course. You should outline the learning objectives for this chapter and
walk the students through the flowchart of the overall auditing and assurance framework.
[Use slides 1-2 to 1-3]
LO 1.1: Understand the framework for assurance engagements and the types of assurance
engagements that can be provided.
With increasing demands for assurance to cover a wide range of subject matters, the International
Auditing and Assurance Standards Board (IAASB) recently released a revised framework for
assurance engagements. This framework covers audits as well as reviews of historical financial
information, and also other assurance engagements, such as assurance on corporate social
Instructor Resource Manual t/a Auditing and Assurance Services in Australia 7e by Gay & Simnett
© McGraw-Hill Education (Australia) 2018
Chapter 1 1
, responsibility reports or greenhouse gas reports, both of which are increasingly demanded by society.
This framework provides independent and expert auditors with criteria against which to examine
reports.
This section helps students understand the fundamentals of auditing and assurance before tackling the
course. It also shows how the framework relates to both financial report audits and other assurance
services.
The section:
provides an explanation of assurance engagement and its five elements
outlines the need for members of the profession to be independent; that is, without interests that
may create risks of material bias with respect to the quality or content of information, and to
exercise professional judgment and professional scepticism to maintain the quality of assurance
services.
Slide 1-6 contains a diagrammatic depiction of the parties to an insurance engagement, which can
be found at Figure 1.2 of the textbook.
[Use slides 1-4 to 1-9]
Types of assurance standards
To help students gain a deeper understanding of assurance, this section looks at the types of
assurance standards and pronouncements. It reviews the two different types of assurance: reasonable
assurance engagements (an audit) and limited assurance engagements (a review). This synopsis of
audits and reviews will be useful for students to compare and contrast.
This section also outlines the difference between attestation and direct engagements.
[Use slides 1-10 to 1-13]
LO 1.2: Define auditing and appreciate the fundamental principles underlying an audit
We have used and expanded on the definition in A Statement of Basic Auditing Concepts here
because it nicely captures the major components and the important parts of the audit process
(outlined on slide 1-15), rather than simply stating the objective. Students should be encouraged to
compare this definition with the one contained in the Auditing and Assurance Standards Board
(AUASB) glossary/ISA Glossary of Terms. It should be pointed out that these definitions are similar,
although the profession’s definition is more technical and does not use the word assertion
(recognising that there are direct engagements as well as attestation engagements).
[Use slides 1-14 and 1-15]
Fundamental principles underlying an audit
To understand the evolution of auditing as a discipline, it is important for students to understand the
principles that have dictated such developments. Students, who are the future of the auditing
profession, are expected to be instilled with these principles and adhere to them when working in the
profession.
The section will examine the:
fundamental ethical principles
fundamental auditing principles.
[Use slides 1-16 to 1-18]
LO 1.3: Appreciate the attributes of accounting information and understand the reasons giving
rise to demand for assurance
Instructor Resource Manual t/a Auditing and Assurance Services in Australia 7e by Gay & Simnett
© McGraw-Hill Education (Australia) 2018
Chapter 1 2
