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LEARNING OBJECTIVES
1. Define an assurance engagement
2. Explain why there is a demand for audit and assurance
services
3. Differentiate between types of assurance services
4. Explain the different levels of assurance
5. Outline different audit opinions
6. Differentiate between the roles of the preparer and the
auditor, and discuss the different firms that provide
assurance services
7. Identify the different regulators, legislation, and
regulations surrounding the assurance process
8. Describe the audit expectation gap
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Theoretical Frameworks
The demand for audit can be explained by
the following three theories:
Agency theory: Due to the remoteness of
the owners from the entity, the owners have
an incentive to hire an auditor to assess
information provided by management
Information hypothesis: Due to the need
for reliable information, users will demand
that information be audited to aid in decision
making
Insurance hypothesis: Investors demand
audited financial statements to insure against
potential losses
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Different Assurance
Services contd
Note the Canadian Securities
Administrators (CSA) requires that
listed entities (entity listed on a
stock exchange) publish audited
financial statements annually
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Different Assurance
Services contd
Limitations of an audit:
There is no guarantee that the financial
statements are free from error or fraud
Judgment is required in the process of
preparation of the financial statements
The nature of financial reporting, the nature
of audit procedures, and the need for the
audit to be performed within a reasonable
period and at a reasonable cost (CAS 200)
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Different Assurance
Services contd
2. Compliance audit
Involves gathering evidence to ascertain
whether rules, policies, procedures, laws
and regulations have been followed
A tax audit is an example of a compliance audit
3. Operational audit
Refers to the economy, efficiency and
effectiveness of an organizations activities
Usually done by internal auditors or can be
outsourced to external auditors
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Different Assurance
Services contd
4. Comprehensive audit
Combines elements of financial
statements audit, compliance audit, and
operational audit
Often occurs in the public sector
5. Internal audit
Provides assurance about various
aspects of an organizations activities
Often contain elements of operational audits,
compliance audits, internal control
assessments and reviews
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Different Assurance
Services contd
6. Corporate Social Responsibility (CSR)
assurance
Includes voluntary reporting about environmental,
employee and social subject matter
Incorporates both financial and non-financial
information
Auditor must consider the impact of
environmental issues on their clients financial
statements when conducting a financial
statement audit
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Copyright
Copyright 2015 John Wiley & Sons Canada, Ltd. All rights
reserved. Reproduction or translation of this work beyond that
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programs or from the use of the information contained herein.
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