Dec 08 - F8 BITS Session 2

[omerpk]

I know I'm going out of turn but since we are not following the 2 questions a week programme and all of us need to step up our study pace, I'm posting a new question.

(a) List down the differences between a statutory audit and a review engagement.

(b) Explain the terms 'Materiality' and 'True and Fair' in the context of assurance engagements.

[vervicy]

Differences detween a statuory audit and a review engagement are respectively:

> Proper accounting recordes are kept
> Proper returns are adequatly prepared
> The accounts agree with a/cing records kepts
> Having assist to information and records at all times.
> Details of information received from directors are consistene with accounts.

.........
> Auditors or to state wheather the accounts provides all the evidence required for the audit
> Examing and reporting to the management and directors
> report any finding on the Fin. statement that are not prepared in all material respect in occordance with identified financial reporting framework


B..
Materiality is a matter where the ommission or misstatement would reasonable affect or influence the decisions by the users of the finaancial statement

True: state that information is factual and conforms with reality; information presented are properly extracted fron the books and records.

Fair: information is free from descrimination and bias and in compliance with proper sandards and rules.

[Pixiefeet]

??? We've got two question sessions??

[omerpk]

(a) List down the differences between a statutory audit and a review engagement.

1. The primary users of a statutory audit are always the shareholders of a company, whereas in a review engagement it could be whoever commissioned the work.

2. The criteria used by a practitioner for evaluation of a subject matter(e.g. financial statements) in a review engagement will be whatever is agreed in the terms of engagement. In case of a statutory audit, the criteria will always be the applicable laws and financial reporting standards.

3. The subject matter that is evaluated by a practitioner in a statutory audit is always the statutory financial statements prepared under the applicable laws and financial reporting standards. In case of a review enagement, the subject matter could be management accounts, forecasts or similar information rather than the statutory F/S subject to audit. Moreover the period covered could be any period rather than the reporting period for statutory accounts.

4. The outcome of a statutory audit is expressed in the form of a positive assurance report as opposed to a negative assurance report of a review enagagement.

5. A statutory audit report provides a high level of assurance whereas a review report only provides moderate level of assurance.

(b) Explain the terms 'Materiality' and 'True and Fair' in the context of assurance engagements.

Any information is 'material' if its omission or misstatement could influence the economic decisions of users taken on the basis of financial statements.

There is no official definition of 'True and Fair' in any of the International Auditing Standards, however in order to achieve the statutory 'true and fair' view financial information must be:

(i) factually correct (True in the accounting conext)
(ii) clear,distinct,just and impartial (Fairness)

[Perfume30]

I know I havent answered the question as specifically asked (in list form), but I have used this as an exercise to go over stuff. And maybe it will be of use to others.


1.
THe objective of an audit of financial statements is to enable the auditor to express an opinion on whether the financial statements are prepared, in all material aspects, in accordance with an applicable financial reporting framework. The phrases used to express the auditor's opinion are "give a true and fair view" or "present fairly in all material aspects", which are equivalent terms. A similar objective applies to the audit of financial or other information prepared in accordance with appropriate criteria.

Audits are required in most countries under statute, for many undertakings, including limited liability companys.

Other organisations that require statutory audits include charities, investment businesses and trade unions.

A statutory audit will produce a finding that is of high, but not absolute, level of assurance, that is free from material misstatement. It will provide a true and fair view. The information will be expressed positively as reasonable assurance.


Non statutory audits, such as review engagements have objective which enable auditors to state (whether on the nasis of procedures which do not provide all the evidnce that would be required in an audit), anything has come to his attention that causes the auditor to believe that the financial statements are not prepared in all material aspects in accordance with an identified financial reporting framework.

Such audits are performed because the company's owners, proprietors, members, trustees, professional and governing bodies and any other interested party wants them, rather than because the law requires them.

A review engagement, also performed by an auditor, provides only moderate assurance that information provided is free from material misstatement. This is express as negative assurance.


2.
Materiality is an expression of the relative significance or importance of a particular matter in the context of the financial statements as a whole. A matter is material if its omission or misstatement would reasonable influence the decisions of an addressee of the auditor's report. Materiality may also be considered in the context of any individual primary statement within the financial stateements or of individual iterms included in them. Materiality is not capable of general mathematical definition as it has both qualitative and quantitative aspects.


"True" and "fair" are not defined in any law or audit guidance, but the following definitions are generally accepted:

"True"
Information is factual and conforms with reality. In addition, the information conforms with required standards and law. The accounts have been correctly extracted from the books and records.

"Fair"
Information is free from discrimination and bias and in compliance with expected standards and rules. The accounts should reflect the commercial substances of a company's underlying transactions.