ACA Assurance
What is materiality? - correct answer ✔✔Information which, if omitted or misstated, would influence
the decisions of shareholders or directors.
Why is there a need for independent auditors to review financial statements? - correct answer ✔✔1) To
see if they are true and fair; free from material misstatement and bias
2) To see if they are properly prepared.
What are the IFRS? - correct answer ✔✔The International Financial Reporting Standards
What are the 5 elements of assurance? - correct answer ✔✔CREST
Criteria - is it suitable? UK CGC law and accounting standards
Report - conclusion or opinion
Evidence - is it sufficient and appropriate?
Subject matter - financial statements, other data / systems
Three - 3 parties: practitioner, intended user and responsible party
Who are the responsible party? - correct answer ✔✔The directors of a firm (usually)
Who is the practitioner? - correct answer ✔✔The auditor / assurance firm
Who is the intended user? - correct answer ✔✔Depends on assignment; e.g. shareholders
What are the two levels of assurance? - correct answer ✔✔1) Limited assurance
2) Reasonable assurance
Limited Assurance - correct answer ✔✔- Moderate / low level of assurance
,- Negative conclusion
- "Nothing has come to our attention"
Which level of assurance are statutory audits? - correct answer ✔✔Reasonable
Reasonable Assurance - correct answer ✔✔- High but not absolute assurance
- Positive conclusion
- "In our opinion, ..., true and fair view"
Which governing bodies manage audits in the UK? - correct answer ✔✔The Companies Act 2006
International Standards of Accounting (ISAs)
What are the overall objectives of an auditor as per ISA 200? - correct answer ✔✔Obtain reasonable
assurance about whether financial statements are free from material misstatement, due to fraud or
error.
Express an opinion on whether the financial statements are properly prepared in accordance with an
applicable framework.
Professional Scepticism - correct answer ✔✔An attitude that includes a questioning mind, being alert to
conditions which may indicate material misstatement and a critical evaluation of audit evidence.
Professional Judgement - correct answer ✔✔Application of relevant training, knowledge and experience
in making informed decisions about the courses of actions that are appropriate in the circumstances of
the audit.
Which companies must have a statutory audit? - correct answer ✔✔All listed companies. Private limited
companies may be exempt if they have 2 out of three criteria:
- No more than 50 employees
- No more than £10.2m in turnover
- No more than £5.1m in assets.
, What must an auditor be? - correct answer ✔✔A member of a Recognised Supervisory Body (RSB)
Not be ineligible; they are prohibited if they are an officer or employee of the company, or if they are a
partner or employee of someone at the company.
What are some benefits of assurance? - correct answer ✔✔- Independent scrutiny of the business by
experts
- Added credibility
- By-products / subsidiary benefits (e.g. fraud deterrent)
- Draws attention to issues i.e. ethical
- Reduces management bias
What are some limitations of assurance? - correct answer ✔✔We cannot give 100% assurance:
- Sampling doesn't test all transactions
- Limitations of financial systems
- Evidence persuasive not conclusive
- Collusion to defraud
- Subjective and judgemental info
- Only management really know the details - can they be trusted for evidence?
What are some examples of the Expectations Gap? - correct answer ✔✔The public may misunderstand
the audit process, thinking that:
- Auditors detect all fraud and error
- They test 100% of transactions
- The verify the accuracy of the F/S
- The company is guaranteed to continue to trade if a true and fair review is issued
- The SFP shows the true value of the company.
What is the Expectations Gap? - correct answer ✔✔Shareholders and members of the public rely on
auditor reports on the company they are invested in. There are often misunderstandings which may
cause problems for the auditing profession.
What is materiality? - correct answer ✔✔Information which, if omitted or misstated, would influence
the decisions of shareholders or directors.
Why is there a need for independent auditors to review financial statements? - correct answer ✔✔1) To
see if they are true and fair; free from material misstatement and bias
2) To see if they are properly prepared.
What are the IFRS? - correct answer ✔✔The International Financial Reporting Standards
What are the 5 elements of assurance? - correct answer ✔✔CREST
Criteria - is it suitable? UK CGC law and accounting standards
Report - conclusion or opinion
Evidence - is it sufficient and appropriate?
Subject matter - financial statements, other data / systems
Three - 3 parties: practitioner, intended user and responsible party
Who are the responsible party? - correct answer ✔✔The directors of a firm (usually)
Who is the practitioner? - correct answer ✔✔The auditor / assurance firm
Who is the intended user? - correct answer ✔✔Depends on assignment; e.g. shareholders
What are the two levels of assurance? - correct answer ✔✔1) Limited assurance
2) Reasonable assurance
Limited Assurance - correct answer ✔✔- Moderate / low level of assurance
,- Negative conclusion
- "Nothing has come to our attention"
Which level of assurance are statutory audits? - correct answer ✔✔Reasonable
Reasonable Assurance - correct answer ✔✔- High but not absolute assurance
- Positive conclusion
- "In our opinion, ..., true and fair view"
Which governing bodies manage audits in the UK? - correct answer ✔✔The Companies Act 2006
International Standards of Accounting (ISAs)
What are the overall objectives of an auditor as per ISA 200? - correct answer ✔✔Obtain reasonable
assurance about whether financial statements are free from material misstatement, due to fraud or
error.
Express an opinion on whether the financial statements are properly prepared in accordance with an
applicable framework.
Professional Scepticism - correct answer ✔✔An attitude that includes a questioning mind, being alert to
conditions which may indicate material misstatement and a critical evaluation of audit evidence.
Professional Judgement - correct answer ✔✔Application of relevant training, knowledge and experience
in making informed decisions about the courses of actions that are appropriate in the circumstances of
the audit.
Which companies must have a statutory audit? - correct answer ✔✔All listed companies. Private limited
companies may be exempt if they have 2 out of three criteria:
- No more than 50 employees
- No more than £10.2m in turnover
- No more than £5.1m in assets.
, What must an auditor be? - correct answer ✔✔A member of a Recognised Supervisory Body (RSB)
Not be ineligible; they are prohibited if they are an officer or employee of the company, or if they are a
partner or employee of someone at the company.
What are some benefits of assurance? - correct answer ✔✔- Independent scrutiny of the business by
experts
- Added credibility
- By-products / subsidiary benefits (e.g. fraud deterrent)
- Draws attention to issues i.e. ethical
- Reduces management bias
What are some limitations of assurance? - correct answer ✔✔We cannot give 100% assurance:
- Sampling doesn't test all transactions
- Limitations of financial systems
- Evidence persuasive not conclusive
- Collusion to defraud
- Subjective and judgemental info
- Only management really know the details - can they be trusted for evidence?
What are some examples of the Expectations Gap? - correct answer ✔✔The public may misunderstand
the audit process, thinking that:
- Auditors detect all fraud and error
- They test 100% of transactions
- The verify the accuracy of the F/S
- The company is guaranteed to continue to trade if a true and fair review is issued
- The SFP shows the true value of the company.
What is the Expectations Gap? - correct answer ✔✔Shareholders and members of the public rely on
auditor reports on the company they are invested in. There are often misunderstandings which may
cause problems for the auditing profession.
