Reasonable Assurance and the Assurance Process Assignment Sample

TASK 1 : Reasonable Assurance and the Assurance Process Assignment Sample

Concept of reasonable assurance in organization

Reasonable assurance is the method through which auditors confirm that all the data provided in the reports are accurate and reliable. In this method, the auditor has collected sufficient and wide variety of evidence as to ensure that information in the statement is not mismatched (Krasodomska, Simnett and Street, 2021). There is high risk of material mismatched in the business entity that has resulted in losing the interest and trust of the stakeholders. However, the mismatched of the statement could not prevent and identified on timely basis, so the process of reasonable assurance is carried out so that reliable information could be provided to the stakeholders. The concept of reasonable assurance is very crucial for the business entity as it help external auditors in ensuring validity and reliability, support management in internal control and results in internal audit. However, statement includes some of subjective and judgemental matters that could be effectively assured. Further the evidence collected by the auditors is generally present in persuasive manner and not in conclusive manner.

Assurance process

There are majorly four steps that need to be effectively followed while carrying out the assurance process in the accounting which includes preparing, planning, performing and reporting. The brief analysis of the assurance process is given below:

Preparing: It is first stage which is related to identifying the risk involved in the assurance process. This level includes selecting team members who to sign the form of independence and declaration (Cho et al, 2020). This phase also includes identifying the need of any additional expert and appointing the same.

Planning: This is the second step that includes formulating plan for effectively carrying out the process. Under this the auditor is involved in assessing the system, processes and controlling measures (Assurance engagement process, 2024). Based on the identified risk, the auditor is involved in designing assurance procedures and prepares an assurance plan.

Performing: This is the execution stage in which the team undertakes all the activities according to the plan. Under this, auditor assess the reliability and accuracy of data based on which conclusion are formed.

Reporting: Under this stage, the auditor prepares the final report based on the conclusion formed in the performing stage (García‐Sánchez, 2020). In this step, the auditor assesses the events, prepares subsequent events, creates summary of errors and covers engagement and materiality risk.

Responsibility of different stakeholders

Following are various stakeholders and their responsibilities in the assurance process:

Purpose and Outcome form different assurance engagement

There are five crucial type of assurance engagement which is as follows:

Financial statement audit: This is the type of reasonable assurance which includes evaluating financial statement of the firm to ensure the accuracy and reliability of financial information. The objective of this audit is to provide the firm’s financial position to all the stakeholders.

Internal audit: This process is carried out by the internal auditors as to assess the internal control, risk and operational efficiency (Olaniyi and Omubo, 2023). The objective of this audit is to enhance governance and internal processes. Results obtained from the internal audit are used for bringing managerial changes and improving internal control.

Compliance Audit: This type of audit is undertaken to ensure that business entity is adhering with all the regulations, legislation, laws and internal policies. Compliance audit helps in identifying the firm’s commitment towards regulatory and legal compliances. This auditing assists in mitigating the risk by identifying compliance issues that result in avoiding the disruptions. 

Performance Audit:  This is the type of audit which involved towards assessing the overall efficiency and performances of the business entity. Performance audit does not only involve financial analysis but evaluate overall organization’s productivity (Raji et al, 2020). Performance analysis will help in identifying a measure that needs to introduce so that goals could be effectively achieved.

Information system Audit:  IT or information system audit is undertaken with the aim of analysing the organization’s IT system, data security, system control and IT governance. This audit will help in ensuring that firm is effectively maintaining integrity of the data and supports in determining the firm’s operating efficiency.

Guidelines and benchmarks in assurance practices

There are various guidelines, practices and benchmarks that need to be followed for effectively carried out the assurance processes which are as follows:

COSO framework: The COSO framework was provided by the American accounting association, institution of internal audit and Institute of management Accountants with the aim of improving corporate governance function within a business entity. There are five crucial component of the COSO framework that includes risk assessment and management, control environment, control activities, communication and monitoring. 

Guideline for Internal control: Guidelines of the internal control includes effective compliance with the company’s policies, ensuring reliability as well as accuracy in operating data and accounting (Lois et al, 2020). The guideline also includes resource protection against the fraud and inefficiency.

Benchmarks: ISQM 1 is the benchmark in assurance which includes the responsibility of organization to create system of Quality management based on which financial statement are analysed.

Need of internal control in crucial areas of business entity

Internal control is required in each aspect of the business entity but some areas need close or effective monitoring and evaluation. This control system is required in finance department of the business entity that helps in ensuring integrity of the reporting (Prinsloo and Maroun, 2021). Audit control system facilitates effective compliance with the regulations & laws and helps in preventing the frauds. The operational efficiency of firm is also improved by the internal control as this process ensures that activities are adhered with the budgets, risk and capital. Through this, shortcomings can be assessed and gives input for the policy formulation for performance enhancement.

Components of internal control in manual and digital environments

In both manual and digital environment, there are five significant elements of the internal control such as control environment, risk assessment, control activities, information and communication as well as monitoring which used by the Sportswear Company.

• Control environment: This component ensures the culture of compliance within business encompassing how workforces and executives are assessing internal controls.
• Risk assessment: With the help of this, sportswear organization can determine the significant risks and executing controls to overcome the same (Sudirman et al, 2021).
• Control activities: It includes designing and executing controls in an effective way by using automation and accounting systems. 
• Information and communication: Communicate the information to the external and internal audience as well as processing data into quality information.
• Monitoring: Organization can monitor the process and modifying any deficiencies.

Evaluation of internal controls 

In the current times, it is challenging for the companies to evaluate the internal controls because of time consuming process. For the evaluation of internal controls the auditors are accountable to assess the culture of compliance. It helps in determining the attitude of workforces and business towards compliance as well as controls. For evaluating the internal controls, it is important for the Sportswear Company to emphasis in examine the exposure of risks. It is important for the auditors to review the controls for effective evaluation (Herawati and Hernando, 2020). In addition to this, it is significant for audit teams to clear communicate regarding internal controls that require assurance. For the effective evaluation of internal controls it is important to monitor the internal control and make changes if required. It has been concluded that, organizations can measure the internal controls by examining the culture of compliance, risk exposure, review controls, internal communication and monitoring.

TASK 2

Difference stages in assurance engagement:

For effectively completing the evidence collection process in the assurance engagement five crucial stages have been followed which are as follows:
 Planning: It is the initial stage that includes creating a plan regarding the data which needs to be collected. In this stage, the action plan will be formulated and the type of evidence that needs to be collected will be identified.

Identifying method: This is the second step which includes deciding on the method through which evidence will be collected (Pedrosa, Costa and Aparicio, 2020). Under this step various methods will be evaluated and the best or most optimum method or group of method will be selected for collecting the evidence.

Collection: It is the third stage that includes implementation of the plan and collection of the data. Under this, employees will utilize the selected method so that the most optimum and reliable evidence would be gathered.

Analysis: This is the last step which includes analysis of the collected evidence so that assurance process could be carried out. The reliability of the collected data will be checked as to get valid outcome.

Different method for collecting evidence in assurance engagement

There are large numbers of methods that used for collecting the evidence related to assurance engagement which as follows:

Interview with key post holders: For collecting evidence in the assurance engagement, interview has been initiated with the key post holders (Audit Methods and Test of Controls. 2024). This will help in collecting all the crucial information regarding the firm’s operations and assists in effectively undertaking the assurance process.

Recalculation: This is the method in which auditor is involved in undertaking calculation as to ensure accuracy.

Inspection: All the document and physical assets of the company are inspected as to collected evidences in assurance engagement (Rohman et al, 2023). Inspection of the documents helps in ensuring the degrees of reliability and source of document. Physical assets inspection aids in providing the evidences regarding the existence of the assets and its value.

Observation: It is another method of collecting evidences that includes observing entity’s policy and client application that helps in gaining accurate data for assurances procedure. 

Role of different level of management in Assurance process:

The three level of management involved in carried out the process of the assurance includes top, middle and lower level of management. The role and responsibility of the different level of management could be understood through following points:

Top level management: Manager at this level are involved in framing plan and policies based on which further functioning of the organisation are carried out. This are includes in taking decision for other level of management and guides the overall working of the organization. 

Middle level management: The middle level managers are focused over communicating the decision of top level manager to others (Sheldon and Jenkins, 2020). They are also involved in monitoring the performance of employees. Manager in this level puts emphasis on assigning task to other and involved in supervising others.

Lower level management: These managers are directly in contact with the staff members because of which they are involved towards enhancing collaboration and communication within assurance process.

REFERENCES

Books and Journals

• Cho, S., Vasarhelyi, M.A., Sun, T. and Zhang, C., 2020. Learning from machine learning in accounting and assurance. Journal of Emerging Technologies in Accounting, 17(1), pp.1-10.
• Crystal, N.M. and Giesel, G.M., 2024. Professional Responsibility: Problems of Practice and the Profession [Connected EBook with Study Center]. Aspen Publishing.
• García‐Sánchez, I.M., 2020. Drivers of the CSR report assurance quality: Credibility and consistency for stakeholder engagement. Corporate Social Responsibility and Environmental Management, 27(6), pp.2530-2547.
• Herawati, N. and Hernando, R., 2020. Analysis of Internal Control of Good Corporate Governance and Fraud Prevention (Study at the Regional Government of Jambi). Sriwijaya International Journal of Dynamic Economics and Business, 4(2), pp.103-118.
• Krasodomska, J., Simnett, R. and Street, D.L., 2021. Extended external reporting assurance: Current practices and challenges. Journal of International Financial Management & Accounting, 32(1), pp.104-142.
• Krubiner, C.B., Faden, R.R., Karron, R.A., Little, M.O., Lyerly, A.D., Abramson, J.S., Beigi, R.H., Cravioto, A.R., Durbin, A.P., Gellin, B.G. and Gupta, S.B., 2021. Pregnant women & vaccines against emerging epidemic threats: ethics guidance for preparedness, research, and response. Vaccine, 39(1), pp.85-120.
• Lois, P., Drogalas, G., Karagiorgos, A. and Tsikalakis, K., 2020. Internal audits in the digital era: opportunities risks and challenges. EuroMed Journal of Business, 15(2), pp.205-217.
• Maroun, W., 2020. A conceptual model for understanding corporate social responsibility assurance practice. Journal of Business Ethics, 161, pp.187-209.
• Olaniyi, O. and Omubo, D.S., 2023. The importance of COSO framework compliance in information technology auditing and enterprise resource management. International Journal of Innovative Research & Development, 12(4).
• Pedrosa, I., Costa, C.J. and Aparicio, M., 2020. Determinants adoption of computer-assisted auditing tools (CAATs). Cognition, Technology & Work, 22, pp.565-583.
• Prinsloo, A. and Maroun, W., 2021. An exploratory study on the components and quality of combined assurance in an integrated or a sustainability reporting setting. Sustainability Accounting, Management and Policy Journal, 12(1), pp.1-29.
• Raji, I.D., Smart, A., White, R.N., Mitchell, M., Gebru, T., Hutchinson, B., Smith-Loud, J., Theron, D. and Barnes, P., 2020, January. Closing the AI accountability gap: Defining an end-to-end framework for internal algorithmic auditing. In Proceedings of the 2020 conference on fairness, accountability, and transparency (pp. 33-44).
• Rohman, F., Noermijati, N., Mugiono, M. and Soelton, M., 2023. The role of quality assurance in improving the distribution of organizational performance. Uncertain Supply Chain Management, 11(1), pp.237-248.
• Sheldon, M.D. and Jenkins, J.G., 2020. The influence of firm performance and (level of) assurance on the believability of management's environmental report. Accounting, Auditing & Accountability Journal, 33(3), pp.501-528.
• Sudirman, S., Sasmita, H., Krisnanto, B. and Muchsidin, F.F., 2021. Effectiveness of Internal Audit in Supporting Internal Control and Prevention of Fraud. Bongaya Journal of Research in Accounting (BJRA), 4(1), pp.8-15.

Online

• Audit Methods and Test of Controls. 2024.Online. Available through:< https://linfordco.com/blog/audit-procedures-testing/ >
• Assurance engagement process. 2024.Online. Available through: <https://cer.gov.au/schemes/audits-our-schemes/assurance-engagement-process >

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