Question

• Discuss the levels of assurance that can be provided on audit reports.

• Explain how the internal controls of a company can impact the overall business.

o Define 2 internal control areas that you would focus on with your business.

Answer 1

• An audit is conducted with a motive to give reasonable assurance that the financial statements are free from error. The higher the level of assurance, the greater the confidence of the stakeholders on the financial statements. The levels of assurance are mentioned below:

- Absolute assurance- this indicates that there is no risk of material misstatement whatsoever.

- Reasonable assurance- this indicates that the auditor believes that the financial statements can be relied upon based on the circumstances of the engagement.

- Limited assurance- This level of assurance is much narrower in scope than reasonable assurance.

• The internal control system of an organization is extremely important to ensure good corporate governance and financial reporting. A high quality internal control system ensures standard compliance as well. An internal control system provides the management the assurance on the dependability of the accounting data. Firms with ineffective internal control systems are more prone to reporting accounting scandals.
• The two internal control areas I would focus on my business are mentioned below:

- Cash management system:

To ensure that no cash is embezzled out of the business.

- Inventory management system:

To ensure that appropriate level of inventory is always in stock and a lot of capital is not hoarded in inventory.