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QUESTION 1: AUDITING, ASSURANCE & THE PROFESSION You work in the audit division of BOD, a...

QUESTION 1: AUDITING, ASSURANCE & THE PROFESSION

You work in the audit division of BOD, a large professional services firm. You have been approached for advice by Campbell Kirkby, who has been running a small business, successfully for a number of years. He tells you that:

“I decided it was time I started enjoying the results of all my hard work, so I sold 40% of the shares in the business to some friends who thought it a good investment. At our first shareholders’ meeting, we all agreed to appoint a general manager in my place to run the business and a finance manager to handle accounting, tax and financial matters. We also agreed that we would like to appoint a firm like yours to check our financial statements on an annual basis, to give us some assurance that the new managers are running the business properly.”

Campbell is excited about this new phase for his business. He tells you he would like to know more about the business environment, accounting and assurance as these may affect him in the future. Parts of the “Required” below reflect what he has asked you to clarify.

Required: 1.1 Researchers seeking to explain the demand for assurance have developed a number of theories or hypotheses. State and explain which theory best explains Campbell’s reason for requiring annual assurance?

1.2 Explain to Campbell what an assurance engagement entails. Your explanation should: a) Identify the elements of an assurance engagement and relate these to Campbell’s circumstances; b) State what two levels of assurance can be offered to Campbell and his fellow shareholders and identify the type of engagement associated with each of these levels;

1.3 Explain to Campbell what the External Reporting Board is, with reference to its two sub-boards and what each of these is responsible for doing.

Solutions

Expert Solution

1. FOR A NUMBER OF YEARS, SMALL BUSINESS HAVE INCRESINGLY VOICED CONCERN THAT REGULATIONS IS OVERLY BURDENSOME AND IMPLDES THIE INNOVATION AND GROWTH, INCLUDING THEIR ABILTY TO HIRE MORE STAFF. SMALL BUSINESS YEAR FOR FEWER RULES AND MORE FREEDOM. HOWEVER THE REGULATION IS IMPORTANT IT IS INDENTED TO HELP THE MARKESTS OPERTAE MORE EFFICIENTLY.BUT SOMETIMES COST MAY INCRESE AND HAPPENS IN MORE OF SMALL SECTORS REGULATION DIRECTED AT HOLDING BIG BUSINESS TO ACCOUNT OFTEN JUST CREATES PAPERWORK FOR SMALL COMPANY WHICH ARE UNLIKINGLY TO IMPACT THE BORDER ECONOMY. THIS HAS SPARKED THE TREND TOWARD THE CUTTING OF "RED tAPE"

THE PROFESSION NEEDS TO CONTINUE TO CONSIDER HOW ACCOUNTANTS CAN BEST SERVE SMALL BUSINESS. THE PROFESSION NEEDS TO CONTINUE TO EXPLAIN THE RANGE OF SERVICE THIS CAN OFFER, AND PROFESSIONAL ACCOUNTANY ORGANISATION NEED TO GO THROUH EITH THAT TO PRODUCES THE RESOURCES THAT WILL HELP THE FIRM PRESENT THE OPTION &HELP THEIR CLIENT SELECT THE RIGHT SERVICE TO BEST FIT THEIR CIRCUMSTANCES.IF THE AUSSURANCE DEPARTMENT IS THERE MEANS THEY CAN PROVIDE BOTH EXTERNAL AND INTERNAL AUDIT SERVICES, WHICH INCORPORATLY SPECIFICALLY TAILORED ELEMENTS, INCLDING FRAUD AND FNANCIAL MISTATEMENT INVESTIGATION AND FORENSIC ACCOUNTING.

2.A) THE ELEMENTS OF ASSURANCE ENGAGEMENT WHICH RELATES TO CAMPBELL

  1. THREE PATIES RELATIONSHIP= THE PRACTITIONER, A RESPONSIBLE PARTY AND INTENDED USERS
  2. APPROPRIATE SUBJECT MATTER
  3. SUITABLE CRITERIA
  4. SUFFICIEN, APPROPRIATE EVIDENCE TO SUPPORT THE CONCLUSION
  5. A CONCLUSION CONTAINED WITHIN WRITTEN REPORT

HOW IT RELATES TO COMPBELL

  1. THE RESPONSIBLE PARTY IS RESPONSIBLE FOR THE INFORMATION ON WIHCH THE PRACTIONER IS ENGAGED TO GIVE A CONCLUSION

B)THE TWO LEVEL OF ASSURANCE IS

  1. REASONABLE ASSURANCE
  2. LIMITED ASSURANCE
TYPES OF ENGAGEMENT OBJECTIVE EVIDENCE GATHERING

THE ASSURANCE ENGAGEMENT REPORT

REASONABLE ASSURANCE ENGAGEMENT Reduction in assurance engagement risk an acceptably low level in circumstances of assurance engagement, as the basis for a positive form of reaction of the auditor’s conclusion. Reasonable assurance means a higher but not absolute level of assurance.

Sufficient appropriate evidence is o as part of a systematic assurance engagement process that includes

.obtaining an understanding of assurance engagement,
assessing risks
responding

assessed risks
performing more evidence gathering procedures, and
evaluating the evidence obtained

description of the suurance engagement circumstances and form of expression the conclusion

LIMITED ASSURANCE reduction in assurance engagement risk to a level acceptable in circumstances of the assurance engagement but where that risk is HIGHER a reasonable assurance engagement, as the basis for a negative form expression of the auditor’s conclusion. Sufficient appropriate evidence is obtained part of systematic assurance engagement process that includeobtaining an understanding of the matter audited and other assurance engagement circumstances; but evidence deliberately limited comparison with a reasonable assurance engagement. description of the assurance engagement circumstances, and negatives form of expression if conclusion

3.FOR ERB(EXTERNAL REPORT BOARD)


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