Chapter 1
Assurance and auditing: an overview
Learning objectives
1.1 Understand the framework for assurance engagements and the types of assurance
engagements that can be provided.
1.2 Define auditing and appreciate the fundamental principles underlying an audit.
1.3 Appreciate the attributes of accounting information and understand the reasons giving
rise to demand for assurance.
1.4 Explain the concept of the expectation gap, especially in the areas of auditor’s report
messages, corporate failures, fraud and communicating different levels of assurance,
and appreciate the relationships between the auditor, the client and the public.
1.5 Appreciate the role of auditing standards and their authority under the Corporations Act
2001.
1.6 Obtain an overview of other applications of the assurance function, including
compliance auditing, performance auditing, comprehensive auditing, internal auditing
and forensic auditing, as well as providing assurance on subject matter other than
historical financial information.
Major chapter sections
The framework for assurance engagements and the types of assurance engagements
Auditing—definition and fundamental principles
Attributes of accounting information and the demand for assurance
The auditor–client–public relationship and the expectation gap
The role and authority of auditing standards
Other applications of the assurance function
,Lecture plan
When students arrive at the first lecture, they usually have little understanding of what
assurance and auditing entail. We find that the first class is very important for capturing
students' attention and stimulating their interest in the subject. (Generally, they have also
not read Chapter 1 before the first class.)
It is important to summarise the many things that are currently happening with the
auditor’s role, especially with the demand for an expanded information set, and with those
in charge of resources being made more accountable for their actions.
You can also introduce some of the initiatives of the profession, such as the new form
auditor’s report, to show how auditors are attempting to communicate better with their
constituency. This provides the opportunity to emphasise how important the auditing and
assurance profession is currently perceived to be with regard to the role it plays in society,
and to set the scene for what students can expect during the course. You should outline the
learning objectives for this chapter and walk the students through the flowchart of the
overall auditing and assurance framework.
[Use slides 1-2 to 1-3]
LO 1.1: Understand the framework for assurance engagements and the types of
assurance engagements that can be provided.
With increasing demands for assurance to cover a wide range of subject matters, the
International Auditing and Assurance Standards Board (IAASB) recently a revised
framework for assurance engagements. This framework covers audits as well as reviews of
historical financial information, and also other assurance engagements, such as assurance
on corporate social responsibility reports or greenhouse gas reports, both of which are
increasingly demanded by society. This framework provides independent and expert
auditors with criteria against which to examine reports.
,This section helps students understand the fundamentals of auditing and assurance before
tackling the course. It also shows how the framework relates to both financial report audits
and other assurance services.
The section:
provides an explanation of assurance engagement and its five elements
outlines the need for members of the profession to be independent; that is, without
interests that may create risks of material bias with respect to the quality or content of
information, and to exercise professional judgement and professional scepticism to
maintain the quality of assurance services.
Slide 1.6 contains a diagrammatic depiction of the parties to an insurance engagement,
which can be found on page 9 of the textbook (Figure 1.2).
[Use slides 1-4 to 1-9]
Types of assurance standards
To help students gain a deeper understanding of assurance, this section looks at the types of
assurance standards and pronouncements. It reviews the two different types of assurance:
reasonable assurance engagements (an audit) and limited assurance engagements (a review).
This synopsis of audits and reviews will be useful for students to compare and contrast.
This section also outlines the difference between attestation and direct engagements.
[Use slides 1-10 to 1-13]
LO 1.2: Define auditing and appreciate the fundamental principles underlying an
audit
We have used and expanded on the definition in A Statement of Basic Auditing Concepts
here because it nicely captures the major components of the audit process (outlined on slide
1-15), rather than simply stating the objective. Students should be encouraged to compare
, this definition with the one contained in the Auditing and Assurance Standards Board
(AUASB) glossary/ISA Glossary of Terms. It should be pointed out that these definitions are
similar, although the profession’s definition is more technical and does not use the word
assertion (recognising that there are direct engagements as well as attestation
engagements).
[Use slides 1-14 and 1-15]
Fundamental principles underlying an audit
To understand the evolution of auditing as a discipline, it is important for students to
understand the principles that have dictated such developments. Students, who are the
future of the auditing profession, are expected to be instilled with these principles and
adhere to them when working in the profession.
The section will examine the:
fundamental ethical principles
fundamental auditing principles.
[Use slides 1-16 to 1-18]
LO 1.3: Appreciate the attributes of accounting information and understand the
reasons giving rise to demand for assurance
If students are to thoroughly understand the audit process as it relates to accounting
information, it is crucial for them to appreciate the role of accounting information and the
process of communication through financial reports.
This section highlights the fundamental characteristics of information that enables objective
financial reporting:
relevance
faithful representation
Assurance and auditing: an overview
Learning objectives
1.1 Understand the framework for assurance engagements and the types of assurance
engagements that can be provided.
1.2 Define auditing and appreciate the fundamental principles underlying an audit.
1.3 Appreciate the attributes of accounting information and understand the reasons giving
rise to demand for assurance.
1.4 Explain the concept of the expectation gap, especially in the areas of auditor’s report
messages, corporate failures, fraud and communicating different levels of assurance,
and appreciate the relationships between the auditor, the client and the public.
1.5 Appreciate the role of auditing standards and their authority under the Corporations Act
2001.
1.6 Obtain an overview of other applications of the assurance function, including
compliance auditing, performance auditing, comprehensive auditing, internal auditing
and forensic auditing, as well as providing assurance on subject matter other than
historical financial information.
Major chapter sections
The framework for assurance engagements and the types of assurance engagements
Auditing—definition and fundamental principles
Attributes of accounting information and the demand for assurance
The auditor–client–public relationship and the expectation gap
The role and authority of auditing standards
Other applications of the assurance function
,Lecture plan
When students arrive at the first lecture, they usually have little understanding of what
assurance and auditing entail. We find that the first class is very important for capturing
students' attention and stimulating their interest in the subject. (Generally, they have also
not read Chapter 1 before the first class.)
It is important to summarise the many things that are currently happening with the
auditor’s role, especially with the demand for an expanded information set, and with those
in charge of resources being made more accountable for their actions.
You can also introduce some of the initiatives of the profession, such as the new form
auditor’s report, to show how auditors are attempting to communicate better with their
constituency. This provides the opportunity to emphasise how important the auditing and
assurance profession is currently perceived to be with regard to the role it plays in society,
and to set the scene for what students can expect during the course. You should outline the
learning objectives for this chapter and walk the students through the flowchart of the
overall auditing and assurance framework.
[Use slides 1-2 to 1-3]
LO 1.1: Understand the framework for assurance engagements and the types of
assurance engagements that can be provided.
With increasing demands for assurance to cover a wide range of subject matters, the
International Auditing and Assurance Standards Board (IAASB) recently a revised
framework for assurance engagements. This framework covers audits as well as reviews of
historical financial information, and also other assurance engagements, such as assurance
on corporate social responsibility reports or greenhouse gas reports, both of which are
increasingly demanded by society. This framework provides independent and expert
auditors with criteria against which to examine reports.
,This section helps students understand the fundamentals of auditing and assurance before
tackling the course. It also shows how the framework relates to both financial report audits
and other assurance services.
The section:
provides an explanation of assurance engagement and its five elements
outlines the need for members of the profession to be independent; that is, without
interests that may create risks of material bias with respect to the quality or content of
information, and to exercise professional judgement and professional scepticism to
maintain the quality of assurance services.
Slide 1.6 contains a diagrammatic depiction of the parties to an insurance engagement,
which can be found on page 9 of the textbook (Figure 1.2).
[Use slides 1-4 to 1-9]
Types of assurance standards
To help students gain a deeper understanding of assurance, this section looks at the types of
assurance standards and pronouncements. It reviews the two different types of assurance:
reasonable assurance engagements (an audit) and limited assurance engagements (a review).
This synopsis of audits and reviews will be useful for students to compare and contrast.
This section also outlines the difference between attestation and direct engagements.
[Use slides 1-10 to 1-13]
LO 1.2: Define auditing and appreciate the fundamental principles underlying an
audit
We have used and expanded on the definition in A Statement of Basic Auditing Concepts
here because it nicely captures the major components of the audit process (outlined on slide
1-15), rather than simply stating the objective. Students should be encouraged to compare
, this definition with the one contained in the Auditing and Assurance Standards Board
(AUASB) glossary/ISA Glossary of Terms. It should be pointed out that these definitions are
similar, although the profession’s definition is more technical and does not use the word
assertion (recognising that there are direct engagements as well as attestation
engagements).
[Use slides 1-14 and 1-15]
Fundamental principles underlying an audit
To understand the evolution of auditing as a discipline, it is important for students to
understand the principles that have dictated such developments. Students, who are the
future of the auditing profession, are expected to be instilled with these principles and
adhere to them when working in the profession.
The section will examine the:
fundamental ethical principles
fundamental auditing principles.
[Use slides 1-16 to 1-18]
LO 1.3: Appreciate the attributes of accounting information and understand the
reasons giving rise to demand for assurance
If students are to thoroughly understand the audit process as it relates to accounting
information, it is crucial for them to appreciate the role of accounting information and the
process of communication through financial reports.
This section highlights the fundamental characteristics of information that enables objective
financial reporting:
relevance
faithful representation
