10.1 Assurance engagements
- Definition and objectives
- Elements of an assurance engagement
- Types of assurance engagements
- Levels of assurance
... [Show More] and reports
- Non-assurance engagements
10.2 Nature and purpose of an audit
- Nature and objectives
- Audit as an assurance engagement
- Development of audit (early audit and modern audit)
- Types of audit and limitations
10.3 Legal framework and regulation
- Regulatory framework within which external audits take place
- Statutory regulations; auditors' liability, appointment, removal, remuneration, resignation, rights and duties of auditors
- International standards on auditing and other regulations
- Professional ethics/code of ethics for professional accountants
- Fundamental principles, threats and safeguards, other professional guidelines on audit fees, conflict of interest, advertising and opinion shopping
10.4 Planning and risk assessment
- Obtaining clients acceptance and retention
- Understanding the entity and its environment
- Audit planning, audit programmes and documentation
- Assessing audit risks
- Errors, fraud and other irregularities
10.5 Overview of forensic accounting
- Nature, purpose and scope of forensic accounting
- Types of forensic investigations: Corruption, asset misappropriation, financial statement fraud, others
- Fraud prevention and deterrence
10.6 Internal control systems
- Internal controls theory and practice
- Evaluation of internal control system and test of control
- Communication on internal control system (management letter)
- Information technology threats and control
10.7 Audit evidence
- Financial statement assertions and audit evidence
- Audit evidence procedures/techniques
- Audit sampling and other means of testing
- The audit of specific items (income/expenses/assets/liabilities)
- Using the work of others (internal audit and experts)
- Computer assisted audit techniques
10.8 Overall audit review
- Subsequent events review
- Going concern review
- Contingencies and commitments
- Management representations
- Quality control and review
- Role of auditors in receiverships and liquidation
10.9 Audit reports
- 7th Schedule provisions on audit reports
- Basic elements
- Types of opinions
- Emphasis of master paragraph
- Features of audit reports
10.10 Auditing in the Public Sector
- Introduction to auditing in the Public Sector; regulatory provisions
- Establishment, mandate and functions of public sector auditors; Kenya National Audit Office (KENAO) and similar national audit bodies
- Role of internal audit function in public entities
- Relationship between external and internal auditors in the public sector
- International Standards on Supreme Auditing Institutions
10.11 Emerging issues and trends
CONTENT
TOPIC PAGE
1. Assurance engagements 5
2. Nature and purpose of an audit 12
3. Legal framework and regulation 31
4. Planning and risk assessment 66
5. Overview of forensic accounting 113
6. Internal control systems 125
7. Audit evidence 139
8. Overall audit review 193
9. Audit reports 211
10. Auditing in the Public Sector 224
Revised on: November 2016
TOPIC 1 ASSURANCE ENGAGEMENTS
DEFINITION AND OBJECTIVES
The term assurance refers to the expression of a conclusion that is intended to increase the confidence that users can place in a given subject matter or information. For example, an auditor’s report is a conclusion that increases the confidence that users can place in a company’s financial statements.
Audit engagement refers to audit performed by an auditor. It is the very first stage of an audit procedure where the client is notified by the auditor that the work pertaining to audit has been accepted by him/her and also provides clarifications with regard to the scope and purpose of audit. To be more specific, audit engagement can be referred to the written letter that the auditor uses to notify the client that he/she would be engaging in auditing services. Thus, the audit engagement procedure is basically a negotiation based on professional terms that takes place between prospective customer and a public accounting entity. This procedure is used for finding new customers and offer accounting related services to different businesses.
The auditor uses the term ‘audit engagement’ when the entity has to undergo the auditing procedure. This could imply varied things and therefore it is necessary that the auditor clarifies what she/he exactly means by the term. Irrespective of the definition followed by the auditor, he/she makes it a point to follow certain specific guidelines and procedure for offering the services.
Full Engagement
Audit engagement consists of several steps that basically revolve around planning, substantiation, control testing and finalization. The very first step involves providing a letter to the client reminding him about the audit. Once the client has been contacts, both the auditor and client meet with each other to determine how, why and when the auditing would take place. In addition to this, the client also needs to provide the auditor with relevant resources for conducting the procedure smoothly. Following this, the auditor carries out surveys to find out more about the organization and its controls. This is followed by testing of controls and garnering of as much detail and information as is possible. On the basis of the results and information, the auditor prepares a temporary draft and shares the same with client. Once the client has gone through the draft report, he responds to the recommendations and findings made in it. After this, the auditor prepares a final audit report and may also request the client to fill a survey form to better understand his/her performance. The audit is completed after a follow up meeting with client, which usually happens within 6 months.
Objectives of the Practitioner
A practitioner is an the individual(s) conducting the engagement (usually the engagement partner or other members of the engagement team, or, as applicable, the firm) by applying assurance skills and techniques to obtain reasonable assurance or limited assurance, as appropriate, about whether the subject matter information is free from material misstatement In conducting an assurance engagement, the objectives of the practitioner are:
a) To obtain either reasonable assurance or limited assurance, as appropriate, about whether the subject matter information (that is, the reported outcome of the measurement or evaluation of the underlying subject matter) is free from material misstatement;
b) To express a conclusion regarding the outcome of the measurement or evaluation of the underlying subject matter through a written report that clearly conveys either reasonable or limited assurance and describes the basis for the conclusion; and
c) To communicate further as required by relevant ISAEs.
In all cases when .reasonable assurance or limited assurance, as appropriate, cannot be obtained and a qualified conclusion in the practitioner's assurance report is insufficient in the circumstances for purposes of reporting to the intended users, the ISAEs require that the practitioner disclaim a conclusion or withdraw (or resign) from the engagement, where withdrawal is possible under applicable laws or regulations.
NON-ASSURANCE ENGAGEMENTS
Non-assurance Engagements
If an engagement lacks the five elements of assurance engagements, it is considered non- assurance (residual definition). Examples of non-assurance engagement are the following:
1. Agreed-upon procedures
2. Compilations engagements
3. Preparation of Income tax returns where no conclusion conveying assurance is expressed
4. Management advisory services and Consulting
5. Engagement that includes rendering of professional opinions not intended to be an assurance report
Elements of Assurance Engagements
There are five elements that must all be present in order to qualify the engagement as an assurance engagement.
1. A three-party relationship involving a practitioner, a responsible party, and intended users;
2. An appropriate subject matter;
3. Sufficient appropriate evidence;
4. Suitable Criteria;
5. A written assurance report in the form appropriate to a reasonable assurance engagement or a limited assurance engagement.
Appropriate Subject Matter
The subject matter and the subject matter information of an assurance engagement can take many forms, such as:
• Financial performance or conditions
• Non-financial performance or conditions
• Physical characteristics
• Systems and Processes
• Behavior
An appropriate subject matter is
• Identifiable and capable of consistent evaluation or measurement against the identified criteria
• Capable of being subjected to procedures for gathering sufficient appropriate evidence to support a reasonable assurance or limited assurance conclusion, as appropriate
Sufficient Appropriate Evidence
• Sufficiency is the measure of the quantity of evidence
o The quantity of evidence needed is affected by the risk of the subject matter being materially misstated. [Show Less]