aaa318_we.pdf - Chartered Accountants Program Audit Assurance WE Unit 1 Assurance framework and the auditors objectives Worked example 1.1 Identifying

aaa318_we.pdf - Chartered Accountants Program Audit...

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Chartered Accountants Program Audit & Assurance Unit 1 – Worked examples Page 1-1 WE Worked example 1.1 Identifying elements of an assurance engagement Learning outcome Apply International Auditing Standards and National Generally Accepted Auditing Standards and applicable laws and regulations to an audit assignment. Introduction At the end of this worked example you will be able to: Apply the elements of an assurance engagement in accordance with the International Framework Apply national Auditing Standards and applicable laws and regulations to an audit assignment It will take you approximately 20 minutes to complete. Scenario James Green has recently started working at Black and White Partners Chartered Accountants (B&W) as an audit junior. Nick Smith is an audit manager at the firm. Gizmo Products (Gizmo), a listed company, has approached B&W and requested an audit of their financial report. James determines the following in respect of Gizmo: The financial statements must comply with International Financial Reporting Standards (IFRS). The financial statements must be provided to shareholders with an auditor’s report attached. Task Nick has asked James to apply the International Framework to the audit of Gizmo and document the different elements of an assurance engagement. He has also asked whether the answer would be different under Australian/New Zealand pronouncements and how Australian/New Zealand legislation would be reflected in the elements of an assurance engagement. Unit 1: Assurance framework and the auditor’s objectives
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Audit & Assurance Chartered Accountants Program Page 1-2 Worked examples – Unit 1 WE Solution James works through the following steps to complete the task. Step 1 – Refer to the pronouncements and legislation James refers Nick to the International Framework for the definition of an assurance engagement and the five elements of an assurance engagement. Step 2 – Determining whether there is a three-party relationship James starts applying the five elements of an assurance engagement to the Gizmo engagement. James identifies the responsible party, the practitioner, and the intended users (i.e. the three- party relationship) as follows: Determining the three-party relationship Party Person(s) Explanation Responsible party Gizmo’s directors Gizmo’s directors are responsible for the underlying subject matter Practitioner B&W B&W conducts the assurance (audit) engagement and is therefore the practitioner (auditor) Intended users Gizmo’s shareholders Shareholders are the main intended users of the assurance report The International Framework explains the three-party relationship in detail. Step 3 – Determine the subject matter of the engagement Next, James points out to Nick that the International Framework discusses ‘underlying subject matter’, which is what the practitioner is expressing a conclusion on. For the audit of Gizmo’s financial statements, the underlying subject matter is historical financial position, financial
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