Question 1: Auditing & Assurance Sonja Watts is the Treasurer of Craftwurx, a small local craft...

Question 1: Auditing & Assurance
Sonja Watts is the Treasurer of Craftwurx, a small local craft organisation which is registered as a charity. She has limited accounting knowledge. She has recently received information on the new financial reporting and assurance requirements for Tier 3 and 4 charities in New Zealand. She is particularly confused by the material that describes the assurance engagements that can be used. She has also looked back at the reports Craftwurx’s auditor has issued over the last few years and has noted a range of opinions and comments made in these reports. As she knows you are studying auditing she has asked you for an explanation of the assurance engagements involved.
Required:
Provide clear explanations for Sonja to the following questions:
a) Briefly explain is meant by the term “assurance engagement”?
b) Briefly explain what a review engagement is and how it differs from an audit?
c) Briefly explain what the term “qualified opinion” means and its significance to the readers of the financial statements?
d) Briefly explain what a “Disclaimer of opinion” means and its significance to the readers of the financial statements?

Expert Solution

Answer a -

As per the International Framework for Assurance Engagement issued IAASB - assurance engagement means an engagement in which a practitioner expresses an opinion/conclusion to provide reasonable assurance to create the confidence of the intended user who can be any stakeholder or regulatory authority.

Answer b

Review engagement is less comprehensive and provides only limited assurance. On one hand, audit provides reasonable assurance (limited yet comprehensive and detailed) that financial statement is free from material misstatements. Whereas on the other hand, review engagement is limited in nature and is meant to ascertain whether or not financial statement reliable. It has limited scope as compared to auditing.

Answer c

Qualified Opinion is where the auditor/ practitioner issues an opinion but with a qualification. In other words, the opinion issued will be something like " the financial statements of XYZ company are true and fair in all terms except ..........." Except word here shows the qualification given by the auditor. It is given when issues found in the statements are not pervasive and material. It is used where the company has not followed GAAP.

It is really significant for the readers of the financial statement as it shows some important risks in the financial statements. It shows the readers the situations where the company has deviated from GAAPs and it also shows auditors doubt on the reliability of the date but without any solid base proving as such.

Answer D

Disclaimer of opinion means auditor has failed to find pieces of evidence and documents to form his reasonable assurance on the true and fair value of the financial statements. It shows auditors failure to form an opinion. This happens when management doesn't requisite details to the auditor.

It shows readers some serious concerns about the company. It shows something is not right there either with the management of the company or the auditor was not able to form an opinion because he didn't get requisite assurance.

ekkarill92 answered 2 years ago

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