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CM1 Notes

The document discusses the four major phases of auditing: 1. Pre-engagement - accepting or declining a client and planning risk assessment. 2. Risk assessment - understanding the entity, internal controls, and transaction cycles to assess risks. 3. Risk response - gathering evidence by selecting items for testing to address identified risks. 4. Evaluate and conclude - completing the audit and reporting, including forming an opinion. It also covers the need for assurance services to improve the quality of information used for decision making, such as a bank evaluating financial statements to decide on a loan. Assurance services involve an independent practitioner expressing a conclusion about a subject matter based on suitable criteria.

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Lucy Heartfilia
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192 views4 pages

CM1 Notes

The document discusses the four major phases of auditing: 1. Pre-engagement - accepting or declining a client and planning risk assessment. 2. Risk assessment - understanding the entity, internal controls, and transaction cycles to assess risks. 3. Risk response - gathering evidence by selecting items for testing to address identified risks. 4. Evaluate and conclude - completing the audit and reporting, including forming an opinion. It also covers the need for assurance services to improve the quality of information used for decision making, such as a bank evaluating financial statements to decide on a loan. Assurance services involve an independent practitioner expressing a conclusion about a subject matter based on suitable criteria.

Uploaded by

Lucy Heartfilia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Fundamental Principles of Assurance Services

Four Major Phases of Auditing


1.) Pre- engagement
- Acceptance and continuance stage
- Will I accept this client or decline. If this client of mine has been my client since last
year, will I continue my relationship with him/her?

2.) Risk management


- After deciding whether you’re going to accept the client or decline, you need to make a
plan on executing the audit.
- In order to plan, you need to understand the full entity and environment to properly
assess the risk.
- In order to assess risk, you need to understand the entity and should be able to consider
internal controls, normally kung nasaan yung risk, naandun din yung internal controls.

3.) Risk response


- After you plan the auditing, you need to respond to those risk which is why you need
to gather evidence.
- Selecting the items for testing, you need to gather evidence to perform procedures.

4.) Evaluate and conclude


- You need to formulate an opinion

Remember: When you are performing any assurance service, you are bound to comply to
“Code of Ethics for Professional Accountants (2018 Handbook)
We need to ensure that the reports that we are issuing are appropriate. To ensure that
reports are appropriate, we need to establish “Quality Controls for audit and assurance
Firms.”

Pre-engagement Risk Assessment


 Intro to Fs Audit  Audit Planning
 Pre-eng Activities  Consideration of internal control
 Transaction cycles
Risk Response Evaluate and conclude
 Evidence  Completing the Audit
 Selecting items for testing  Audit Reporting

Why is there a need for assurance?


“Life is the sum of all your choices” – Albert Camus
All of us are decision makers

Information + Action = Good Decision

Information risk reflects the possibility that the information upon which the “business risk
decision” was made was inaccurate.

Beer and
Cashew Balele Bank
Company

Financial Satements Decides on Approval of


Loan and its terms

In order to arrive at a good decision, you need to acquire information.


Informations of Beer and Cashew Company
 Risk-free rate
 Business Risk – information about the company
KYC (know your client)
 Historical financial Information
The information that balele bank is going to use is the fs of Beer and Cashew company.

Need for Assurance control


Informations are subject to risk
o Assurance
- Refers to practitioner’s satisfaction as to reliability of an assertion being made by one
party for use by another party.

o Assurance Service
- Independent professional services that improve the quality of information, or its
context, for decision makers.

OBJECTIVE OF ASSURANCE SERVICES

- To evaluate or measure a subject matter that is the responsibility of another party


against identified suitable criteria and express a conclusion that provides the intended users
with a level of assurance about the subject matter.

Practitioner

Responsible
Subject Intended User
Party
Matter

- Increase decision maker’s confidence in information often is beneficial to both the


decision maker and the information provider. Involvement of an independent professional,
such as a CPA trained in providing assurance services and subject to professional and legal
standards can effectively increase that confidence.

ELEMENTS OF ASSURANCE SERVICES


The absence of one element will result to non-assurance services.

1.) Three party relationship


o Responsible party – responsible for the subject matter or subject matter
information or both.
o Practitioner (3rd Party) – Not biased, independent, competent person. Determines
nature, timing and extent of engagement procedures
o Intended user – for whom the assurance report is prepared for, decision maker.

2.) Subject Matter


Underlying subject matter is the nature of the assertion the practitioner gathers sufficient
evidence.
Subject Matter information will be used to mean the outcome of the evaluation or
measurement of a subject matter; result of applying the criteria to the underlying sm
Characteristics of a subject matter
Verifiable form
- Identifiable, and capable of consistent evaluation or measurement agaist the identified
criteria
- Such that information about it can be subjected to procedures for gathering sufficient
appropriate evidence to support a reasonable assurance or limited assurance conclusion, as
appropriate.
3.) Evidence
4.) Criteria – are benchmarks. They are used to evaluate or measure the subject matter.
5.) Conclusion

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