Week 1

Lecture # 2

Chapter 4

Other Assurance Engagements

and Quality Standards
 Audit Quality

• Technical competence
– Compliance with:
• Accounting standards and auditing guidance
statements
• Standards for taxation, insolvency and
management consulting services
• Ethical competence
A multi-level regulatory framework developed by profession and
regulators to assure quality audits:
• Standard setting
• Firm regulation
• Self-or peer regulation
• Government regulation
 Quality control elements

• Leadership responsibilities
• Ethical requirements
• Acceptance and continuance of client relationships
• Human resources
• Engagement performance
• Monitoring and quality control review
• Value of the auditor’s opinion is enhanced by the public’s
recognition of high standards of professional practice and
conduct by:
– High entry standards for membership
– High standards of performance and conduct required
– Power to discipline
Assurance Engagements Standards
• The Framework for Assurance Engagements (issued by the AASB) states that
an assurance engagement is:
“an engagement in which an assurance practitioner expresses a conclusion
designed to enhance the degree of confidence of the intended users other than
the responsible party about the outcome of the evaluation or measurement of a
subject matter against criteria”
• ASAE 3000 (ISAE 3000) uses the term assurance practitioner, which includes
a person or an organisation, whether in public practice, industry, commerce or
the public sector, involved in the provision of assurance services
• APES110 Code of Ethics for Professional Accountants formulates the
fundamental ethical principles for accountants
• Are integrity, objectivity, professional competence and due care, confidentiality,
professional behaviour and technical standards.

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Assurance Engagements other than Audits or
Reviews of Historical Financial Information

• The assurance practitioner should also consider the

following:
– Ethical requirements
– Quality Control
– Acceptance and continuance
– Terms of Engagement
– Planning and Performance
– Materiality
– Evidence
– Report Content
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 Assurance engagement

• Elements of an assurance engagement

– Three party relationship
– Subject matter
– Suitable criteria
– Evidence gathering
– Written assurance report
 Categories of assurance
engagements
• Assertion-based engagements
– Assurance practitioner provides an opinion on an assertion
made about the subject matter
• Direct reporting engagement
– Assurance practitioner expresses an opinion on subject matter
itself absent of any subject matter information
– reasonable assurance engagements aim at reducing risk to an
acceptably low level as a basis for a positive conclusion
(reasonable assurance means a high but not absolute level of
assurance) and
– limited assurance engagements aim at reducing risk to a level
that is acceptable in the circumstances but where that risk is
greater than for a reasonable assurance engagement as the
basis for a negative conclusion.
 Assurance engagements
• Historical financial information engagements
– Three main areas
• Audits of general-purpose financial reports
• Other audits of historical financial information
• Review of financial reports and other historical information

• Engagements other than those related to historical information

– Compliance engagements
– Performance engagements
– Sustainability engagements
– Forensic auditing engagements
– Continuous audit
Assurance Engagements Involving
Financial Information
• Special-purpose financial reports are typically
prepared by an organisation for a particular purpose,
such as for the requirements of a stock exchange, loan
creditors, or mergers
• The auditors must understand the purpose for which
the financial information is prepared and consult with
respective governing bodies if necessary
• Audits of summary financial statements
– Auditor should not report on summary information
unless an opinion has been expressed on the
financial report on which the summary is based
– Should identify the financial report form which the
9 summary was derived
Examples of Assurance Engagements other
than those relating to Historical Financial
Information

• Sustainability Assurance Reports

– Sustainability refers to the notion of conducting
business activities with minimal long-term effect on
the environment. It implies paying attention to the
comprehensive outcomes of events and actions
where practicable, and being accountable for such
outcomes. This is known as full cost accounting or
environmental accounting
– Reporting guidelines include triple bottom line
reporting, the Global Reporting Initiative (GRI) and
the AA1000 Assurance Standard
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Examples of Assurance Engagements other than
those relating to Historical Financial
Information
• Forensic Auditing Engagements
– an effective investigative tool to help combat
fraudulent claims, because it investigates the
causes and effect of possibly fraudulent activities
or system failures that may be the consequences
of fraud
– The forensic auditor looks for evidence of fraud
and documents system failures, and identifies the
extent of losses incurred
– can also be used by an insurer to evaluate the
liability of a claim (e.g. a disability claim through a
work-related accident or a system failure claim
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through a computer crash
Examples of Assurance Engagements other
than those relating to Historical Financial
Information

• Continuous Audit
– The electronic revolution has created a demand for more
timely assurance on a broader range of information than that
provided by the annual audit of historical financial statements
– In a continuous audit, client information is released in a very
short timeframe (via the Internet) and auditors’ reports on that
information follow the release of the information almost
immediately
– Thus, a continuous audit is a process or method that enables
independent auditors to provide written assurance on subject
matter using a series of auditors’ reports issued
simultaneously with, or a short time after, the occurrence of
events underlying the subject matter

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 Quality Management and
the Assurance Practitioner
• Self-regulatory controls set a minimal list of mechanisms and standards
with which professional accountants and auditors must comply, to ensure
the quality of the professional services offered by the profession, and
include:
– high education entry requirements
– rigorous induction programs
– character checking on entry to the profession
– compulsory public practice induction
– compulsory continuing professional development
– extensive ethical rulings and codes of conduct
– separate public practice registration
– compulsory quality review programs
– compulsory professional indemnity insurance
– adherence to detailed and mandatory auditing standards and
13 auditing pronouncements
 Quality Management and
the Assurance Practitioner
• The following are some of the benchmarks of which auditors and
professional accountants must be aware:
– ISO standards
• ISO 9000
• ISO 14000
– Total Quality Management (TQM)
• The International Organization for Standardization (ISO) is a network of
the national standards institutes of148 countries, with a central
secretariat in Geneva, Switzerland, that coordinates the system
• The ISO acts as a bridging organisation in which a consensus can be
reached on solutions that meet the requirements of business and society
• International standards provide a reference framework, or a common
technological language, between suppliers and their customers
• Most of the ISO standards are highly specific to a particular product,
material or process
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• The ISO 9000 and ISO 14000 series are among the ISO’s most widely
known and successful standards
 ISO Standards
• The ISO 9000 series is
– an international reference for quality requirements in business-to-business
dealings
– concerned with ‘quality management’ (what an organisation does to enhance
customer satisfaction by meeting applicable regulatory requirements and
continually improving its performance in this regard)
– is used for certification/registration and contractual purposes by
organisations seeking recognition of their quality management system
• The ISO 14000 series is:
– concerned mainly with ‘environmental management’ (what an organisation
does
to minimise harmful effects on the environment, caused by its activities and
to continually improve its environmental performance)
• For an environmental management system (EMS) to be effective, the auditor
determines whether an organisation’s EMS conforms to
ISO specifications and requirements
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Total Quality Management and the
Assurance Practitioner
• With auditors becoming increasingly involved in auditing
an entire business, ISO 9000 can be very useful in
helping auditors to identify and review issues that have
an impact on quality management in an organisation.
• Arguably, the main consideration in total quality
management (TQM) is its sustainability.
• In providing various types of assurance reviews,
auditors are generally able to help management
pinpoint the matters that have a negative impact on the
total quality management of an organisation.

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