What is the Difference between auditing and assurance?

What is the Difference between auditing and assurance?

Assurance is “Give an independent opinion regarding information, made by one party behalf of another party.”  I will describe this, I think if you don’t know about this subject can’t understand.

Normally management is preparing financial statements, but beneficial parties don’t accept that accounts so independent party gives an assurance that these financial statements free from material misstatements. Then the beneficial parties accept that.

So I think you got the idea what I said. But auditors don’t give fully assurance because auditors look 

sample basis transactions,

Inherent weakness of internal control,

 Audit Evidence is more persuasive than conclusive.

High judgmental involvement.

Involvement of estimates 

If you get assurance is house, audit named person lives inside the house.

There are two types of assurance

1.       Audit

2.       Analytical Reviews

Audit is you normally know and I described in previous articles.

In an audit, an auditor gives a Reasonable assurance and in Analytical Reviews auditors give limited assurance.

Benefits of assurance

Enhance the creditability of information

Reduce risk of management bias

Attention on weakness of information

I described that there are reasonable assurance and limited assurance; I will describe it as follows

CRITERIA                              Reasonable ASSURANCE                   Limited assurance

Evidence Taking                   sufficient and appropriate                            sufficient and relevant

Risk on Task                        low                                                                         High

Conclusion                          Positive                                                                    negative

Assurance                           high                                                                       Middle/Low

What are the Elements of Assurance?

Parties

1)      Chartered accountant(Independent Auditor)

2)      Responsibility Party(Management)

3)      Beneficial Party.(Share Holders , Government ,Tax Department)

 Subject Matter

Suitable Criteria

Sufficient appropriate evidence to support conclusion

Report

 

What is Test of Controls?

What is Test of Controls?

 Auditors check Material Misstatements may prevent, reveal and correct from this internal control and its durability.  

As a Example, when we Check sales invoices in a company we check quantities, prices, authorized sign etc.

This is internal Auditing testing system. If we perform an External Audit, there are many testing Controls there.

There are two Main point of this test

·         Design

·         Operation

]

Design – Internal Control design for Reveal, Correct, Prevent material Misstatements

Operation – this particular Internal control long lasting on this company.

This Test of Controls can evaluate the procedures of the company.

What is Substantive Procedure?

It’s an audit procedure to Reveal Material Misstatements on Financial Statements.

There are two ways of Substantive Procedures.

Transaction Testing and Comprehensive Testing

 Transaction Testing

Test on Material Transactions

Comprehensive Testing

There two ways of this 

·         Correct Ledger Posting of relevant period.

·         Accuracy of Ledger Posting

As a example If we look to purchase procedure, check Purchase Order, Supplier Invoice, Good Receive Note, Credit Invoice, Cash Invoice.