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Core Areas of the Syllabus:

 Audit framework and regulation

 Planning and risk assessment

 Internal control

 Audit evidence

 Review and reporting

 Employability and technology skills

Chapter 1: Introduction to Assurance

Assurance Engagements:
An assurance engagement involves obtaining evidence to express a conclusion, enhancing
users' confidence in the subject matter, like financial statements. It helps users make
informed decisions by reducing the risk of incorrect information.

Elements of Assurance Engagements:

1. Parties involved:

o Practitioner: Reviewer of the subject matter.

o Intended Users: Those using the information to make economic decisions.

o Responsible Party: Prepares the subject matter.

2. Subject Matter: Information under examination (e.g., financial statements).

3. Suitable Criteria: Standards, laws, and regulations.

4. Sufficient Evidence: Needed to form a conclusion, obtained through tests of control,

details, and analytical procedures.

5. Written Assurance Report: Provides an independent opinion on whether the

financial statements are a true and fair view.

Examples of Assurance Engagements:

 Audits and reviews of financial statements

 Verification of social and environmental information

 Internal control reviews

  Public sector value-for-money audits

General Principles for Assurance Providers:

 Comply with ethical standards

 Apply professional skepticism and judgment

 Ensure appropriate engagement procedures

 Gather sufficient and appropriate evidence

 Form a conclusion (reasonable or limited assurance)

 Document findings and evidence

Reasonable vs. Limited Assurance

 Reasonable Assurance:

o Thorough procedures (including tests of control and substantive procedures)

o Provides a positive opinion (true and fair view)

 Limited Assurance:

o Fewer procedures (mainly inquiries and analytical procedures)

o Provides a negative opinion (nothing significant came to attention)

External Audit Engagement

 Objective: To obtain reasonable assurance that financial statements are free from
material misstatements, prepared in line with an applicable financial reporting
framework (e.g., IFRS).

 "True": Factual and in line with standards/legislation

 "Fair": Clear and impartial representation of commercial substance

Auditor’s Responsibilities:

 Obtain reasonable assurance about the financial statements’ reliability

 Express an opinion on whether the financial statements align with the reporting
framework

 Report on findings
Need for External Audit:
Shareholders (who provide capital) may not be involved in day-to-day operations, and
directors could have incentives to manipulate financial statements.

Benefits of Audit:

 H: Higher quality, reliable information, improving company reputation

 I: Independent management scrutiny

 R: Reduces risk of bias, fraud, and error

 E: Enhances credibility for tax authorities, lenders, etc.

 D: Identifies internal control deficiencies

Audit Limitations:

 Financial statements are affected by subjective estimates.

 Internal controls have inherent limitations.

 Management’s representations can be the only evidence in some cases.

 Evidence is often persuasive, not conclusive.

 Not all transactions are tested; sampling is used.

Expectation Gap in Auditing:

Some believe audits provide absolute assurance, but audits only provide reasonable
assurance.

Review Engagement:

 Limited Assurance: Involves analytical procedures and inquiries, but no control tests.

 Negative Assurance Report: A report stating nothing significant came to attention.

Company Incorporation:

 Incorporation separates the company from its owners, with directors responsible for
day-to-day operations.
Need for Regulation

 Harmonization: Standardizing auditing procedures to build user confidence.

 Quality Focus: Ensures audits meet expectations.

 Ethical Code: Auditors must adhere to ethical standards to maintain objectivity and
impartiality.

Who Needs an Audit and Why

 Small Companies: Often exempt due to the limited value of an audit.

Who Can Act as an Auditor

 Qualified Individuals:

o ACCA members or those authorized by the state.

o Sole practitioners, partners in a partnership, LLC members, or audit company

directors.

Who Cannot Act as an Auditor

 Excluded by Law: Individuals with personal connections to the company or who

work/manage the company.

 Ethical Exclusions: Those whose independence, competence, or confidentiality is

compromised.

Who Appoints the Auditor

 Members: Appointed by a vote of the company members.

 Directors: Can appoint the first auditor or fill a casual vacancy, subject to member
approval.

 Secretary of State: Can appoint an auditor if neither the members nor directors do.

Removing an Auditor

 Independence: The auditor must maintain independence from management.

 Competence: Removal can occur if there are doubts about the auditor's competence.
  Process: Achieved by a simple majority at a members' meeting. A notice period is
required to prevent undue influence on the vote.

 Auditor's Representation: The auditor can provide a written explanation of why they
should not be removed.

Resigning as an Auditor

 Circumstances: If the auditor and management struggle to work together, the

auditor may resign.

 Procedure: A written notice and a statement of circumstances must be submitted to

members and regulatory authorities.

 Notification: The auditor must inform ACCA if they are removed or resign.

Auditor's Rights

 Access: Auditors can access company records at reasonable times.

 Information: They are entitled to necessary explanations to conduct the audit.

 Meetings: Auditors can attend general meetings and express concerns.

 Written Resolutions: Auditors can receive copies of company resolutions.

 Resignation Circumstances: The auditor can request a general meeting to explain

their resignation and have it circulated to the company and regulatory authority.

Auditor's Duty

 Opinion: The auditor's duty is to provide an opinion on whether the financial

statements present a true and fair view.

IFAC and IAASB

 IFAC: Global organization promoting internal regulation and ensuring minimum

qualification standards for accountants.

 IAASB: A subsidiary of IFAC, develops and promotes International Standards on

Auditing (ISA).
Chapter 2: Rules and Regulations:

International Standards on Auditing (ISA)

 Professional Guidance: ISAs guide auditors to ensure consistent, high-quality audits.

 Not Legal Requirements: In case of conflict, local laws supersede ISA.

 Application: ISAs must generally be followed, with exceptions requiring justification.

 Approval: ISA becomes official after two-thirds approval from IAASB members.

Chapter 3: Corporate Governance:

Corporate Governance

 Purpose: Ensure that companies are managed in the best interests of shareholders
with effective leadership.

 Advantages: Greater transparency, accountability, efficiency, better risk response,

and reduced mismanagement.

Corporate Governance Code

1. Effective Governance Framework

2. Fair Treatment of Shareholders

3. Role of Institutional Investors and Intermediaries

4. Stakeholder Involvement

5. Disclosure and Transparency

6. Board Responsibilities

Five Key Areas of the Code

1. Board Leadership and Company Purpose

 o Principles: The board leads to create sustainable shareholder value, defines
company purpose, allocates resources effectively, and engages with key
stakeholders.

o Provisions: Annual reports should discuss progress, culture, and corrective

actions. Directors must engage with shareholders and handle conflicts of
interest. Resigning NEDs should provide a statement.

2. Division of Responsibilities

o Principles: Chair leads the board and ensures its effectiveness, while ensuring
accurate, timely information for all directors.

o Provisions: The chair and CEO must be separate roles. NEDs should make up
at least half of the board. NEDs should be independent and meet annually
without the chair to appraise the chair's performance.

3. Composition, Succession, and Evaluation

o Principles: Board appointments should follow transparent, merit-based

processes. Succession planning should promote efficiency and diversity.

o Provisions: NEDs should form the majority of the nomination committee.

Directors are subject to annual re-election. Chairs should serve no more than
nine years. Diversity and evaluation should be disclosed in annual reports.

4. Audit, Risk, and Internal Control

o Principles: The board should ensure the independence of internal and

external audit functions and manage risks effectively.

o Provisions: An audit committee with at least three NEDs should be

established. The audit committee monitors financial statements, internal
controls, and risk management. Annual reports must describe the work of the
audit committee, the effectiveness of audits, and any risks related to the
company's internal control.

o Benefits: Improved credibility of financial statements, stronger control

environments, and enhanced public confidence.

o Disadvantages: Difficulty in finding qualified NEDs with relevant expertise and

the cost of maintaining the committee.

5. Remuneration

o Principles: Executive pay should align with long-term success and company
strategy. Directors should not set their own pay, and pay policies should be
transparent.
 o Provisions: The remuneration committee should consist of at least three
independent NEDs, with the chair not involved. Pay schemes should
incentivize long-term performance and may include provisions to recover or
withhold sums.

Roles in Corporate Governance

 Chair: Leads the board, ensures information flow, and manages external audit
relationships.

 CEO: Oversees company operations and leads executive directors.

 Executive Directors: Manage day-to-day operations.

 NEDs: Monitor executive directors, oversee strategy, and bring external expertise.

o Advantages: Independence, broad oversight, and expertise.

o Disadvantages: Difficult to find suitable candidates, time constraints, and high

costs.

Audit Committee Responsibilities

 Key Roles:

o Monitor integrity of financial statements.

o Advise on fairness and balance of financial reports.

o Review internal controls and risk management.

o Monitor internal audit effectiveness and recommend external auditor

appointments.

 Report: Annual report should describe audit committee activities, external audit
independence, and financial statement preparation.

Risk Management

 Objective: Protect the business from unforeseen risks through a risk committee that
reviews company risk exposures.