Audit and Assurance
Introduction
Requirement
Preview
before class.
Ask more, and discuss more.
Make notes.
Review, review, review.
How to give regular marks?
 20%
Attendance
 70% Case study
 10% Performance in class
What F8 is about
 To
develop knowledge and understanding
of the process of carrying out the
assurance engagement and its application
in the context of the professional
regulatory framework.
Characteristics of F8
 High
demand of practical application;
 High demand of knowledge of accounting;
 High demand of knowledge of business
operation;
 High demand of literate ability.
The exam paper
Section A:
8 multiple choice questions ×2 marks = 16 marks
4 multiple choice questions ×1 marks = 4 marks
Subtotal 20 marks
Section B:
4 shorter case questions ×10 marks = 40 marks
2 longer scenario questions ×20 marks = 40 marks
Subtotal 80 marks
Section A and B Total 100 marks
Styles of question
Theory
define, explain, distinguish, describe,
identify…
Applications
illustrate, tabulate, evaluate, analyze…
Instructions
‘List’ i.e. make a list of like things.
 ‘State’ i.e. express in words.
Use one short sentence (bullet point) to
make each answer point.
 ‘Describe’ Use brief sentences but give
more depth than if the instruction was
‘state’
 ‘Explain’ i.e. make plain, clarify
 ‘Discuss’ i.e. give balanced views on and
conclude (where appropriate).
 ‘Identify’ e.g. from the scenario.
 ‘Comment’ i.e. make observations
 ‘Suggest’ i.e. propose or put forward.
在做题过程中也要体会这些答题要求并研究答案的体例

1
Part A Audit framework and regulation
Audit and other assurance
engagements
The purpose of external audit engagement
 An external audit is a type of assurance
engagement that is carried out by an auditor
to give an independent opinion on a set of
financial statements.
Objective of external audit is
‘to enable the auditor to express an
opinion on whether the F/Ss are
prepared, in all material respects, in
accordance with an applicable financial
reporting framework’
Audit
 In
paper F8, it mostly refers to
Financial statements (F/Ss) audit
Statutory and non-statutory audit

Statutory audit
limited liability company, charities (not
all), investment business and trade
unions…
 advantages
shareholders receive impartial view from
auditors; company’s benefits might
include recommendations in relation to
accounting and control system , and
possibility fraud and error found by
auditors
 Non-statutory
audit
auditing may extend to every type
of undertaking which produces
accounts, including clubs, sole
traders and partnerships.
advantages
Accountability and stewardship
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最早出现于宗教用语，后延伸至欧洲中世纪的庄园主和管
家之间的、最早出现的明确、稳定的委托代理责任关系中，
其英文表述为custodianship
随后，随着受托责任在经济生活中的普遍化，其英文表述
逐渐衍生为stewardship(经管责任)，意为资源的管理者
对资源的所有者承担的、对资源所有者交付的资源进行有
效经营和管理的责任。
以后，以日裔美籍会计学家井尻雄士（1975）为代表的
一批学者，认为应该由accountability代替stewardship，
A的意义除了可以包容S所具备的意义之外，还具有与公
司治理相关的特殊意义：资源的受托者对资源的委托方负
有解释、说明其经营活动及其结果的义务，这与公司治理
中的‘说明责任观’不谋而合。
此外，随着公司治理的‘利益相关者’的逐渐蔓延和发展，
受托责任的内涵也逐步扩展到social responsibility
Agency theory
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Ownership separate from mgt (两权分离)
Interest group, interested parties 利益相关者
Agency relationships occur when the principal
employs the agent to perform a task on their
behalf
Agency contract is one offered by the agents to
reassure principals that they will act in the
principal’s interests such as agreeing to provide
information enabling the principal to monitor
their performance
assumption: shareholders will only buy shares if
safeguards are in place to protect their interests
Mgt have an incentive to engage an independent
auditor since investor make decision according to
certain assurance
Agency theory
Agency risk (agency relationship conflicts):
the agents (mgt) act in their own selfinterest
 Steps:
Audited F/Ss make up the information
provided by mgt to prove that they have
acted in the shareholders’ interest
(desirability of an audit)
statutory audit

Director’s responsibility
General : accountable to the shareholders
for the assets that they control on the
shareholder’s behalf
 Specific:
- safeguard assets
- prevent fraud and errors
- keep proper accounting record
- prepare and deliver annual F/Ss
- set up Internal control

Types of assurance services
 External
audit (both statutory and
non-statutory)
 Review
 Internal audit
True and fair
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No definition in legislation or standards
Impossible to define
A term of art, different from scientific truth
In accordance with accounting standards
Free from any bias,
Sometimes use clearly and equitably
Clear, Distinct, plain, impartial, just, not
misleading
Objective, relevant
Prepared on a consistent basis
F/Ss (Subject matter 审计对象)
Determined largely by national legislation
and accounting standards
 Balance sheets
 Income statements
 Cash flow statements
 Statements of changes in equity
 Notes
 Any other explanatory materials
Applicable F/R framework (Criteria)
 Establish
and inform the intended user of
the basis against which the F/Ss are
evaluated or measured
 Provide a frame of reference to prevent
individual misunderstanding
 IASs, IFRS
 The national standards of a particular
country
In all material respects
Not certify or guarantee the F/Ss correct
In practice, absolute assurance is generally
not attainable
Only
provide reasonable
Assurance
Reasonable assurance (inherent limitations )
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use of sampling
use of judgment
Most audit evidence is persuasive rather
than conclusive
Internal control systems have inherent
limitations
Large-scale fraud is often deliberately
concealed
the characteristics of the subject matter
when evaluated or measured against
the identified criteria
Materiality
 Related
with Audit Risk
 Very useful in all process of audit
 Very important in exam
 We will explain in chapter 6
Level of assurance
 High
level （audit – reasonable
assurance)
 Moderate
level (review – negative
assurance)
 No
assurance (agreed-upon procedure,
compilation engagement)