Audit and Assurance Essentials: For Professional Accountancy Exams, + Website

ANSWERS

SECTION 1 ANSWER

(a) Nature, differences and similarities between audit and compilation engagements

• Audit engagements are reasonable assurance engagements in which auditors perform a risk assessment on historical financial information, and perform audit procedures to reduce the assessed risk of material misstatement to an acceptable level. This provides auditors with reasonable assurance about whether the financial statements are free from material misstatement.
• The audit opinion states that in the auditors’ opinion the financial statements give a true and fair view of (or present fairly, in all material respects) the financial position, performance, cash flows, etc., in accordance with an identified financial reporting framework such as IFRS.
• Compilation engagements do not involve assurance. The practitioner compiles the financial information from information supplied by the client. Users benefit from the knowledge that the practitioner has been involved.
• Similarities between audit and compilation engagements include the fact that in both cases:

– the financial statements, including the underlying assumptions and the significant judgements made, remain the responsibility of the client;

– the financial information benefits from being associated with the practitioner, who brings expertise, and an obligation to comply with professional, ethical, regulatory and disciplinary arrangements;

– agreement of engagement terms is required and practitioners are not permitted to ...