Audit and Assurance 第一集

　　What is assurance?

　　Levels of assurance

　　The audit threshold

　　The benefits of being audited

　　Why is assurance important?

　　一、What is assurance

　　Definition

　　Assurance could be described as an assurance firm’s satisfaction as to the reliability of an assertionbeing made by one party for the use of another party.This assurance is expressed in an“assurance report”with a negative or positive conclusion given.

　　An assurance engagement is one in which a practitioner expresses a conclusion designed toenhance 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.

　　The key elementsof an assurance engagement are as follows:

　　Three party relationship:The practitioner,The intended users,The responsible party

　　A subject matter(financial statements/internal controls/corporate governance etc)

　　Suitable criteria

　　Sufficient appropriate evidence to support the assurance opinion

　　二、Levels of assurance

　　There are two types of assurance engagement conducted by practitioners:Reasonable assurance engagement,Limited assurance engagement

　　The key distinction between the 2 is the sufficiency of the evidence sought and the type of opinion given.

　　Reasonable Assurance

　　Sufficient and appropriate

　　Positive opinion

　　The financial statements show a true and fair view in all material respects

　　Limited Assurance

　　Sufficient and appropriate(less intrusive)

　　Negative opinion

　　Nothing has come to our attention that make us believe that the financial statements are misstated

　　三、The audit threshold

　　‘Small companies’will be exempt from mandatory audit if they can satisfy two out of three of the following criteria:

　　The company has no more than 50 employees

　　The company’s turnover does not exceed£6.5m

　　The company’s gross assets total does not exceed£3.26m

　　Many subsidiary companies are exempt from an audit irrespective of their size as long as the parent company guarantees the liabilities of the subsidiary.There are companies which,no matter how small they are,are specifically excluded from small company status and therefore must have an audit:

　　Companies falling within the ambit of the Financial Services and Markets Act 2000

　　Insurance companies

　　Public companies(wherever registered)

　　四、The benefits of being audited

　　The audit is valued by management because:

　　They value having their business scrutinised by another set of professional eyes;

　　It provides additional assurance to third parties such as taxation authorities concerning the reliability of the financial statements;

　　A growing business will one day require an audit;

　　Audit may have subsidiary benefits,such as the auditors recommending improvements in

　　company systems;

　　The management letter will provide constructive advice.

　　Assurance gives the following benefits to users:

　　Enhances the credibility of the information being reported on;

　　Reduces the risk of management bias,error or even fraud in the information being reported on;

　　Draws the attention of the user to any deficiencies intheinformation being reported on.

　　Assurance services also give added credibility to the wider share market:

　　They ensure that high quality,reliable information circulates in the market;

　　They give investors added faith in the market;

　　They improve the reputation of organisations trading in the market.

　　五、Why is assurance important?

　　Users

　　In the key assurance service of audit,which we looked at above,the users were the shareholders of a company,to whom the financial statements are addressed.In other cases,the users might be theboard of directors of a company or a subsection of them.

　　To shareholders

　　The key benefit of assurance is the independent,professional verification being given to the users.

　　To third parties

　　Although an assurance report may only be addressed to one set of people,it may give additional confidence to other parties in a way that benefits the business.For example,audit reports are addressed to shareholders,but an opinion on the truth and fairness of the financial statements may give the bank more confidence to lend money to that business,in other words,it enhances the credibility of the information.

　　To the board of Directors

　　The existence of an independent check might help prevent errors or frauds being made and reduce the risk of management bias.In other words,the fact that an assurance service will be carried out might make people involved in preparing the subject matter more careful in its preparation and reduce the chance of errors arising.Therefore it can be seen that an assurance service may act as a deterrent.

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