Assurance Engagement And Background

Assurance

Assurance means self-belief. In an assurance appointment, an assurance firm is engaged by one party to offer an opinion on a quantity of data that has been prepared by another party.

The opinion is an expression of assurance about the knowledge that has been reviewed.

It gives declaration to the revelry that hired the reassurance rigid that the knowledge is often relied on.

Assurance is often provided by the audit:

This may be an external audit, internal audit, or a mixture of the 2 reviews.

If we clarify it with its backdrop and appropriate information.

Since the economic Revolution in the 18th century, businessmen started forming Joint Stock Companies to try to do business.

In many situations, people that managed the business (called management and directors) were different from those that owned the business (called shareholders).

Administration and Directors had the role of stewardship (i.e. they appear after the assets of the corporate and manage them on behalf of shareholders).

Or agent (i.e. they take action in agreement with directions of shareholders).

To judge the performance of management and directors, shareholders asked them to organize statements about financial performance.

And the financial position of the company (these statements are now called ‘financial statements’) and to supply them these statements.

Soon after, it had been recognized that financial statements prepared by managers/directors presented the “best-view” of business.

Instead of “true-and-fair-view” thanks to some Incentive (e.g. bonus) or Pressure (e.g. fear of removal) faced by management.

Accordingly reliability of the monetary statement was questioned.


To enhance the authority/self-belief/declaration on these financial statements.

A skilled personality (called declaration supplier or auditor) was hired by shareholders to validate monetary statements. This person:

1. Is independent of both managers/directors and shareholders.

2. Gives his report/opinion whether financial statements give true and fair view altogether material respects.

The role of auditors was recognized in a good way. The audit is performed moreover because.

3. they're required by law (called statutory audits e.g. all companies in Pakistan are required by law to urge their annual financial statements audited before they're given to shareholders)

4. they're not required by law but are voluntarily performed due to the value-added benefits of audits.

(called non-statutory auditors e.g. sole-proprietorships, partnerships, and NGOs, etc. undergoing an audit)

 

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