The Institute of Chartered Accountants in England and Wales

ASSURANCE

For exams in 2019

Study Guide

www.icaew.com
Contents

1 Key resources 1

2 Study guide 2

3 Syllabus and learning outcomes 19

4 Technical knowledge grid 22

5 Glossary of terms 28

The Assurance module ensures you understand the assurance process and fundamental
principles of ethics, and are able to contribute to the assessment of internal controls and
gathering evidence on an assurance engagement.

ii ICAEW 2019
1 Key resources
Whether you're studying the ACA qualification or ICAEW CFAB, with an employer, at university,
independently (self-studying), or via an apprenticeship, we provide a wide range of resources
and services to help you in your studies. They can be found on our website. Be sure to visit the
specific area for your qualification.
ACA students, you can access dedicated exam resources, guidance and information for the ACA
qualification via your dashboard at icaew.com/dashboard.
ICAEW CFAB students, you can find everything you need at icaew.com/cfabstudents.
Syllabus and technical knowledge grids
This gives you the full breakdown of learning outcomes for each module and how your technical
knowledge will grow throughout the qualification.
Study guide
This guides you through your learning process, putting each chapter and topic of the Study
Manual into context and showing what learning outcomes are attached to them.
Exam webinars
The pre-recorded webinars focus on how to approach each exam, plus exam and study tips.
Errata sheets
These are available on our website if we are made aware of a mistake within a Study Manual or
Question Bank once it has been published.
Student support team
Our dedicated student support team is here to help and advise you throughout your studies,
don't hesitate to get in touch. Email studentsupport@icaew.com or call +44 (0)1908 248 250 to
speak to an adviser.

ICAEW 2019 Study Guide 1

2 Study guide
2.1 Help yourself study for your ACA exams
The right approach
1 Develop the right attitude
Believe in yourself
Remember why you're doing it
2 Focus on the exam
Read through the Syllabus in this
guide
3 The right method
See the whole picture
Use your own words
Give yourself cues to jog your
memory
4 The right recap
Review, review, review
2 Assurance
Yes, there is a lot to learn. But thousands have
succeeded before and you can too.
You are studying for a good reason: to advance your
career.
This tells you what you are expected to know.
Keeping in mind how all the detail you need to know
fits into the whole picture will help you understand it
better.
 The Practical significance and Working Context to
each chapter in the study guide put the material
into context.
 The Learning outcomes and Section overviews in
the study manual show you what you need to
grasp.
To absorb the information (and to practise your written
communication skills), you need to put it into your own
words.
 Take notes.
 Answer the questions in each chapter.
 Draw mindmaps.
 Try 'teaching' a subject to a colleague or friend.
The Study Manual uses bold to highlight key points.
 Try colour coding with a highlighter pen.
 Write key points on cards.
Regularly reviewing a topic in summary form can fix it in
your memory. The Study Manual helps you review in
many ways.
 Each Chapter Summary will help you to recall that
study session.
 The Self-test actively tests your grasp of the
essentials.
 Go through the Examples in each chapter a
second or third time.
ICAEW 2019
2.2 Study cycle
The best way to approach the Study Manual is to tackle the chapters in order. We will look in
detail at how to approach each chapter below but as a general guide, taking into account your
individual learning style, you could follow this sequence for each chapter.

Key study steps Activity

Step 1 This topic list is shown in the contents for each chapter and helps you
Topic list navigate each part of the book; each numbered topic is a numbered
section in the chapter.
Step 2 The practical significance and working context sections for each chapter,
Introduction set out in this study guide give you the big picture in terms of the context
of the chapter. The Examination context guidance shows what the
examiners are looking for and tells you why the topics covered in the
chapter need to be studied.
Step 3 Section overviews give you a quick summary of the content of each of the
Section overviews main chapter sections. They can also be used at the end of each chapter to
help you review each chapter quickly.
Step 4 Proceed methodically through each chapter, particularly focusing on areas
Explanations highlighted as significant in the chapter introduction or study guide.
Step 5 Take brief notes, if you wish. Don't copy out too much. Remember that
Note taking being able to record something yourself is a sign of being able to
understand it. Your notes can be in whatever format you find most helpful;
lists, diagrams, mindmaps.
Step 6 Work through the examples very carefully as they illustrate key knowledge
Examples and techniques.
Step 7 Check yours against the suggested solutions, and make sure you
Answers understand any discrepancies.
Step 8 Review it carefully, to make sure you have grasped the significance of all
Chapter summary the important points in the chapter.
Step 9 Use the Self-test to check how much you have remembered of the topics
Self-test covered.
Step 10 Ensure you have ticked off the Learning outcomes.
Learning outcomes

Moving on...
When you are ready to start revising, you should still refer back to the Study Manual.
 As a source of reference (you should find the index particularly helpful for this).
 As a way to review (the Section overviews, Examination context, Chapter summaries and
Self-test questions help you here).
Remember to keep careful hold of the Study Manual – you will find it invaluable in your work.

2.3 Detailed study guide

Use this schedule and your exam timetable to plan the dates on which you will complete each
study period that follows.
Revision Phase – your revision should be centred around using the questions in the ICAEW
Question Bank.

ICAEW 2019 Study Guide 3

 Study
Period Practical significance
1 Concept of and need for
assurance
Users of financial and non-
financial information want to
have confidence that the
information they are using is
reliable and that they can
draw valid conclusions as a
result of it. They want
assurance about the quality
of the information they are
using to make decisions.
Provision of assurance
services is therefore a very
important area of business
for accountants. Accountants
are able to provide
assurance on a range of
matters because they are
skilled business
professionals. As accountants
are subject to strict ethical
codes, they are perceived to
be trustworthy, and therefore
users of information believe
that the assurance they give
can be trusted.
Stop and think
What other information
(financial and non-financial)
might users want assurance
in relation to?
4 Assurance
Working context
As an audit is a legal
requirement for many
companies, many of you are
likely to carry out a lot of your
practical training in audit. You
will also focus on audit when
you come to study for the
Audit and Assurance exam at
the Application stage of the
exams. The broad principles
of assurance services can be
applied to many different
engagements which may be
carried out by your firm.
Approach
Read through Chapter 1 carefully.
Make sure you understand what
an assurance engagement is and
the different levels of assurance
which it can provide depending
on the specific nature of the
engagement. You should also be
familiar with the objective of an
audit and the meaning of 'true'
and 'fair'.
Attempt the Interactive questions
and the Self-test questions to
confirm your understanding of the
topics covered in this chapter.
Due
Syllabus references and exam context Date
It is crucial to the whole syllabus that you understand the
concept of assurance, why it is required and the reason for
assurance engagements being carried out by appropriately
qualified professionals. You can therefore expect to see
questions in the exam testing your understanding of the
definition of assurance and the different levels of assurance.
In the sample paper, the first five questions relate to the
subject matter you will cover in this chapter.
In the assessment, students may be required to:
 define the concept of assurance;
 state why users desire assurance reports and provide
examples of the benefits gained from them such as to
assure the quality of an entity’s published corporate
responsibility or sustainability report;
 compare the functions and responsibilities of the
different parties involved in an assurance engagement;
 compare the purposes and characteristics of, and levels
of assurance obtained from, different assurance
engagements;
 identify the issues which can lead to gaps between the
outcomes delivered by the assurance engagement and
the expectations of users of the assurance reports, and
suggest how these can be overcome; and
• define the concept of reasonable assurance.
Specific syllabus references for this chapter are:
1a, b, c, d, e, h.
ICAEW 2019
 Study
Period Practical significance
2 Process of assurance:
obtaining an engagement
In practice, the matters
covered in this chapter are
very important to assurance
firms. It is important to know
how to obtain clients and
therefore secure future
revenue. It is important to
only accept clients which the
firm is able to serve and
engagements which the firm
has the resources to carry
out. It is particularly
important that all parties
understand the nature of the
work that will be carried out,
as this may prevent disputes
and problems later on.
Another important area for
practitioners is the increased
client awareness and
identification procedures
required to guard against
involvement in money
laundering.
Stop and think
Given the problems with
assurance noted in the
previous chapter, how can
assurance firms ensure that
their clients understand the
services they are being
offered?
ICAEW 2019
Due
Working context Approach Syllabus references and exam context Date
During your training, you are Read through sections 1 and 2 of This is a fairly minor area for the exam, but you could expect
unlikely to be involved in Chapter 2 paying particular at least one question on the scope of the engagement (there
obtaining clients or attention to the appointment was a question about engagement letters in the sample
determining whether an decision chart. You should also paper) and possibly another on the considerations of the
engagement is going to be attempt Interactive questions 1 assurance firm when deciding to accept engagements.
accepted. However, if you and 2.
In the assessment, students may be required to:
continue in your career to
Read through section 3 and make  define the assurance process, including:
higher levels, even
sure you understand the purpose
partnership, then these will – obtaining the engagement
of the engagement letter.
be important practical issues – continuous risk assessment
for you. Complete all remaining Interactive – engagement acceptance
and Self-test questions. – the scope of the engagement
However, you are the face of
the assurance firm when
The specific syllabus reference for this chapter is: 1f.
carrying out engagements,
and you may be in a position
where it is necessary to clarify
the scope of the work that
you are carrying out to aid a
client's understanding. In
such a case, it might be
necessary to refer to the
terms of engagement
between the firm and the
client, and it will be important
that you understand what you
are talking about, if asked.
Study Guide 5
 Study
Period Practical significance
3 Process of assurance:
planning the assignment
Every piece of assurance
work carried out by a firm
should be planned, therefore
this chapter covers an area of
huge practical significance.
Stop and think
Why do practitioners plan
assurance work?
6 Assurance
Working context
As you become more senior
in your firm you are more
likely to become involved in
planning work. However, you
may carry out risk assessment
procedures from an early
stage. You will be involved in
the required discussion
relating to audit planning that
must involve all members of
the audit team whenever you
are assigned to an audit.
Due
Approach Syllabus references and exam context Date
Chapter 3 introduces a number of Planning and risk are key issues for assurance providers and
important auditing concepts and you should expect this area to come up in your assessment.
principles so work through it Ensure that you understand the definitions that are set out in
carefully. this chapter, since all could be examined. In addition, work
Read through section 1. Make sure through the examples and questions in the chapter
you can distinguish between the identifying risks, as your assessment could include a question
audit strategy and the audit plan. in such an area.
You must also be familiar with the In the assessment students may be required to:
ways in which the auditor will
obtain an understanding of the  define the assurance process, including:
entity including the various – planning the engagement;
sources of information.
 recognise the need to plan and perform assurance
Section 2 introduces analytical engagements with an attitude of professional
procedures. Work through the scepticism and the exercise of professional judgement;
Worked example and make sure and
you attempt the Interactive
question on this topic.  recognise the characteristics of fraud and distinguish
between fraud and error.
Materiality is one of the key
concepts in auditing. You must be Specific syllabus references for this chapter are: 1f, g, i.
familiar with the definitions of
materiality and performance
materiality, and must understand
their impact on the audit overall.
Section 4 deals with audit risk,
another key concept. Look
carefully at the components of
audit risk and the way in which
they interact.
Complete all the Interactive and
Self-test questions.
ICAEW 2019
 Study
Period Practical significance
4 Process of assurance:
evidence and reporting
Obtaining evidence is the
biggest part of any assurance
engagement, as the
practitioner needs to be able
to justify the conclusion
which he publishes.
Therefore understanding the
basics of evidence collection
is extremely important.
Similarly, the report is the
published product of the
assurance engagement and
therefore is also very
important in practice for both
assurance providers and
users of information.
Stop and think
How much evidence is
enough evidence?
ICAEW 2019
Working context
While training, it is more likely
that you will be involved in
evidence collection than in
preparing reports, but the
conclusions being drawn
from the work you do in
evidence collection will be
feeding through into the
ultimate report.
Approach
Section 1 of Chapter 4 is
important as it introduces some of
the basic definitions and principles
of audit evidence which are
developed in later chapters. Read
through this section carefully and
attempt Interactive question 1.
Section 2 deals with reporting.
You must be aware of the basic
content of an unqualified audit
report, and in particular the
opinion given. Also note
section 2.4 on other reports.
Finally complete all the Self-test
questions to confirm your
understanding of the topics
covered in this chapter.
Due
Syllabus references and exam context Date
Evidence is a very important topic for the exam, and half of
this Study Manual is dedicated to the collection of evidence.
Gathering evidence on an assurance engagement represents
35% of the syllabus. In contrast, reporting is a minor area of
the syllabus, so you should expect no more than one or two
questions in this area.
In the assessment, students may be required to:
 define the assurance process, including:
– performing the engagement
– obtaining evidence
– evaluation of results of assurance work
– concluding and reporting on the engagement
– reporting to the engaging party;
 identify the different methods of obtaining evidence
including tests of control, substantive procedures
including analytical procedures and data analytics; and
 recognise the strengths and weaknesses of the different
methods of obtaining evidence.
Specific syllabus references for this chapter are: 1f, 3b, c.
Study Guide 7
 Study
Period Practical significance
5 Introduction to internal
control
Every company has internal
controls. Auditing standards
require auditors to consider
whether to rely on the entity's
controls as part of their audit.
This will be the case in two
instances:
(1) Where the auditors' risk
assessment includes an
expectation of the
operating effectiveness
of internal controls (so
controls testing must be
carried out to support
the risk assessment)
(2) Where substantive
procedures alone do
not provide sufficient
evidence
A company's internal
controls will be important in
the majority of audits,
regardless of the size of the
company being audited and
the sector it is in.
Stop and think
Why are internal controls so
important to an auditor?
8 Assurance
Working context
If you work in practice you are
likely to be involved with the
audit department in some
way. You may be involved in
a wide range of different
types of audit, or you may
have specialised in a
particular sector. However, all
companies have internal
controls and many audits
involve controls testing, so
this is an area you will have or
will gain practical experience
in. If so, think about an
example of controls testing
you have been involved in.
Remember the controls you
were testing and try to think
back to what the objectives of
the control were and how you
tested them. It is this skill of
recognising the purpose of
controls and therefore how to
test them that will be
important both in practice
and in your assessment.
If you work in a finance
department in industry you
are likely to be involved in the
operation of a number of
controls relating to the
financial statements. Think
through the controls you
regularly implement and
consider the objectives
behind them.
Approach
Chapter 5 is important as it
provides an introduction to
internal control. The principles
introduced here are developed for
specific transaction cycles in
Chapters 6–8.
You need to be able to view this
topic from both the business's
point of view and that of the
auditor. As you are reading the
chapter, notice that it is the
responsibility of the business to
implement and maintain a system
of internal controls. The auditor
then records and assesses the
system as part of the audit
process.
Due
Syllabus references and exam context Date
Internal control is an important practical area in auditing. It is
therefore 25% of the syllabus and you should expect that to
be reflected in your assessment. In the sample paper there
were 15 questions on internal control related issues. This is
the first chapter of four in this area.
In the assessment students may be required to:
 state the reasons for organisations having effective
systems of controls;
 identify the fundamental principles of effective control
systems;
 identify the main areas of a business that need effective
control systems;
 identify the components of internal control in both
manual and IT environments, including:
– the overall control environment
– preventative and detective controls
– internal audit;
 define and classify different types of internal control,
with particular emphasis upon those which impact upon
the quality of financial information; and
 identify, for a specified organisation, the sources of
information which will enable a sufficient record to be
made of accounting or other systems and internal
controls.
Specific syllabus references for this chapter are:
2a, b, c, d, e, f, i.
ICAEW 2019
 Study Due
Period Practical significance Working context Approach Syllabus references and exam context Date

6 Revenue system As almost all companies Chapter 6 looks at internal control As the sales system is an important practical area, your
make sales, you are likely to within the revenue cycle taking assessment might well include a scenario internal controls
The revenue (sales) system is
be involved with sales each stage of the cycle in turn. This question in this area. The sample paper contained one
usually the most important
transactions at some point in is an important chapter as question looking at strengths and weaknesses in a given
system in a business. Most
your career either recording questions in your assessment may sales system.
companies operate on a
them or auditing them, or require application of knowledge
credit basis, that is, they In the assessment, students may be required to:
analysing them to see if they to a specific scenario. Read
invoice for goods when  show how specified internal controls mitigate risk,
are subject to tax. Due to the through sections 1–4 carefully.
despatched to customers including cyber risks, and state their limitations;
fact that sales usually Make sure you understand the
and then collect the cash at a
comprise a large number of difference between the control  identify internal controls for an organisation in a given
later date. Obviously it is
similar transactions, objectives, controls and tests of scenario;
important for companies to
assurance providers often controls. Attempt Interactive
ensure that they invoice  identify internal control deficiencies in a given scenario;
test controls over sales rather questions 1–4.
promptly and collect cash and
than carrying out substantive
promptly, to ensure that they Section 5 looks at a particular way  select appropriate methods of obtaining evidence from
tests. It is therefore crucial
have sufficient capital to in which this topic could be tests of control and from substantive procedures for a
that you understand the key
continue operating. examined. Make sure you attempt given business scenario.
aspects of a receivables
Interactive question 5.
Some companies, particularly system and are able to apply
Specific syllabus references for this chapter are: 2f, g, h; 3f.
retail or hospitality these when they are relevant Complete all Self-test questions.
companies, operate on a and not to particular
cash basis. This means that businesses.
they do not extend a period
of credit for sales but are
paid cash or cash equivalents
(for example, cheques or
credit card payments) at the
time of sale. In such
businesses, some of the
issues outlined in this chapter
will be irrelevant.
Stop and think
What are the key risks to a
business in terms of sales
income when cash is
collected at point of sale?

ICAEW 2019 Study Guide 9

 Study
Period Practical significance
7 Purchases system
The purchases system is
another important system in
a business. More so than in
the case of sales, most
companies operate on a
credit basis, that is, they are
invoiced for goods when
those goods are despatched
to them and then pay later. It
is important for companies to
ensure that they have an
uninterrupted supply of the
goods and services they
need in order for their
business to function. Key
issues are therefore choosing
the right suppliers and
negotiating good credit
terms, then managing
payments so as to create the
correct balance between
keeping suppliers happy and
making the most of the credit
available.
Stop and think
What are the key risks to a
business when they make
purchases on credit?
10 Assurance
Working context
As almost all companies
make purchases, you are
likely to be involved in
purchases at some point in
your career, whether
recording them or analysing
them or providing assurance
on them. Similarly to sales,
purchases usually comprise a
large number of similar
transactions, and therefore
they are often tested by
testing controls. It is therefore
crucial that you understand
the key aspects of a
purchases system and are
able to determine whether
they are relevant to particular
businesses.
Approach
The format of Chapter 7 is very
similar to that of Chapter 6. Again
the key issues are the control
objectives at the various stages of
the cycle and the tests of controls
which the auditor might perform
to determine whether the controls
are operating effectively. Make
sure you are familiar with both of
these aspects within the context of
the purchases cycle.
Also note section 4 on the
identification of weaknesses and
attempt Interactive question 5.
Due
Syllabus references and exam context Date
As purchases is another important practical area, your
assessment might well include scenario internal controls
questions in this area. The sample paper contained one such
scenario question looking at consequences of given
weaknesses in a purchases system.
In the assessment, students may be required to:
 show how specified internal controls mitigate risk,
including cyber risks, and state their limitations;
 identify internal controls for an organisation in a given
scenario;
 identify internal control deficiencies in a given
scenario; and
 select appropriate methods of obtaining evidence from
tests of control and from substantive procedures for a
given business scenario.
Specific syllabus references for this chapter are: 2f, g, h; 3f.
ICAEW 2019
 Study
Period Practical significance
8 Employee costs
The payroll system is another
important system in a
business. Most employees
work best when they are paid
on time! Obviously it is
important for companies to
ensure that they keep their
employees happy.
Stop and think
What are the key risks to a
business in terms of paying
salaries and wages?
9 Internal audit
Many larger companies have
internal audit departments as
they are generally
considered to be an
important part of good
management of a company.
Most large audit firms also
offer internal audit services
as well as external audit
services.
Stop and think
Might there be any problems
associated with offering both
external and internal audit
services?
ICAEW 2019
Working context
Due to the fact that payroll
usually comprises a large
number of similar
transactions, they are often
tested by testing controls,
although the fact that payroll
costs are also predictable
means that analytical
procedures are also often
used. Payroll can be an area
that is subject to frauds, for
example, fictitious employees
may be inserted into the
payroll. It is important that
you understand the key
aspects of a payroll system
and are able to identify
weaknesses in a given
system.
If you work in a large or mid-
tier firm you are likely to
come across internal audit at
some point in your training,
either liaising with them or
reviewing their work as part
of an external audit. Some of
you may carry out some or all
of your training as an internal
auditor.
Approach
Chapter 8 continues the theme of
internal controls but applied to the
payroll cycle. Again, you must be
familiar with the key control
objectives and tests of controls at
each stage of the cycle. Attempt
Interactive questions 1–3.
Work through section 4 and
attempt Interactive question 4.
Complete all Self-test questions.
This is a brief chapter but includes
some important information. Read
through sections 1 and 2 paying
particular attention to the
distinction between the internal
and the external auditor and the
role of internal audit.
You should also complete all of
the Interactive and Self-test
questions.
Due
Syllabus references and exam context Date
As payroll is an important practical area, your assessment
might well include scenario internal controls questions in this
area. The sample paper contained a number of questions
focused on payroll controls.
In the assessment, students may be required to:
 show how specified internal controls mitigate risk,
including cyber risks, and state their limitations;
 identify internal controls for an organisation in a given
scenario;
 identify internal control deficiencies in a given scenario;
and
 select appropriate methods of obtaining evidence from
tests of control and from substantive procedures for a
given business scenario.
Specific syllabus references for this chapter are: 2f, g, h; 3f.
A question on this topic is likely to be included in your
assessment as one of the questions on internal controls.
In the assessment, students may be required to identify the
components of internal control in both manual and IT
environments, including internal audit.
In addition, students may be required to:
 identify the components of internal control in both
manual and IT environments, including:
– internal audit.
The specific syllabus reference for this chapter is: 2d.
Study Guide 11
 Study
Period Practical significance
10 Documentation
Assurance providers need to
keep working papers about
the work they have done for
clients, so assurance firms
will have stores of files
relating to their clients. They
are required to keep them
for a set period of time and
may keep them for longer if
they feel it benefits the
relationship. These records
must be kept secure. Firms
may keep files in paper or
electronic form, which will
bring different security
problems.
Stop and think
Why are assurance providers
required to keep working
papers on the work they have
done?
12 Assurance
Working context
If you work in practice, you
will prepare working papers
from very early on in your
career, so it is important to
know the key contents of
these and the purpose of
them so that you record the
correct details within them.
Some contents are required
by ISAs, but each firm will
have a particular way of
detailing their work and
keeping their files, which you
will learn very quickly. Most
firms have pre-printed or pre-
programmed working papers
which already contain some
of the reference details that
the working papers are
required to have.
Approach
Chapter 10 deals with the
straightforward topic of audit
documentation. Read through
sections 1 and 2 and review the
sample working papers provided
which will help you to put the topic
in context.
Sections 3 and 4 are more
technical in nature so read
through them carefully. Notice the
minimum period for which audit
documents must be retained and
that they are the property of the
assurance provider.
Attempt Interactive question 1 and
the Self-test questions.
Due
Syllabus references and exam context Date
This topic is likely to be examined on a regular basis and
questions should be reasonably straightforward if you are
well prepared.
There was one question in the sample paper on
documentation, looking at the reasons behind preparing
particular pieces of documentation and whether these
reasons were valid.
In the assessment, students may be required to:
 define the assurance process, including:
– keeping records of the work performed; and
 state the reasons for preparing and keeping
documentation relating to an assurance engagement.
The specific syllabus references for this chapter are: 1f; 3a.
ICAEW 2019
 Study
Period Practical significance
11 Evidence and sampling
Evidence is what the
assurance conclusion is
based on. Therefore, in
practice, knowing what tests
to carry out and how many
items to test is an important
practical skill. Getting it
wrong may cost the firm
money, if too much work is
done, or leave the firm
exposed to negligence
claims, if insufficient work is
done. It is an area where
considerable judgement will
have to be exercised.
Stop and think
How do you think an auditor
determines how much
evidence to obtain?
ICAEW 2019
Working context
If you are training in practice,
you are likely to be involved
in obtaining evidence, but
less likely to be involved in
the more judgemental areas
of how to obtain it and how
much of it to obtain.
However, as you progress
with your training, you will be
given opportunity to make
judgements in this area. You
will be expected to draw
conclusions from the audit
work you have undertaken
from an early stage. It is
important therefore to
understand why you are
carrying out a particular test
and what you intend to
achieve by it.
Approach
Section 1.1 of this chapter picks
up on some of the points on
evidence introduced in Chapter 4.
Review these points briefly as they
should be familiar. Then read
through sections 1.2–1.6. Notice in
particular the different procedures
which can be used to obtain
evidence and the way in which
CAATs may be used.
Section 1.4 considers analytical
procedures as a substantive
procedure. You will have come
across analytical procedures in
Chapter 3 as a planning
procedure.
Attempt Interactive question 1
before moving on.
Sections 2 and 3 look at the issue
of sampling. This is quite a
technical topic so read through it
slowly ensuring that you
understand the various definitions
as you work through. Also note the
different ways of selecting the
sample in section 2.3 and review
the Worked example. You should
attempt Interactive questions 2
and 3 to confirm your
understanding.
Finally attempt the Self-test
questions.
Due
Syllabus references and exam context Date
This is a very important part of your syllabus and the issues
discussed here and previously in Chapter 4 underpin the
following two chapters as well. You can expect a number of
practical and theoretical questions in the assessment
covering audit evidence.
In the assessment, students may be required to:
 identify and compare the different methods of
obtaining evidence from the use of tests of control, and
substantive procedures, including analytical procedures
and data analytics;
 recognise the strengths and weaknesses of the different
methods of obtaining evidence;
 identify the situations within which the different
methods of obtaining evidence should and should not
be used;
 compare the reliability of different types of assurance
evidence; and
 recognise when the quantity (including factors affecting
sample design) and quality of evidence gathered from
various tests and procedures is of a sufficient and
appropriate level, after taking account of sampling risk,
to draw reasonable conclusions on which to base a
report.
Specific syllabus references for this chapter are:
3b, c, d, e, g.
Study Guide 13
 Study
Period Practical significance
12 Written representations
Written representations are
the result of the assurance
procedure of inquiry. As
auditors commonly ask
management questions
during an audit engagement
the critical points are when
these representations should
be put into writing and how
much reliance can be placed
on them.
Stop and think
Why might assurance
providers want certain
representations made by
management to be written
down and acknowledged by
the management?
14 Assurance
Working context
When carrying out assurance
work, you are sure to ask
questions of management, so
knowing when to record
these will be important. If in
the future you are part of the
management of a company
that has assurance services, it
is important to understand
what assurance providers are
asking you to do when you
sign a written representation
letter.
Due
Approach Syllabus references and exam context Date
Chapter 12 is a short chapter but There was one question on the sample paper, relating to
looks at the important issue of written representations, dealing with their purpose. You
management representations. The should not expect more than one or two questions on this
key issues to note are the general area in your assessment.
matters which are included in the
In the assessment, students may be required to:
letter of representation and the
instances where other specific  identify the circumstances in which written confirmation
issues may be addressed. It is of representations from management should be sought
important to note that and the reliability of such confirmation as a form of
management representations assurance evidence.
cannot be a substitute for audit
The specific syllabus reference for this chapter is: 3h.
evidence which should be
available.
Read through sections 1 and 2.
Then review the example of the
management representation letter
in section 3.
Finally attempt Interactive
question 1 and the Self-test
questions.
ICAEW 2019
 Study
Period Practical significance
13 Substantive procedures – key
financial statement figures
This chapter (on substantive
testing), in conjunction with
Chapters 6–8 (on tests of
controls), covers the
powerhouse of assurance
provision. It has been said in
this Study Manual that the
collection of evidence is a
vital part of the assurance
engagement. Remember the
results of tests of controls
may allow assurance
providers to reduce tests of
detail but that substantive
testing can never be
eliminated entirely. In this
chapter, the practical tests
that are regularly carried out
by assurance providers are
looked at. In an audit, all of
the financial statement
assertions would be looked
at. In a different assurance
engagement, particular
assertions might be focused
on.
Stop and think
Think back to the issues of
quality of evidence discussed
in Chapter 11. What sources
of evidence do you think
there are in respect of the
balances to be discussed in
this chapter?
ICAEW 2019
Working context
If you work in practice and
carry out assurance work, you
could be involved in carrying
out any of the tests outlined
here.
Due
Approach Syllabus references and exam context Date
This is a detailed chapter which Questions about assurance evidence could be set in the
looks at the specific audit context of any balances outlined in this chapter.
procedures which are applied to
In the assessment, students may be required to:
key financial statement figures.
Read through section 1. Notice  select appropriate methods of obtaining evidence from
the way in which the procedures tests of control and from substantive procedures for a
address the financial statement given business scenario; and
assertions.  recognise issues arising while gathering assurance
In section 2 the key issue is the evidence that should be referred to a senior colleague.
auditor's attendance at the Specific syllabus references for this chapter are: 3f, i.
inventory count. Work through the
Worked example taking particular
note of the procedures performed
by the auditor before, during and
after the count.
Section 3 deals with the audit of
receivables. Make sure you
understand the difference
between the positive method of
confirmation and the negative
method and the circumstances in
which these would be used.
In section 4 the key points to note
are the procedures for confirming
information about a client with the
bank and the performance of the
bank reconciliation. Read through
section 4 carefully and review the
bank reconciliation in the Worked
example.
Then read through sections 5–7.
For the audit of payables notice
the importance of the
reconciliation of supplier
statements.
Study Guide 15
 Study
Period Practical significance
14 Codes of professional ethics
Professional ethics is of
critical importance to
accounting professionals.
Remember in Chapter 1
where we set out that one
reason people seek
assurance from accountants
is that they are independent,
impartial people? That is due
to their code of ethics. Ethical
issues are important for all
accountants, from trainees to
partners.
Stop and think
What ethical issues might
arise for trainees that are less
likely to arise for partners?
And vice versa?
16 Assurance
Working context
If a trainee in practice is at a
client carrying out assurance
work, he could be faced with
ethical decisions, such as if
client staff are trying to
influence him as to the
appropriateness of a
particular accounting policy,
in which case he should refer
the matter to his assurance
senior.
Approach
Chapter 14 introduces the
concept of ethical behaviour and
sets out the sources of guidance
on this issue. Specific aspects of
ethical behaviour are then
developed in Chapters 15 and 16.
Read through sections 1–4. Make
sure you understand that ethical
guidance can be found in the
IESBA Code, the ICAEW Code and
the 2016 FRC Ethical Standard.
Also note the nature of the
guidance, ie, it is in the form of a
framework rather than a set of
specific rules.
Finally, complete Interactive
question 1 and the Self-test
questions.
Due
Syllabus references and exam context Date
Ethics is 20% of the syllabus, and therefore in the sample
paper, there were ten questions on ethics. These were a
combination of questions about general ethical concepts and
principles, which we shall look at in this chapter, and more
detailed ethical threats and safeguards, which we shall look
at in the next two chapters.
In the assessment, students may be required to:
 state the role of ethical codes and their importance to
the profession;
 recognise the differences between a rules-based ethical
code and one based upon a set of principles;
 recognise how the principles of professional behaviour
protect the public and fellow professionals;
 identify the key features of the system of professional
ethics adopted by IESBA and ICAEW; and
 identify the fundamental principles underlying the
IESBA and the ICAEW Code of Ethics.
Specific syllabus references for this chapter are :
4a, b, c, d, e.
ICAEW 2019
 Study
Period Practical significance
15 Integrity, objectivity and
independence
We outlined in the previous
chapter the importance of
professional ethics.
Stop and think
How should an accountancy
trainee respond if the
demands of his firm seem to
contradict the requirements
of his ethical duty?
ICAEW 2019
Working context
Issues relating to integrity
and objectivity tend to be
thought of at the beginning
of the engagement and when
deciding to accept clients,
and in practice, this will be
left to the partners, not to a
trainee. However, it should be
continually reappraised, so
you should be aware of
factors arising during
assurance engagements that
might affect independence
and be prepared to make
senior staff aware of them.
You may also find yourself in
difficult ethical situations,
such as being invited to
accept gifts or hospitality
from clients or finding you
inherit shares in a client
company.
If you work in industry the
onus will be on you even
more to review your own
ethical compliance.
Approach
Sections 1 and 2 deal with the key
ethical issue of independence so
read through these carefully.
Questions are likely to test this
topic in detail so you need to have
a thorough understanding of this
area.
You must be familiar with the basic
principle behind the importance
of independence and objectivity
so do not underestimate the
importance of section 1. Then
move on to section 2. There is a
lot of detail here so work through
it methodically, taking note of the
different threats and safeguards.
Attempt Interactive questions 1
and 2 to confirm your
understanding.
Sections 3 and 4 deal with the way
in which ethical conflicts are
resolved. Read these sections and
try Interactive questions 3 and 4.
Finally, attempt the Self-test
questions.
Due
Syllabus references and exam context Date
As we saw in the previous chapter, ethics is an important area
for your exam. The sample paper contained six practical,
scenario-based questions about issues relating to
independence. In addition, there was a question on a conflict
for an employed accountant working in industry between the
needs of his employer and his professional duty.
In the assessment, students may be required to:
 recognise the importance of integrity and objectivity to
professional accountants, identifying situations that may
impair or threaten integrity and objectivity;
 suggest courses of action to resolve ethical conflicts
relating to integrity and objectivity;
 respond appropriately to the request of an employer to
undertake work outside the confines of an individual's
expertise or experience;
 define independence and recognise why those
undertaking an assurance engagement are required to
be independent of their clients;
 identify the following threats to the fundamental ethical
principles and the independence of assurance
providers:
– self-interest threat
– self-review threat
– management threat
– advocacy threat
– familiarity threat
– intimidation threat;
 identify safeguards to eliminate or reduce threats to the
fundamental ethical principles and the independence of
assurance providers; and
 suggest how a conflict of loyalty between the duty a
professional accountant has to their employer and the
duty to their profession could be resolved.
Specific syllabus references for this chapter are:
4f, g, h, l, m, n, o.
Study Guide 17
 Study Due
Period Practical significance Working context Approach Syllabus references and exam context Date

16 Confidentiality Any person carrying out Read through Chapter 16. The key Two of the ten ethics questions in the sample paper touched
professional accountancy point to understand is that on confidentiality.
Confidentiality is an
work is likely to obtain confidentiality is a fundamental
important practical matter for In the assessment, students may be required to:
confidential information. In principle. Learn the safeguards to
clients and assurance  recognise the importance of confidentiality and identify
practice, therefore, it is as confidentiality in section 2. There
providers. Clients are the sources of risks of accidental disclosure of
important an issue to trainees are a limited number of
exercising a degree of trust information;
as to partners. circumstances where disclosure is
in their assurance providers,
allowed. Read these carefully in  identify steps to prevent the accidental disclosure of
giving them unprecedented
section 3 together with the points information; and
access to information about
on money laundering.
the company which most  identify situations in which confidential information may
companies would believe to You should also complete the be disclosed.
be sensitive, and in some Interactive question and the Self-
Specific syllabus references for this chapter are: 4i, j, k.
cases, highly commercial. test questions.
Assurance providers are
bound by the principle of
confidentiality, but this duty
is not absolute. It can be a
delicate matter deciding
when an issue is confidential
and cannot be disclosed,
when a matter is not
confidential and can be
disclosed, or, most
problematically, when a
matter is confidential but
must still be disclosed to the
appropriate authorities.
Stop and think
When might an accountant
have to breach the
fundamental principle of
professional confidentiality to
make required disclosures?

18 Assurance ICAEW 2019

3 Syllabus and learning outcomes
Covered
in chapter

1 The concept, process and need for assurance

Students will be able to explain the concept of assurance, why assurance is required and the
reasons for assurance engagements being carried out by appropriately qualified professionals.
In the assessment, students may be required to:
(a) define the concept of assurance; 1
(b) state why users desire assurance reports and provide examples of the benefits
gained from them such as to assure the quality of an entity's published
corporate responsibility or sustainability report; 1
(c) compare the functions and responsibilities of the different parties involved in
an assurance engagement; 1
(d) compare the purposes and characteristics of, and levels of assurance obtained
from, different assurance engagements; 1
(e) identify the issues which can lead to gaps between the outcomes delivered by
the assurance engagement and the expectations of users of the assurance
reports, and suggest how these can be overcome; 1
(f) define the assurance process, including: 2, 3, 4, 10
 obtaining the engagement
 continuous risk assessment
 engagement acceptance
 the scope of the engagement
 planning the engagement
 performing the engagement
 obtaining evidence
 evaluation of results of assurance work
 concluding and reporting on the engagement
 reporting to the engaging party
 keeping records of the work performed;
(g) recognise the need to plan and perform assurance engagements with an
attitude of professional scepticism and the exercise of professional judgement; 3
(h) define the concept of reasonable assurance; and 1
(i) recognise the characteristics of fraud and distinguish between fraud and error. 3

ICAEW 2019 Study Guide 19

 Covered
in chapter

2 Internal controls
Students will be able to explain the nature of internal controls and why they are important,
document an organisation's internal controls and identify weaknesses in internal control
systems.
In the assessment, students may be required to:
(a) state the reasons for organisations having effective systems of control; 5
(b) identify the fundamental principles of effective control systems; 5
(c) identify the main areas of a business that need effective control systems; 5
(d) identify the components of internal control in both manual and IT
environments, including: 5, 9
 the overall control environment
 preventative and detective controls
 internal audit;
(e) define and classify different types of internal control, with particular emphasis
upon those which impact upon the quality of financial information; 5
(f) show how specified internal controls mitigate risk, including cyber risks,
and state their limitations; 5, 6, 7, 8
(g) identify internal controls for an organisation in a given scenario; 6, 7, 8
(h) identify internal control deficiencies in a given scenario; and 6, 7, 8
(i) identify, for a specified organisation, the sources of information which will
enable a sufficient record to be made of accounting or other systems and
internal controls. 5

3 Gathering evidence on an assurance engagement

Students will be able to select sufficient and appropriate methods of obtaining assurance
evidence and recognise when conclusions can be drawn from evidence obtained or where
issues need to be referred to a senior colleague.
In the assessment, students may be required to:
(a) state the reasons for preparing and keeping documentation relating to an
assurance engagement; 10
(b) identify the different methods of obtaining evidence from the use of tests of
control, substantive procedures, including analytical procedures and data
analytics; 11
(c) recognise the strengths and weaknesses of the different methods of obtaining
evidence; 11
(d) identify the situations within which the different methods of obtaining
evidence should and should not be used; 11
(e) compare the reliability of different types of assurance evidence; 11
(f) select appropriate methods of obtaining evidence from tests of control and
from substantive procedures for a given business scenario; 6, 7, 8, 13
(g) recognise when the quantity (including factors affecting sample design) and
quality of evidence gathered is of a sufficient and appropriate level, after taking
account of sampling risk, to draw conclusions on which to base a report; 11

20 Assurance ICAEW 2019

 Covered
in chapter
(h) identify the circumstances in which written confirmation of representations
from management should be sought and the reliability of such confirmation as
a form of assurance evidence; and 12
(i) recognise issues arising whilst gathering assurance evidence that should be
referred to a senior colleague. 13

4 Professional ethics
Students will be able to understand the importance of ethical behaviour to a professional and
identify issues relating to integrity, objectivity, professional competence and due care,
confidentiality, professional behaviour and independence.
In the assessment, students may be required to:
(a) state the role of ethical codes and their importance to the profession; 14
(b) recognise the differences between a rules based ethical code and one based
upon a set of principles; 14
(c) recognise how the principles of professional behaviour protect the public and
fellow professionals; 14
(d) identify the key features of the system of professional ethics adopted by IESBA
and ICAEW; 14
(e) identify the fundamental principles underlying the IESBA and the ICAEW Code
of Ethics; 14
(f) recognise the importance of integrity and objectivity to professional
accountants, identifying situations that may impair or threaten integrity and
objectivity; 15
(g) suggest courses of action to resolve ethical conflicts relating to integrity and
objectivity; 15
(h) respond appropriately to the request of an employer to undertake work outside
the confines of an individual's expertise or experience; 15
(i) recognise the importance of confidentiality and identify the sources of risks of
accidental disclosure of information; 16
(j) identify steps to prevent the accidental disclosure of information; 16
(k) identify situations in which confidential information may be disclosed; 16
(l) define independence and recognise why those undertaking an assurance
engagement are required to be independent of their clients; 15
(m) identify the following threats to the fundamental ethical principles and the
independence of assurance providers:
 Self-interest threat
 Self-review threat
 Management threat
 Advocacy threat
 Familiarity threat
 Intimidation threat; 15
(n) identify safeguards to eliminate or reduce threats to the fundamental ethical
principles and the independence of assurance providers; and 15
(o) suggest how a conflict of loyalty between the duty a professional accountant
has to their employer and the duty to their profession could be resolved. 15

ICAEW 2019 Study Guide 21

 4 Technical knowledge grid

4.1 Technical knowledge

The tables contained in this section show the technical knowledge in the disciplines of financial
reporting, audit and assurance, business analysis, ethics and taxation covered in the ACA
syllabus by module.
For each individual standard the level of knowledge required in the relevant Certificate and
Professional level module and at the Advanced Level is shown.
The knowledge levels are defined as follows:
Level D
An awareness of the scope of the standard.
Level C
A general knowledge with a basic understanding of the subject matter and training in its
application sufficient to identify significant issues and evaluate their potential implications or
impact.
Level B
A working knowledge with a broad understanding of the subject matter and a level of
experience in the application thereof sufficient to apply the subject matter in straightforward
circumstances.
Level A
A thorough knowledge with a solid understanding of the subject matter and experience in the
application thereof sufficient to exercise reasonable professional judgement in the application
of the subject matter in those circumstances generally encountered by Chartered Accountants.
Key to other symbols:
 The knowledge level reached is assumed to be continued

22 Assurance ICAEW 2019

 Assurance and Audit

Assurance

Assurance

Advanced
Audit and
Topic

Level
The International Auditing and Assurance Standards Board D C

The Authority Attaching to Standards Issued by the International Auditing C A

and Assurance Standards Board

The Authority Attaching to Practice Statements Issued by the A

International Auditing and Assurance Standards Board

Discussion Papers C

Working Procedures C

International Standards on Auditing (UK)

200 (Revised June 2016) Overall Objectives of the Independent Auditor B A 

and the Conduct of an Audit in Accordance with International Standards
on Auditing (UK)

210 (Revised June 2016) (Updated July 2017) Agreeing the Terms of B 
Audit Engagements

220 (Revised June 2016) (Updated July 2017) Quality Control for an B 
Audit of Financial Statements

230 (Revised June 2016) Audit Documentation C B A

240 (Revised June 2016) (Updated July 2017) The Auditor's C B A

Responsibilities Relating to Fraud in an Audit of Financial Statements

250 A (Revised December 2017) Consideration of Laws and Regulations B A

in an Audit of Financial Statements

250 B (Revised June 2016) The Auditor's Right and Duty to Report to C
Regulators of Public Interest Entities and Regulators of Other Entities in
the Financial Sector

260 (Revised June 2016) (Updated July 2017) Communication with B A

Those Charged with Governance

265 Communicating Deficiencies in Internal Control to Those Charged B A

with Governance and Management

300 (Revised June 2016) Planning an Audit of Financial Statements B A 

ICAEW 2019 Study Guide 23

 Assurance

Assurance

Advanced
Audit and
Topic

Level
315 (Revised June 2016) Identifying and Assessing the Risks of Material C A 
Misstatement Through Understanding of the Entity and its Environment

320 (Revised June 2016) (Updated July 2017) Materiality in Planning and C A 
Performing an Audit

330 (Revised July 2017) The Auditor's Responses to Assessed Risks C B A

402 Audit Considerations Relating to an Entity Using a Service C B

Organisation

450 (Revised June 2016) (Updated July 2017) Evaluation of C A

Misstatements Identified during the Audit

500 (Updated July 2017) Audit Evidence B A 

501 Audit Evidence – Specific Considerations for Selected Items B A

505 (Updated July 2017) External Confirmations (Revised July 2017) B B A

510 (Revised June 2016) Initial Audit Engagements – Opening Balances C B A

520 Analytical Procedures B A A

530 Audit Sampling B B A

540 (Revised June 2016) Auditing Accounting Estimates, Including Fair C B A

Value Accounting Estimates, and Related Disclosures

550 Related Parties C B A

560 Subsequent Events B A

570 (Revised June 2016) Going Concern A 

580 Written Representations C B A

600 (Revised June 2016) Special Considerations – Audits of Group C A

Financial Statements (including the Work of Component Auditors)

610 (Revised June 2013) Using the Work of Internal Auditors C B A

620 (Revised June 2016) Using the Work of an Auditor's Expert B A

24 Assurance ICAEW 2019

 Assurance

Assurance

Advanced
Audit and
Topic

Level
700 (Revised June 2016) Forming an Opinion and Reporting on Financial B A 
Statements

701 Communicating Key Audit Matters in the Independent Auditor's B A

Report

705 (Revised June 2016) Modifications to the Opinion in the A 

Independent Auditor's Report

706 (Revised June 2016) Emphasis of Matter Paragraphs and Other A 

Matter Paragraphs in the Independent Auditor's Report

710 Comparative Information – Corresponding Figures and Comparative B A

Financial Statements

720 The Auditor's Responsibility Relating to Other Information B A

800 Special Considerations – Audits of Financial Statements prepared in B A

Accordance with Special Purpose Frameworks

805 (Revised October 2016) Special Considerations – Audits of Single B A

Financial Statements and Specific Elements, Accounts or items of a
Financial Statement

International Standards on Auditing

810 (Revised) Engagements to Report on Summary Financial Statements B

International Auditing Practice Note (IAPN)

1000 Special Considerations in Auditing Financial Instruments B

International Standards on Review Engagements (ISREs)

2400 (Revised September 2012) Engagements to Review Historical C B

Financial Statements

International Standards on Review Engagements (UK & Ireland)

2410 Review of Interim Financial Information Performed by the C B

Independent Auditor of the Entity

International Standards on Assurance Engagements (ISAEs)

3000 (Revised) Assurance Engagements Other than Audits or Reviews of C B

Historical Financial Information

ICAEW 2019 Study Guide 25

 Assurance

Assurance

Advanced
Audit and
Topic

Level
3400 The Examination of Prospective Financial Information C A

3402 Assurance Reports on Controls at a Service Organisation C B

3410 Assurance Engagements on Greenhouse Gas Statements C 

International Standards on Related Services (ISRSs)

4400 Engagements to Perform Agreed-upon Procedures Regarding B

Financial Information

4410 Compilation Engagements (Revised March 2012) B

IAASB Statements

ISQC1 (Revised June 2016) (Updated July 2017) Quality Control for Firms C B
that Perform Audits and Reviews of Financial Statements, and Other
Assurance and Related Services Engagements

Other Guidance

Bulletin (October 2016): Compendium of Illustrative Auditor's Reports on B B

United Kingdom Private Sector Financial Statements for periods
commencing on or after 17 June 2016

FRC Briefing Paper B B

Professional Scepticism – establishing a common understanding and
reaffirming its central role in delivering audit quality

26 Assurance ICAEW 2019

 Ethics Codes and Standards
Ethics Codes and Standards title Level Modules

IESBA Code of Ethics for Professional Certificate Level

Accountants C/D Accounting
(parts A, B and C and Definitions) B Assurance
C/D Business, Technology and Finance
ICAEW Code of Ethics D Law
C Management Information
C Principles of Taxation

Professional Level
A Audit and Assurance
B Business Strategy and Technology
B Financial Accounting and
Reporting
B/C Financial Management
B Tax Compliance
B Business Planning

FRC Revised Ethical Standard (2016)
Advanced Level
A Corporate Reporting
A Strategic Business Management
A Case Study
B Assurance
A Audit and Assurance

Advanced Level
A Corporate Reporting
A Strategic Business Management
A Case Study

ICAEW 2019 Study Guide 27

5 Glossary of terms
Analytical procedures Evaluations of financial information through analysis of plausible
relationships among both financial and non-financial data. Analytical
procedures also encompass such investigation as is necessary of
identified fluctuations or relationships that are inconsistent with other
relevant information or that differ from expected values by a significant
amount.
They include consideration of comparisons of the entity's financial
information with other information, and the consideration of
relationships among elements of financial information that would be
expected to conform to a particular pattern or between financial
information and relevant non-financial information.
Anomaly A misstatement or deviation that is demonstrably not representative of
misstatements or deviations in a population.
Application controls Manual or automated procedures that typically operate at a business
process level. Application controls can be preventative or detective in
nature and are designed to ensure the integrity of the accounting
records. Accordingly, application controls relate to procedures used to
initiate, record, process and report transactions or other financial data.
Appropriateness The measure of the quality or relevance and reliability of the audit
evidence.
Assurance An engagement in which a practitioner expresses a conclusion
engagement designed to enhance the degree of confidence of the intended users
other than the responsible party about the outcome of the evaluation or
measurement of a subject matter against criteria.
Assurance team (a) All members of the engagement team for the assurance
engagement
(b) All others within a firm who can directly influence the outcome of
the assurance engagement
Audit documentation The record of procedures performed, relevant evidence obtained and
(working papers) conclusions the auditor reached.
Audit evidence Information used by the auditor in arriving at the conclusions on which
the auditor's opinion is based.
Audit of financial The objective is to enable the auditor to express an opinion whether the
statements financial statements are prepared, in all material respects, in
accordance with an applicable financial reporting framework.
Audit plan An audit plan is more detailed than the strategy and sets out the nature,
timing and extent of audit procedures (including risk assessment
procedures) to be performed by engagement team members in order
to obtain sufficient appropriate audit evidence.
Audit risk The risk that the auditor expresses an inappropriate audit opinion when
the financial statements are materially misstated. Audit risk is a function
of the risks of material misstatement and detection risk.
Audit sampling The application of audit procedures to less than 100% of items within a
population of audit relevance such that all sampling units have a chance
of selection in order to provide the auditor with a reasonable basis on
which to draw conclusions about the entire population.

28 Assurance ICAEW 2019

 Audit strategy The formulation of the general strategy for the audit, which sets the
scope, timing and direction of the audit and guides the development of
the audit plan.
Audit trail A stream of evidence that permits the tracing of a transaction forward
from its inception to the appropriate ledger accounts or to vouch from
the ledger account to the inception of the transaction.
Business risk A risk resulting from significant conditions, events, circumstances,
actions or inactions that could adversely affect an entity's ability to
achieve its objectives and execute its strategies, or from the setting of
inappropriate objectives and strategies.
Close family A parent, child or sibling who is not an immediate family member.
Contingent fee A fee calculated on a predetermined basis relating to the outcome of a
transaction or the result of the services performed by the firm. A fee that
is established by a court or other public authority is not a contingent
fee.
Control activities The policies and procedures that help ensure that management
directives are carried out.
Control environment The control environment includes the governance and management
functions and the attitudes, awareness and actions of those charged
with governance and management concerning the entity's internal
control and its importance in the entity. The control environment sets
the tone of an organisation, influencing the control consciousness of its
people.
Control risk The risk that a misstatement that could occur in an assertion about a
class of transaction, account balance or disclosure and that could be
material, either individually or when aggregated with other
misstatements, will not be prevented, or detected and corrected, on a
timely basis by the entity's internal control.
Data analytics When used to obtain audit evidence in a financial statement audit, data
analytics is the science and art of discovering and analysing patterns,
deviations and inconsistencies, and extracting other useful information
in the data underlying or related to the subject matter of an audit
through analysis, modelling and visualisation for the purpose of
planning and performing the audit.
Detection risk The risk that the procedures performed by the auditor to reduce audit
risk to an acceptably low level will not detect a misstatement that exists
and that could be material, either individually or when aggregated with
other misstatements.
Direct financial A financial interest:
interest
 owned directly by and under the control of an individual or entity
(including those managed on a discretionary basis by others); or
 beneficially owned through a collective investment vehicle, estate,
trust or other intermediary over which the individual or entity has
control, or the ability to influence investment decisions.
Entity's risk A component of internal control that is the entity's process for
assessment process identifying business risks relevant to financial reporting objectives and
deciding about actions to address those risks, and the results thereof.

ICAEW 2019 Study Guide 29

 Error An unintentional misstatement in financial statements, including the
omission of an amount or a disclosure.
Fair Information is free from discrimination and bias in compliance with
expected standards and rules. The accounts should reflect the
commercial substance of the company's underlying transactions.
Financial interest An interest in equity or other security, debenture, loan or other debt
instrument of an entity, including rights and obligations to acquire such
an interest and derivatives directly related to such interest.
Financial statement Representations by management, explicit or otherwise, that are
assertions embodied in the financial statements, as used by the auditor to
consider the different types of potential misstatements that may occur.
Fraud An intentional act by one or more individuals among management,
those charged with governance, employees, or third parties, involving
the use of deception to obtain an unjust or illegal advantage.
General controls Policies and procedures that relate to many applications and support
the effective function of application controls by helping to ensure the
continued proper operation of information systems.
Immediate family A spouse (or equivalent) or a dependent.
Independence Freedom from situations and relationships that make it probable that a
reasonable and informed third party would conclude that objectivity
either is impaired or could be impaired.
Independence in The avoidance of facts and circumstances that are so significant that a
appearance reasonable and informed third party would be likely to conclude,
weighing all the specific facts and circumstances, that a firm's, or a
member of the assurance team's, integrity, objectivity or professional
scepticism has been compromised.
Independence of mind The state of mind that permits the expression of a conclusion without
being affected by influences that compromise professional judgement,
allowing an individual to act with integrity, and exercise objectivity and
professional scepticism.
Indirect financial A financial interest beneficially owned through a collective investment
interest vehicle, estate, trust or other intermediary over which the individual or
entity has no control or ability to influence investment decisions.
Information system A component of internal control that includes the financial reporting
relevant to financial system, and consists of the procedures and records established to
reporting initiate, record, process and report entity transactions (as well as events
and conditions) and to maintain accountability for the related assets,
liabilities and equity.
Informed Where the auditors believe that the member of management
management designated by the audit client to receive the results of a non-audit
service provided by the auditor has the capability to make independent
management judgements and decisions on the basis of the information
provided.
Inherent risk The susceptibility of an assertion about a class of transaction, account
balance or disclosure to a misstatement that could be material, either
individually or when aggregated with other misstatements, before
consideration of any related controls.

30 Assurance ICAEW 2019

 Integrity This means that an accountant must be straightforward and honest. It
implies fair dealing and truthfulness.
Internal audit function An appraisal activity established or provided as a service to the entity.
Its functions include, among other things, examining, evaluating and
monitoring the adequacy and effectiveness of internal control.
Internal control The process designed, implemented and maintained by those charged
with governance, management, and other personnel to provide
reasonable assurance about the achievement of an entity's objectives
with regard to reliability of financial reporting, effectiveness and
efficiency of operations and compliance with applicable laws and
regulations. The term 'controls' refers to any aspects of one or more of
the components of internal control.
Limited assurance A meaningful level of assurance, that is more than inconsequential but
is less than reasonable assurance, that engagement risk has been
reduced to an acceptable level, which then allows a conclusion to be
expressed negatively.
Management The person(s) with executive responsibility for the conduct of the
entity's operations. For some entities in some jurisdictions,
management includes some or all of those charged with governance,
for example, executive members of a governance board, or an owner-
manager.
Materiality An expression of the relative significance or importance of a particular
matter in the context of financial statements as a whole. The IFRS
Conceptual Framework for Financial Reporting states that a matter is
material if its omission or misstatement could influence the economic
decisions of users taken on the basis of the financial statements.
Misstatement A difference between the amount, classification, presentation, or
disclosure of a reported financial statement item and the amount,
classification, presentation, or disclosure that is required for the item to
be in accordance with the applicable financial reporting framework.
Misstatements can arise from error or fraud.
Money laundering The process by which criminal proceeds are sanitised to disguise their
illicit origins.
Non-sampling risk The risk that the auditor reaches an erroneous conclusion for any reason
not related to sampling risk. For example, the use of inappropriate
procedures, or misinterpretation of audit evidence and failure to
recognise a misstatement or deviation.
Non-statistical A sampling approach that does not have the characteristics of statistical
sampling sampling (see entry for statistical sampling).
Objectivity A state of mind that excludes bias, prejudice and compromise and that
gives fair and impartial consideration to all matters that are relevant to
the task in hand, disregarding those that are not.
Performance The amount or amounts set by the auditor at less than materiality for the
materiality financial statements as a whole to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality for the financial statements as a
whole.

ICAEW 2019 Study Guide 31

 Population The entire set of data from which a sample is selected and about which
an auditor wishes to draw conclusions.
Professional The application of relevant training, knowledge and experience in
judgement making informed decisions about the courses of action that are
appropriate in the circumstances of the audit engagement.
Professional An attitude that includes a questioning mind, being alert to conditions
scepticism which may indicate possible misstatement due to error or fraud, and a
critical assessment of audit evidence
Public interest entity A listed entity; and
An entity (a) defined by regulation or legislation as a public interest
entity or (b) for which the audit is required by regulation or legislation to
be conducted in compliance with the same independence
requirements that apply to the audit of listed entities. Such regulation
may be promulgated by any relevant regulator, including an audit
regulator.
Reasonable assurance A high level of assurance, that is less than absolute assurance, that
engagement risk has been reduced to an acceptably low level, which
then allows a conclusion to be expressed positively.
Sampling risk The risk that the auditor's conclusion based on a sample may be
different from the conclusion if the entire population were subjected to
the same audit procedure.
Sampling units The individual items constituting a population.
Statistical sampling An approach to sampling that has the following characteristics:
(a) Random selection of the sample items; and
(b) the use of probability theory to evaluate sample results, including
measurement of sampling risk.
Substantive Audit procedures designed to detect material misstatements at the
procedures assertion level. Substantive procedures comprise:
 tests of detail (of classes of transactions, account balances and
disclosures)
 substantive analytical procedures
Sufficiency The measure of the quantity of audit evidence.
Tests of controls Audit procedures designed to evaluate the operating effectiveness of
controls in preventing, or detecting and correcting material
misstatements at the assertion level.
Tolerable A monetary amount set by the auditor in respect of which the auditor
misstatement seeks to obtain an appropriate level of assurance that the monetary
amount set by the auditor is not exceeded by the actual misstatement in
the population.
Tolerable rate of A rate of deviation from prescribed internal control procedures set by
deviation the auditor in respect of which the auditor seeks to obtain an
appropriate level of assurance that the rate of deviation set by the
auditor is not exceeded by the actual rate of deviation in the
population.

32 Assurance ICAEW 2019

 True Information is factual and conforms with reality, not false. In addition the
information conforms with required standards and law. The accounts
have been correctly extracted from the books and records.
Valuation A combination of the making of assumptions with regard to future
developments, the application of appropriate methodologies and
techniques, and the combination of both to compute a certain value, or
range of values, for an asset, a liability or for a business as a whole.
Vouching Matching entries in the accounting records to supporting
documentation.
Walk-through A procedure that involves tracing a few transactions through the
procedure financial reporting system.
Walk-through procedures would normally be performed near the start
of the field-work stage of the audit. They involve tracing transactions
from the very beginning to the very end, in order to confirm that the
auditor has correctly understood how the controls are supposed to
operate. Walkthrough procedures aim to test the auditor's
understanding, and are not tests of controls. As such they provide no
audit evidence.

ICAEW 2019 Study Guide 33

34 Assurance ICAEW 2019