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ACCT3014 Midterm HD Full Summary Notes
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ACCT3014 Midterm HD Full Summary Notes

ACCT3600 - Accounting and Auditing in Practice

18 Pages University of Sydney Complete Study Notes Year Uploaded: 2018

Week 1 Assurance engagement Ÿ 5 elements: 1. Three party relationship 2. Underlying subject matter (financial statement) 3. Criteria (e.g. AASB, ASA) 4. Sufficient appropriate evidence 5. A written assurance report Ÿ 3 types of assurance engagement ü Only reasonable assurance engagement is termed audit ü Audit is a subset of the assurance Audit Ÿ 2 objectives: 1. To obtain reasonable assurance whether the financial report as a whole is free from material misstatement, thereby enabling the auditor to express an opinion on whether the financial report is prepared in accordance with reporting framework 2. To report on the financial report and communicate as required by Australian Auditing Standards (ASA) in accordance with the auditor’s findings Expectation gap Ÿ Audit opinion is to enhance the degree of confidence of intended users. However, this opinion should not be assumed as an assurance to future viability of the entity or its efficiency and effectiveness Ÿ Gap may exist due to: complexity of audit environment, global business practices, increasing demand by stakeholders for accountability and assurances Why have audit Ÿ Possible reasons for the need of audit: 1. Conflict of interest between preparers and users of reports 2. Consequence, e.g. users’ investment decisions as a consequence of report 3. Complexity of information—audit as a third party/professional to illustrate the information in the report 4. Remoteness of owners Ÿ 3 hypotheses on the need of audit 1. Agency theory ü It is in the best interest of both parties (preparers and users) to obtain the services from an independent third party to check the financial report and provide reasonable assurance to ensure the true and fair view 2. Information hypothesis ü Audit is needed to improve the quality of information presented, the improvement in creditability and reliability may benefit entities from lower IR and greater MV 3. Insurance hypothesis ü Financial responsibility for reported data is shifted from management to auditor, however, this results potential litigation crisis for audit profession

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