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Assurance
CA in Bangladesh
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Preliminary of Assurance:
1.01
1.02
1.03
1.04
1.05
1.06
1.07
1.08
1.09
1.10
1.11
1.12
Assurance Engagement:
Key elements of an assurance engagement:
Levels of assurance
Objective of an Audit:
True & Fair
Why is assurance important?
Why can assurance never be absolute?
Professional ethics:
Basic principle governing of an audit:
Threats and safeguards:
Suggestion to improve or safeguard against threat:
ICAB Code
02.
2.01
2.02
2.03
2.04
2.05
2.06
03.
3.01
3.02
3.03
3.04
Internal audit:
External Audit:
Differences between internal and external Audit
What does internal audit do?
04.
Audit Appointment:
4.01
4.02
4.03
4.04
Engagement Letter:
What are the procedures for accepting new engagement?
The purpose of an engagement letter is to:
The form and remaining content of audit engagement letters are given below:
05.
5.01
5.02
5.03
5.04
5.05
5.06
5.07
5.08
5.09
5.10
Audit Planning
Audit strategy
Why audit plan is significant?
Define steps to develop an audit plan including risk assessment procedures,
Understanding the entity why,what,how
Professional skepticism
Analytical procedures
Possible source of information about the client to perform analytical procedure
Materially
Tolerable error
Risk assessment
6.01
6.02
6.03
07.
Process of assurance
7.01
7.02
7.03
7.04
7.05
7.06
7.07
7.08
7.09
7.10
7.11
7.12
Audit evidence
Tests of controls
Substantive procedures
Sufficient appropriate audit evidence
Procedures for obtaining Audit evidence
Audit of Accounting Estimates
Audit sampling
Statistical sampling
Non-statistical sampling
Management Representation
Management representation as assurance evidence
When management representation is required
08.
Documentation
8.01
8.02
8.03
8.04
8.05
8.06
8.07
8.08
8.09
8.10
Documentation
Purpose of documentation
The form and content of working Papers are affected by matters such as:
The form and contents of Audit working Paper
Contents of Permanent Audit files
Contents of current file
Safe custody, retention, ownership and right of access to documentation
Importance of confidentiality:
Security procedures to prevent accidental disclosure of information:
Where an auditor can disclose information acquired in the course of professional
work:
09.
Reporting Criteria
9.01
9.02
9.03
9.04
9.05
9.06
10.
11.
12.
13.
Substantive Procedure
Revenue System
Purchase system
Employee costs
Preliminary of Assurance
1.01
Assurance Engagement:
An assurance engagement is a practitioner expresses a conclusion designed to enhance
confidence of the intended users as well as the responsible party about the result of
evaluation of a subject matter against criteria'.
1.02
2)
3)
4)
5)
1.03
Levels of assurance
a)
b)
1.04
Reasonable assurance engagement that is A high, but not absolute level of assurance
ensures to obtain sufficient and appropriate evidence.
Limited assurance engagement that sufficiency and appropriateness to obtain evidence
is lower level.
Objective of an Audit:
The objective of an audit of financial statements is to enable the auditor to express an
opinion whether the financial statements are prepared, in all material respects, in
accordance with an applicable financial reporting framework.
1.05
1.06
1.07
f)
g)
1.08
Professional ethics:
Accountants require an ethical code because they hold positions of trust and people rely on
them. They work in the public interest, which extends beyond clients to people associated
with those clients and the general community. ICAB members are subject to ICAB guidance
(influenced by IFAC guidance).
1.09
To examine any transaction auditor can excess all books and records and query to any
employee.
After completion the audit examine auditor can modify the opinion to express
Professional competence and due care. A professional accountant has a continuing duty to
maintain professional knowledge and skill at the level required to ensure that a client or
employer receives competent professional service based on current developments in
practice, legislation and techniques.
Confidentiality: Client information must be kept confidential unless there is a genuine
exception to this requirement.
Professional behavior: A professional accountant should comply with relevant laws and
regulations and should avoid any action that discredits the profession.
1.10
Threats of Audit:
Self interest threat like financial interest, loan and guaranties, overdue fees, high
percentage of fees, gifts & hospitality.
Self review threat that is tax service, internal audit service, corporate finance etc.
Advocacy threat that is legal service, corporate finance service etc.
Familiarity threat that is family and personal relationship, recruitment, team members
move to employment with client.
Intimidation threat that arises when audit team members pressured by client staff due
to close business relationship or family and personal relationship or team members
move to employment with client.
1.11
1.12
Educational training and experience requirements for entry into the profession
Continuing professional development requirements
Corporate governance regulations
Professional standards
Professional or regulatory monitoring and disciplinary procedures
Involving an additional professional accountant to review the work done or otherwise
advise as necessary.
Consulting an independent third party, such as a committee of independent directors, a
professional regulatory body or another professional accountant
Discussing ethical issues with those in charge of client governance
ICAB Code:
The ICAB Code is relevant to professional accountants in all of rheir professional and
business activities.
ICAB incorporates the IFAC Code of Ethics, but also contains additional rules deemed
appropriate by the ICAB.
02.
2.01
Internal control:
Internal control is the process designed and affected by management, and other personnel
to provide reasonable assurance about achievement of entitys objectives with regard to
2.02
2.03
2.04
Expense: A key limitation of controls is that they are expensive that is continual use of
the control is more expensive than the cost of the risk arising.
Human element: The fact that they are generally relies on humans to operate them.
Unusual transactions: Control are generally designed to deal with what normally or
routinely happens in a business. But when unusual transaction occur which not fit into
the normal routines, standard controls not relevant hence mistakes may be made.
Small companies. Small companies generally have fewer employees than larger
companies, meaning that there are fewer people to involve in the internal control
system as well as due to cost of control owners of company were not interested.
2.05
Audit committee:
A subsection of the board of directors which has a particular interest in the finance and
accountant activities of the company.
2.06
03.
3.01
Internal audit:
A monitoring activity established within an entity as a service to the entity. Its functions
include, examining, evaluating and reporting to management and the directors on the
adequacy and effectiveness of components of the accounting and internal control system.
3.02
External Audit:
An audit carried out by an external auditor. Remember that the objective of an external
audit of financial statements is to enable auditors to express an opinion on whether the
financial statements are prepared (in all material respects) in accordance with the applicable
financial reporting framework'
3.03
Internal Audit
Internal audit designed to add
value
and
improve
an
organizations operations.
Internal audit report to the board
External Audit
An exercise to enable auditors to
express an opinion on the financial
statements
The external auditors report to the
Relating to
Relationship
with
the
company
3.04
shareholders of a company on
financial statements.
External audit's work relates to the
financial statements.
External auditors are independent
of the company and its
management.
04.
Audit Appointment
4.01
Engagement Letter:
Engagement letter is a letter sent by the auditor to his client at the time of any new audit. It
sets out the terms of the engagement and forms the basis of contract.
4.02
4.03
4.04
Obtain clients permission to write to the retiring auditor inquiring if there is any
professional reason why the appointment should not be accepted.
Meet with the client to discuss regarding detail scope of the audit,
Send a letter of engagement to the client defining the scope of audit.
Obtain acknowledge from client that he received the engagement letter as well as he
understood all the terms of the engagement.
Define clearly the extent of the audit firm's responsibilities and so minimize the
possibility of any misunderstanding between the client and the audit firm.
Provide written confirmation of the firm's acceptance of the appointment, the scope of
the engagement and the form of their report.
The form and remaining content of audit engagement letters are given
below:
a)
b)
c)
d)
e)
5.01
Audit Planning
An audit plan is more detailed than the strategy and sets out the nature, timing and extent of
audit procedures (including risk assessment procedures) in order to obtain sufficient
appropriate audit evidence.
5.02
Audit strategy:
Is a strategy for the audit, which sets the scope, timing and direction of audit and guides to
develop the audit plan.
5.03
5.04
5.05
02.
a.
b.
03.
a.
b.
c.
d.
04.
a.
b.
05.
a.
b.
5.06
Professional skepticism:
An attitude of professional skepticism means the auditor makes a critical assessment, with a
questioning mind, of the validity of audit evidence obtained and is alert to audit evidence
that contradicts,
5.07
Analytical procedures:
An analytical procedure means evaluation of financial information made by a study of
reasonable relationships among both financial and non-financial data. It also includes the
investigation regarding fluctuations.
The BSA states that, analytical procedures include:
The consideration of comparisons with:
5.08
5.09
Materially:
Information is material if its omission or misstatement would reasonably influence the
economic decisions of users taken on the basis of the financial statements.
Materiality depends on the size of error in the context of its omission or misstatement.
Audit Materiality should be considered by the auditor when:
5.10
Tolerable error:
The maximum error that an auditor is prepared to accept in a class of transactions or
balances in the financial statements.
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Risk assessment
6.01
Audit risk:
The risk that the auditors give an inappropriate opinion on the financial statements.
Inherent risk: The risk of misstatement that could be material, assuming there were no
related internal controls.
Control risk: The risk that a material misstatement would not be prevented, detected by the
accounting and internal control systems.
Detection risk:
The risk that the auditors procedures will not detect a misstatement that exists in an account
balance or class of transactions that could be material.
6.02
6.03
Significant risks:
Risk of fraud
Related to recent significant economic, accounting or other development
The complexity of the transaction
It is a significant transaction with a related party
The degree of subjectivity in the financial information
It is an unusual transaction
07.
Process of assurance
7.01
Audit evidence:
All of the information used by the auditor in arriving at the conclusion, on which the audit
opinion is based.
7.02
Tests of controls:
Audit procedures performed to assess about the effectiveness of controls in preventing, or
detecting and correcting material misstatements at the assertion level.
7.03
Substantive procedures:
Audit procedures performed to detect material misstatements at the assertion level. They
include:
7.04
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7.05
7.06
7.07
Audit sampling:
Audit sampling involves the applications of audit procedures to less than 100% of selecting
item for test within an account balance or classes of transactions so as to gather sufficient
appropriate audit evidence to meet the objectives of the audit procedures.
7.08
Statistical sampling is any approach to sampling that involves random selection of a sample
and use of probability theory to evaluate sample results, including measurement of sampling
risk.
7.09
7.10
Management Representation:
A written Representation made by management to the auditor during the course of the audit
to confirm certain matter or to support other audit evidence. BSA 580 Management
Representations states that an auditor should obtain appropriate representation from
management.
Management comprises officers (directors and company secretary) and others who perform
senior managerial functions.
7.11
Acknowledges its responsibility for the preparation and fair presentation of the financial
statements in accordance with the applicable financial reporting framework and has
approved the financial statements.
Acknowledges its responsibility for the design and implementation of internal control.
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Representations relating to responsibility for the financial statements, the auditors may
wish to rely on management representations as audit evidence.
7.12
Seek to confirm audit evidence from sources inside or outside the entity
Evaluate whether the representations made by management reasonable and reliable
with other audit evidence obtained, including other representations.
Consider whether individuals making representations can be expected to well inform on
the particular matters.
08.
Documentation
8.01
Audit Documentation:
Audit documentation (working papers) is the record of procedures performed, relevant
evidence obtained and conclusions reached.
8.02
Purpose of documentation:
8.03
The form and content of working Papers are affected by matters such as:
8.04
8.05
Information about understanding the entity and its environment, including internal
control.
Evidence of the audit planning process
Evidence of the auditor's consideration of the work of internal audit
Analyses of transactions, balances and significant ratios and trends
The assessed risks of material misstatements
A record of the nature, timing, extent and results of audit procedures
Evidence that the work performed by assistants was supervised and reviewed
Copies of communications with other auditors, experts and other third parties
Letters of representation received from the entity
Copies of the financial statements and auditors reports
Notes of discussions about significant matters with management and others
Engagement letters
New client questionnaire
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8.06
8.07
8.10
Importance of confidentiality:
8.09
Financial statements
Accounts checklists
Management accounts details
Reconciliations of management accounts and financial statements
A summary of unadjusted errors
Report to partner including details of significant events and errors
Review notes and it planning memorandum
Time budgets and summaries
Letter of representation
Management letter
Notes of board minutes
Communications with third parties such as experts or other auditors
8.08
Do not discuss client matters with any party outside of the accountancy firm (for
example, friends and family, even in a general way) as well as with colleagues in a public
place
Do not leave audit files in cars or in unsecured private residences or to anywhere.
Do not remove working papers from the office unless strictly necessary
Do not work on electronic working papers on systems that do not have the requisite
protection.
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Reporting Criteria
9.01
9.02
Title
Addressee
Introductory paragraph identifying the financial statements audited
A statement of management's responsibility for the financial statements
A statement of the auditor's responsibly
Scope paragraph, including a description of the work performed by the auditor
Opinion paragraph containing an expression of opinion on the financial statements
Date of the report
Auditor's address
Auditor's signature
Unqualified Report:
Unqualified opinion should express when auditor understood that financial statement is give
a true and fair view or present fairly in all material respect, in accordance with an identified
financial reporting framework. Unqualified opinion should indicate any change of accounting
principle or method and also properly determine and disclose the effect of financial
statement due to the change.
9.03
Qualified Report:
The auditor should express qualified opinion when not possible to express unqualified
opinion. The matters for express qualified opinion are
The limitation of scope of audit work.
9.04
Adverse Report:
The auditor should adverse opinion on the financial statement when disagreement with the
management for acceptability of selection and application method of the accounting policy
will go in such a manner resultantly financial statement will became an incomplete manner
and carry inadequacy for disclose.
9.05
Disclaimer Report:
The auditor should express disclaimer opinion when the stage of scope limitation of audit is
so high level that the auditor could not possible to obtain sufficient appropriate audit
evidence so that the auditor cannot express the audit opinion on the financial statement.
9.06
The audited financial statements will give guarantee that the entity will continue to
exist.
The auditors provide absolute assurance that the figures in the financial statements are
correct.
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Substantive Procedure
01.
Non-Current Assets:
Key areas when testing tangible non-current assets are:
Confirmation of existence
Confirmation of ownership
Confirming debt owed by customers with customers (existence, rights and obligations,
valuation)
Confirming debt is still likely to be collected (valuation)
Key areas when testing the balance sheet bank figure are:
Confirming bank balances directly with the bank (existence, valuation, right and
obligation)
Confirming reconciling differences calculated by the client are reasonable
(completeness, valuation)
Confirming any material cash balances held at the client are correctly stated (valuation)
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Revenue System
Ordering
Key Risk
Customer order is matched with production orders and despatch notes or not.
Goods despatched but not recorded & invoiced so lost to the business
Sales despatch notes information (Quantities, price, discount, Calculation, entry, VAT,
Debtors ledger.
Recording:
Key Risk:
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Check that trade receivables statements are prepared and sent out regularly
Check that all bad debts written off have been authorized by management
Cash collection:
Key Risk:
12.
Purchase system
Ordering:
Risks:
Goods and services might not obtained on the most advantageous term
Control:
The company may not take advantage of full period of credit facility
Control:
Check that the item is agreed in origin or brand and size with the work order as well as
requisition.
Reconcile quantity of item between MRR & Challan and affect made in the bill.
18
Payment:
Risk
Payments recorded promptly In cash book and nominal and payables ledgers
Cash payments) Authorization of expenditure
Limits on payments
Test of control:
Payments cash book (authorization)
Check that cheques are signed by persons authorized and within their authority limits
Check that bank transfer was authorized and initiated by appropriate person
Check to suppliers' invoices for goods and services' Verify that supporting documents
are signed as having been checked and passed for payment
Payments cash book (recording):
Check the sequence of cheque numbers and enquire into missing numbers
Check balances forward at the beginning and end of the months covering the Periods.
13.
Employee costs
Calculating wages and salaries
Risk:
The company may pay employees who have not been at work
Maintenance of personnel records and regular checking of wages and salaries to details
in personnel records
Check that the wages and salary summary is approved for payment.
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Check that the engagement of new employees and release has been confirmed in
writing.
Check calculations of wages and salaries are being checked.
For wages, check calculation of gross pay with:
Authorized rates of pay
Production records. See that production bonuses have been authorized and
properly calculated
Clock cards, time sheets or other evidence of hours worked. Verify that overtime
has been authorized
For salaries, verify that gross salaries and bonuses are in accordance with personnel
records, and that increases in pay have been properly authorized.
The various elements of pay might not be recorded correctly in the payroll
Bases for compilation of payroll (for example, clock cards, overtime records, agreed
hours)
Comparison of actual pay totals with budget or standard costs and investigation of
differences between them
Agreement of gross earnings and total tax deducted with taxation returns.
Test of control:
Segregation of duties
Custody of cash
Recording of distribution
Test of control:
Check that proper approval taken and calculation review performed before payment
Before wages paid compare payroll with wage to ensure all employees get wages.
CA in Bangladesh
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