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Chapter - 01, Concept and Need For Assurance

This document discusses the concept and need for assurance engagements. It defines an assurance engagement as expressing a conclusion to enhance the degree of confidence of intended users about the evaluation of a subject matter against criteria. Key elements are a three-party relationship between the practitioner, intended user, and responsible party, along with a subject matter, criteria, evidence, and written report. Assurance can be reasonable or limited, depending on the level of evidence obtained. The most important assurance engagement in Bangladesh is a statutory audit, which examines books and records to express an independent opinion. However, assurance has limitations and can never be absolute due to subjective exercises, sampling, system limitations, and information from third parties.

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154 views

Chapter - 01, Concept and Need For Assurance

This document discusses the concept and need for assurance engagements. It defines an assurance engagement as expressing a conclusion to enhance the degree of confidence of intended users about the evaluation of a subject matter against criteria. Key elements are a three-party relationship between the practitioner, intended user, and responsible party, along with a subject matter, criteria, evidence, and written report. Assurance can be reasonable or limited, depending on the level of evidence obtained. The most important assurance engagement in Bangladesh is a statutory audit, which examines books and records to express an independent opinion. However, assurance has limitations and can never be absolute due to subjective exercises, sampling, system limitations, and information from third parties.

Uploaded by

mahbub khan
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© © All Rights Reserved
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Download as DOC, PDF, TXT or read online on Scribd
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Assurance

Professional Stage: Knowledge level


Concept and Need for Assurance (Chapter- 1)

1. What is an Assurance Engagement?

An assurance engagement is one in which a practitioner express a conclusion, design to


enhance the degree of confidence of the intended users other then responsible party, about
the outcome of the evaluation or measurement of subject matter against criteria.

2. What are the key elements of an assurance engagement?

The key elements of an assurance engagement are as follows:

i) Three party relationship


● The practitioner;
● The intended user;
● The responsible party.

ii) A subject matter


● Data;
● System or Process;
● Behavior.

iii) Suitable criteria;


iv) Sufficient and appropriate audit evidence; and
v) A written report in appropriate form.

3. How the level of assurance varies?

Type of agreement Evidence Required Conclusion Given

● Reasonable assurance Sufficient and appropriate Positive


● Limited assurance Sufficient and appropriate (lower level) Negative

4. Explain types of assurance engagements and the way of expressing opinion?

The Formwork identifies two types of assurance engagement:

● Reasonable assurance
Reasonable level of assurance is a high, but not the absolute level of assurance.
● Limited assurance

Assurance Professional Stage Knowledge Level Concept and Need for Assurance Page 1
5. What is the factor making the basic difference between these two types of engagement?

The key difference between the two types of assurance engagement depends on:

● The evidence obtained; and


● The type of opinion given.

6. What level of evidence will be required for a reasonable assurance engagement and a
lower level of assurance engagement?

A sufficient and appropriate level of evidence will be required for a reasonable level of
assurance and a lower level of evidence will be required for a limited assurance engagement.

7. What are the types of expressing opinion, and how is it expressed?

The types of expressing opinion depend on the type of engagement dividing into positively
and negatively.

● Positive Opinion
In our opinion, the statement regarding something is reasonable.

● Negative Opinion
In the course of my seeking evidence about the statement, nothing has come to my
attention indicating that the statement is not reasonable.

8. Give examples of assurance engagement.

The key example of an assurance engagement in Bangladesh is a statuary audit.

Other example of assurance engagement includes other audits, which may be specialized due
to the nature of the business:

● Local authority audit;


● Insurance company audit;
● Bank audit;
● Pension scheme audit;
● Charity audit; and
● Branch audit.

There are also many issues user want assurance on, where the terms of the engagement will
be agreed booth the practitioner and the person commissioning the report, for example:

● Value of money studies;


● Circulation of report;
● Cost/benefit report;
● Due diligence;

Assurance Professional Stage Knowledge Level Concept and Need for Assurance Page 2
● Internal audit;
● Internal control report;
● Fraud investigation;
● Inventories and receivable report; and
● Report on business plan .

8. What is audit?

Audit is the independent examination of books, records, documents and all papers maintained
by client with a view to expressing an independent opinion.

An audit is historically the most important type of assurance service in Bangladesh, because
all limited liabilities companies registered with Registrar of the Joint Stock Companies and
Firms have been required by law to have an audit.

9. What is the objective of an audit?

The objective of an audit of financial statements is to enable the auditor to express an


independent opinion whether the financial statements are prepared all material respect in
accordance with an applicable financial reporting framework.

10. How will you define “True and Fair”?

True
Information is factual and confirm with reality, not false confirming with required standards
and law. The accounts have been correctly extracted from the books and record.

Fair
Information is free from discrimination and bias in compliance with expected standards and
rules. The account should reflect the commercial substance of the company’s transaction.

11. Who are not eligible for being a company auditor?

The Companies Act 1994, sets out factors which make a person ineligible for being a
Company auditor, for example if he or she is:

● an officer or employee of the Company;


● a partner or employee of any officer employee to the company;
● a person who is indebt to the company exceeding Tk. 1,000;
● a person, who is a director or member of a private company or a partner of a firm,
which is the managing agent of the company;
● a person who is director or holder of shares exceeding 5% of the subscribed capital.

Assurance Professional Stage Knowledge Level Concept and Need for Assurance Page 3
12. Why is assurance important? Describe the benefit of assurance.

The key benefits of assurance are:

● Independent; and
● Professional Verification.

Subsidiary benefits are:

● Adds confidence to others; and


● Deterrent to error or fraud.

13. Why can assurance never be absolute?

Assurance can never be absolute because assurance provision has limitations. This limitation
includes:

● Subjective exercise;
● Sampling;
● Limitation in systems;
● Limitation in report;
● Information from third Party; and
● Estimations are used.

14. Explain expectation gap.

The expectation gap is defined as the difference between the apparent public perceptions of
the responsibilities of auditors on the one hand and the legal and professional reality on the
other.

It can also be defined, what the assurance providers understand they do and what the users of
the information believe they do.

The End

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