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
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
