Chapter One:

Introduction and Overview of Audit and

Assurance

Auditing and Assurance Defined

Assurance engagement

Users
Practitioner
Preparer (Accountable Party)

Different Assurance Services

The most common assurance services are:
1.
2.
3.
4.
5.
6.

Financial Statement audits

Compliance audit
Operational audit
Comprehensive audit
Internal audit
Corporate Social Responsibility (CSR)
assurance

Audit Limitations
Not a guarantee
Reasonable period and reasonable cost
Judgement in f/s preparation etc.

Key Auditing &

Assurance Terms
Material amount/disclosure that is
significant enough to make a difference to a
user.
Materiality maximum amount of
misstatement (or omission) the auditor can
tolerate and still issue a clean opinion.
Audit Risk the risk the auditor may express
the wrong opinion.

Assignment for next class

Google auditing importance or articles on
auditing importance or need for auditing etc.
Can you identify three or more situations or
types of audits?
I.e.. Is the need for auditing confined to
financial statement audits?

What is common among all of these examples?

Different Levels of Assurance

Auditors may provide varying levels of
assurance when conducting assurance
engagements.
1. Reasonable assurance
2. Moderate assurance
3. No assurance

Reasonable
Assurance

Moderate Assurance

Ex. Financial
Statement Audit

Ex. Review
Engagement

Ex. Compilation
Engagement

Positive expression of
opinion

Negative expression of
opinion

No expression of
opinion

Ex. Fig 1.2

In our opinion, the
consolidated financial
statements present
fairly, in all material
respects, the financial
position of

Ex. Fig 1.3

Based on our review,
nothing has come to
our attention that
causes us to believe
that these financial
consolidated
statements are not , in
all material respects, in
accordance with

Ex. Fig 1.4

We have not
performed an audit or
review engagement in
respect of these
financial statements,
and, accordingly, we
express no assurance
thereon.

No Assurance

Different Audit Opinions

Audit opinions are contained in audit reports
provided by the auditor.
Unqualified or clean opinion
Emphasis of matter can be added
Then unqualified, but modified

Qualified
Adverse
Disclaimer of Opinion

Preparers Responsibility

It is the responsibility of those charged with

governance to prepare the financial statements.

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Auditors Responsibility
Auditor also has responsibilities relating to
the audit.
Professional Scepticism
Professional Judgement
Due Care

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Demand for Audit and Assurance Services

Who relies on the auditors report?
Who uses the financial statements?
What decision are they apt to make?

Why do they require an audit?

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Sources of Demand for Audit &

Assurance Services
Reasons why users demand financial
statements include:

Remoteness
Complexity
Competing incentives
Reliability

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Theoretical Frameworks

The demand for audit can be explained by the

following three theories:
Agency theory
Information hypothesis
Insurance hypothesis

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The role of Regulators and Regulations

There are a number of regulators and that
impact the audit process. They include:
Auditing and Assurance Oversight Council
(AASOC)
Auditing and Assurance Standards Board
(AASB)
International Auditing and Assurance
Standards Board
Canadian Business Corporation Act (CBCA)

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Audit Expectation Gap

Is the difference between the expectations of

assurance providers and financial statements
or other users.

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