assurance note

1. Chapter 1: Concept of Need for Assurance
1.1 WHAT ISASSURANCE ENGAGEMENT?(Dec-2015),
An assurance engagement is one in which a practitioner express a conclusion designed to enhance the degree of
confidence of intendedusers otherthan the reasonable party the outcome of the evaluationor measurement of a
subject matter against criteria.
1.2 KEY ELEMENTS OF AN ASSURANCE ENGAGEMENT  (Jun/10,11,12;Dec/13)
A. Three people involved
i. The practitioner(e.g.,Accountant)
ii. The intendedusers (e.g.,
Shareholder/ownersof company)
iii. The reasonable party(the
person(s)/managementwhoprepare the
subjectmatter)
B. A subjectmatter (Onwhichthe assurance is
given)
A subjectmatterislikelytofall intothree
categories:
i. Data (For example, Financial Statementor
Businessprojection)
ii. Systemsor process (For examples, internal
control systemor computersystem)
iii. Behavior (Forexamples,Social&
Environmental performance orcorporate
governance)
C. Suitable criteria (নির্ ণায়ক, মািদন্ড)
Suitable criteriathoughtof as‘the rules’against
whichthe subjectmatterisevaluatedinorderto
reach an opinion.Forexamples Lawand
accounting standards,BSAs,BFRSs.
D. Sufficientappropriate evidence to supportthe
assurance opinion.
E. A written report inappropriate form.
1.3 LEVEL OFASSURANCE
Level of assurance dependonthe evidence thatcan be obtainedby the practitioner(Accountant/Surveyor)
There are 2 typesof assurance engagement:
I. Reasonable (িযায্য, যয্ৌক্তিক) assurance engagement (Complete accesstosubjectmatterbypractitioner)
II. Limitedassurance engagement(Limitedaccesstosubjectmatterbypractitioner)
The key difference between2typesof assurance engagementare:
a) The evidence obtained(SufficientandAppropriate[Highlevel (Forreasonable)orLowerlevel (ForLtd)])
b) The typesof opiniongiven(Positive[ Forreasonable] orNegative [ForLimited])
An example of 2typesisgivenbelow:
 A practitioner is seeking evidence to conclude (নিদ্ধান্তে উপনিত হওয়া) whether the report issued by the
chairman of a company in the financial statement is reasonable or not. He could seek evidence,
conclude that the statement is reasonable and state a report something like this:
A. ‘In my opinion, the statement by chairman regarding X is reasonable.’ (positive andReasonable)
B. ‘In the course of my seeking evidence about the statement by the chairman, nothing has come to
my attention that the statement is not reasonable.’ (This conclusion is less certain, as it implies that
matters could exist which cause the statement to be unreasonable but the practitioner has not
uncovered (উদগাঘাটি করা হয় নি) any such matters. This is therefore called negative assurance [Lower
level of assurance] and limited assurance).
1.4 EXAMPLESOF ASSURANCE ENGAGEMENT
I. Local authorityaudit
II. Bank/Insurance companyaudit
III. Pensionscheme audit
IV. Solicitors’(আইিজীনি) audit
V. Environmental audit
VI. Internal audit
VII. Inventoriesand receivablesreport
VIII. Value of moneystudies
IX. Cost/Benefitreport
X. Reportson Businessplanandprojection
XI. Internal control report.
1.5 THE FOLLOWING SERVICESARE NOT ASSURANCE ENGAGEMENT
I. Compilationof accounts
II. Tax preparation
III. Managementconsultancy
IV. Otheradvisoryreport

2. 1.6 AUDIT
Auditishistoricallythe mostimportanttype of assurance service inBangladesh.Auditisaprocesswhichenable to
expressthe opiniononthe financial statement.
The objective of anauditof financial statementistoenable the auditortoexpressanopinionwhetherthe financial
statementsare prepared,inall material respects(প্রািনিক মাি), in accordance withan applicable financial reporting
framework.
In Bangladesh,the auditorwillnormallyexpresshis auditopinionbyreference to ‘true and fair view’,whichisan
expressionofreasonable assurance.(Dec-2015)
 TRUE: Informationis factual (িাস্তনিক) and conformswithreality,notfalse.
 FAIR: Informationisfree fromdiscriminationandbiasincompliance withexpectedstandardsandrules.
1.7 LEGAL AND PROFESSIONAL REQUIREMENTS OFAUDITORS IN BANGLADESH
The companyAct1994 requiresthatauditorsmustbe a memberofICAB(a recognized supervisory body under theministry
of commerce of the government of Bangladesh). Professional qualifications (e.g. ACA, FCA) are a prerequisite of
membership of ICAB.
ICAB has the responsibilityto implementprocedure formonitoringits licensedauditors (ACA,FCA),toissue
auditingstandards and to issue ethical standards.
1.8 INELIGIBLE PERSON FOR BEING A COMPANY AUDITOR (Company Act1994) (June-2015)
CompaniesActsetout factorswhichmake a personineligible forbeingcompanyauditor,forexample,
I. An officeroremployee of the company
II. A partneror an employee of anyofficer,employee tothe company.
III. A personwho indebtedtothe company exceedingTK.1,000
IV. A personwhoisdirectoror a memberof a private company,or a firm, whichisthe managingagentof the
company.
V. A personwhoisdirectoror holderof shares exceeding5% of the subscribedcapital.
1.9 BSA 200 ObjectivesandGeneral PrinciplesGoverninganAuditof Financial Statementsstatesthat:
I. Auditorsshould complywithrelevantethical requirementrelatingtoauditengagement.
II. An auditorshouldconductanauditin accordance with ISAs (InternationalStandardsof Auditing).
III. Auditorare requiredtocarry out theirworkwitha degree of professional scepticism(িন্তেহপ্রিিতা)
1.10 AUDIT RISK
Auditormustassess(পনরমাপ করা) the risks associatedwith the audit and to seekto minimizethose riskssothatthe
risk of givingthe wrong opinion on financial statementisminimized.Thisrisksreferredtoauditrisk.
1.11 IMPORTANCE/BENEFIT OF ASSURANCE (Dec-2015)
 Keybenefit:Independent,professional verification andopinionbeinggiventothe intended users.
 SubsidiaryBenefit:
I. Give confidence tootherparties/Users.
II. Deterrent(প্রনতন্তরাধক; Preventative) tofraudand error.
III. Reduce the risk of management bias.
IV. Adds to the reputation of organizations.
V. Userscan know the existence of problems/deficienciesinthe informationprovidedbymanagement.
1.11 LIMITATION OF ASSURANCE(WHY ASSURANCE NEVERBE ABSOLUTE?) (Dec-2015)
Assurance can never be absolute. A key issue(Problem) for accountants is that there are limitations to assurance
services,andtherefore there isalwaysa risk involvedthat the wrong conclusionwill be drawn. Assurance provider
can never give certification of absolute correctness due to the limitations set out below:
I. Testing is used (Sampling basis)–The auditors do not oversee (তদারক করা) the process of the financial
statement from start to finish. Assurance providers would not test every item of subject matter.
II. Conclude estimates - Some items inthe subjectmattermay be estimates and are therefore uncertainandit
is impossible to conclude absolutely that judgmental estimates are correct.
III. Information of third party
IV. The assurance providers have to rely on the reasonable party and its staff to provide correct information.
V. The client’sstaffmay involveinfraudthatcanbe intentionallyhiddenfromthe auditorormisrepresent(নমথ্যা
ির্ ণিা) matter to them for the same reason.

3. VI. Most audit evidence ispersuasive ratherthanconclusive (নি:িক্তেগ্ধ).
1.12 THE EXPECTATION GAP
Users are not aware of the nature of the limitationson assurance provision, ordo not understandand believe that
assurance provider offering a service (such as a guarantee of correctness) which in fact he is not. The distinction
between reasonable and limited assurance may also be misunderstood by users.
So, the expectationgapisa gap betweenwhatthe assurance providerunderstands he isdoing and whatthe userof
the information believes he(Auditor) is doing.
1.13 HOW TO CLOSE THIS GAP
Assurance providerneedtoclosethisgapasfaraspossible inordertomaintainedthe value of theassurance provided
for the users. This is done by variety ways, for examples:
I. By issuingan engagementletterspellingoutthe scope of work andthe limitationofthe work
II. By regularly reviewingthe formatand content ofreport issuedasa resultof assurance work.
 END OF THE CHAPTER 
Chapter 2: Processof Assurance [Obtainingan Engagement]
2.1 HOW AUDIT/ASSURANCEFIRMOBTAIN AN ENGAGEMENT
Accountants are often invited to tender (Offer/Proposal) for particular engagements, which means they offer a
quote for services, outlining(Describing) the personnel (Staffsof engagement),usuallyincompetitionwithother
firms which are tendering at the same time.
2.2 ACCEPTINGAN ENGAGEMENT (APPOINTMENTCONSIDERATIONS)
As perschedule Cof ICAB & IFAC code of ethics,for acceptinga new engagement/appointment/new clientaudit
the auditormust carry out the followingprocedure:
I. Ensure professionallyqualified toact
II. Ensure existingresourcesadequate –Availabilityof time, Staff andtechnical expertise.
III. Obtainreference –make independentenquiryif directorsnotpersonallyknown.
IV. Communicate withpresentauditor.
2.3 BASICFACTORSOF APPOINTMENTCONSIDERATION
 The integrityof those managingacompany
 The risk position(LoworHigh)
2.3 RISKFACTORSFOR ACCEPTINGAN ENGAGEMENT
Low Risk High Risk
1. Good longterm prospects(Expectation) Poorrecentor forecastperformance
2. Well-financed Likelylackof finance
3. Strong internal control Significantcontrol weakness
4. Conservative,prudentaccountingpolicies Evidence of questionableintegrity, doubtful accountingpolicies
5. Competent,honestmanagement Lack of finance director
6. Fewunusual transaction Significantunexplainedtransactions
2.4 WHY AUDIT FIRMWANT LONGTERM RELATIONSHIPWITHCLIENT?
Audit firm will generally want long term relationship withclient and this is not only to enjoy receiving fees year
after year but; it is also to allow the audit work to be enhanced by better knowledge of the client and thereby
offer a better service.
2.5 SOURCES OF INFORMATION ABOUT NEW CLIENT
 Enquiries of other sources – Bankers, Solicitors
 Review of documents – Most recent annual accounts, credit rating
 Previousaccountantsorauditors–previousauditorsshouldbeinvitedtodisclosefullyall relevant information
 Review of rules and standards – Consider specific law/standards that relate to industry.

4. 2.6 PROCEDURE AFTER ACCEPTING ENGAGEMENT
 Ensure that outgoing auditor’s removal was carried out properly (in accordance with national legislation)
 Ensure thatnew appointmentisvalid(obtainingacopyof resolutionpassedatthe general meetingappointing
them as company’s auditor.
 Submit a letter of engagement to the board of directors of the company.
2.7 FORMALITIES OF COMPANY ACT 1994 REGARDING ACCEPTING A NEW CLIENT
Auditor inform his acceptance of new audit in form 23B within 30 days to RJSC.
2.8 AUDIT ENGAGEMENT LETTER
Auditstandardsrequiredthatthe auditor and the clientshouldbe agreedon the terms of the engagement.The
agreedtermsmustbe inwritingandtheusualformwouldbealetterof engagement.Anengagementlettershould
be sent to all clients to clarify the terms of the engagement.
2.9 PURPOSE OF ENGAGEMENT LETTER
I. To define clearlythe extent(িযানি, Limit) of the firm’s responsibilityandto minimize the possibilityof any
misunderstanding between the client and the firm.
II. To provide written confirmation of the firm’s acceptance of the appointment.
2.10 INFORMATION THAT INCLUDE IN AUDIT ENGAGEMENT LETTER
Content of audit engagement letter:
I. The objective of audit of the financial statement
II. The scope of the audit
III. Management responsibility for the financial statements
IV. Reporting form
V. Test nature and inherent limitations of an audit
VI. Unrestricted access
2.11 WRITE THE COMMUNICATION LETTER WITH PREVIOUS AUDITOR
See Jahed Bai’s (SSAC) note: page 3, chapter-2.
2.12 WRITE AN ENGAGEMENT LETTER TO NEW CLIENT
See Jahed Bai’s (SSAC) note: page 4, chapter-2.
 END OF THE CHAPTER 
Chapter 3: Processof Assurance [Planningthe Assignment]
3.1 Prerequisite of effective & efficient audit
An effective and efficient audit relies on proper planning procedure. ISA 300 states that the auditor should plan
the audit so that the engagement will be performed in an effective manner.
3.2 Audit strategy
Auditstrategyisthe formulationof general strategyfor the auditwhichsets scope, timing,and direction of audit
and guides the development of audit plan.
3.3 Audit plan
Anauditplanshows howthe overallauditstrategywillbe implemented.Itisasetof instructionstothe auditteam
that sets out the further audit procedure to be carried out.
Auditplanismore detailedthan auditstrategysetsout nature, timing,and extentof audit procedures (including
riskassessment) tobe performedbyengagement teammembersinordertoobtainsufficientanappropriate audit
evidence.
3.4 How audit plan will be implement/Why audits are planned:
i. Ensure appropriate attention is devoted (Nijokto) to important area of the audit
ii. Ensure that audit is properly organized and managed
iii. Facilitate (Simplify) direction and supervision of engagement team member.
iv. Assign work to engagement team members properly.
v. Identify potential problem and resolve them on a timely basis
vi. Facilitate review of work.
3.5 A structured approach or key element of planning or planning procedure
i. Ensuring the ethical requirements continue to be met

5. ii. Ensuring the term of engagement are understood
iii. Establishing the overall audit strategy
iv. Developinganauditplanincludingriskassessmentprocedures,audit test,andanyotherprocedurenecessary
to comply with.
3.6 The key elements of audit strategy
I. Understanding the entity’s environment
II. Understanding the accounting an internal control system
III. Risk and materiality
IV. Consequent nature, Timing, and extent of procedures
V. Co-ordination, direction, supervision and review
3.7 How audit strategy can be established
I. Determiningthe relevantcharacteristicsof the engagement (Suchas,the reportingframeworkusedasthis
will set the scope for the engagement and understanding the entity and its environment.
II. Determiningthe keydatesforreportingandothercommunication.
III. Determiningmateriality,preliminaryriskassessment(whetherinternal controlsare tobe tested)
IV. Considerationof whenworkistobe carriedout (before orafterthe yearend)
V. Considerationof ‘teammembers’available theirskillhow andwhentheyare to be used (Forexample
particularskill forhighriskarea.
3.8 Why the auditor should plan the audit (as per BSA 300)?
The auditorshouldplanthe auditso that the engagementwill be performedinaneffective manner.
3.9 What do you understand by entity (as per BSA 315)?
The auditorshouldobtainandunderstandingof the entityanditsenvironment.
3.10 Why do need an understanding of entity’s environment?
I. To identifyand assessthe risk of material misstatementinthe financial statement.
II. To designand perform furtheraudit procedure
III. To provide a frame ofreference forexercisingauditjudgment
IV. To be betterable to assessthe risk of fraud
3.11 What we have to see of an entity?
I. Industry, regulatoryand otherexternal factors
II. Internal control
III. Nature of the business includingselectionandapplicationof accountingpolicies.
IV. Measurementand reviewof entity’s financial statement
V. Objectivesandstrategiesand relatingbusinessriskthatmightcause material misstatementinthe
financial statement.
3.12 How do we understand of an entity’s environment?
I. Inquiriesof managementand others withinthe entity.
II. Analytical procedures.
III. Observationand inspection.
IV. Prior periodknowledge.
3.13 What do you mean by “Professional Scepticism”?
Anattitude of professionalscepticismmeansa critical assessment(সমাললাচনামুলক মূলযায়ন) withaquestioning
mind.Professional scepticismdoesnotmeanthatthe auditorsshoulddisbelieveeverythingthattheyare told,
however they must have a questioning attitude.
3.14 What is analytical procedure?
Analytical procedures mean evaluation of financial information made by a study of plausible (নিশ্বািন্তয্াগয)
relationships among both financial and non-financial data (For example relationship between salaries
expenses and number of employees and their designation).

6. 3.15 Whatmattersare includedinthe analytical procedures(AsperBSA)?/ How analytical proceduresare applied?
The BSA statesthatanalytical procedures include:
 The considerationofcomparisons with:
a) Comparable information forprior periods
b) Anticipatedresults of the entityfrombudgets,forecastorexpectationof the auditor.
c) Similarindustryinformation
 The considerationof relationships between:
a) Elementsof financial informationthatare expected toconform(Mil howa) to a predictedpattern
basedon the entity’sexperience (Suchasthe relationshipof grossprofittosales).
b) Financial informationand relevantnon-financial information(suchasthe relationshipof payroll
costs to numberof employees)
3.16 What are the sources of analytical procedures in planning the audit?
I. Interim(মধযিতী িময়, interval) financial information
II. Non-financial information
III. Budgets
IV. Bank andcash records
V. Board minutes(notes,records)
VI. VATreturns
VII. Managementaccounts
VIII. Discussionsorcorrespondencewiththe clientatthe year-end
3.17 Certain accounting ratios that used as analytical procedures:
Performance, short & Long-term liquidity, efficiency ratio [ Mannual page 50(Assurance) ].
3.18 Materiality
Materiality relates to the level of error that affects the decisions of users of the accounts.
As perBSA framework, amatter is material if itsomissionor misstatements wouldreasonably influencethe
economicdecisionof the users takenon the basis of the financial statements.
3.19 Benefit of measurement of Materiality
Materialityassessmentwill helpthe auditortodecide –
A. How manyand whatitemto examine
B. Whether(নকিা) to use samplingtechniques
C. What level oferror is likelytoleadtoanauditorto say the financial statementdo notgive a true and fair
view.
3.20 How materiality is used in the course of an assurance engagement?
See manual page 53 (Figure:3.2: Auditmateriality).
3.21 How can we determine materiality? Or, describe the method of assessing of materiality.
Methodsof assessof materiality:
Particulars Materiality level
Profitbefore tax 5%
Gross profit ½ - 1%
Revenue ½ - 1%
Total assets 1 – 2%
Netassets 2 – 5%
Profitaftertax 5 – 10%
3.22 When we should be considered materiality?
As perBSA 320 materialityshouldbe consideredwhen –
i. Determiningthe nature,timingandextentof auditprocedure
ii. Evaluatingthe effectof misstatements

7. 3.23 Why do need review of materiality?
The level of materialitymustbe reviewedbecause –
i. Draft accounts are altered(due to material errorandso on) and therefore overall materialitychanges.
ii. External factors may cause changes inrisk estimates.
Such changesare causedby errors foundduringtesting.
3.24 Tolerable error
The maximumerror that an auditor is preparedto accept in a class of transactionsor balancesinthe financial
statements.
3.25 Audit risk
The risk that the auditorsgive an inappropriate opinionon the financial statements.
Audit Risk = InherentriskXControl riskX Detectionrisk.
3.26 Elements of audit risk
Auditriskhas twoelements –
1. The risk that financial statements containamaterial misstatement.
2. The risk that auditorswill fail todetectany material misstatement.
3.27 Inherent risk
The susceptibility(িংন্তিদিশীলতা) of an accountbalance or class of transactionsto misstatement (ভু ল বিিৃবি) that
couldbe material individuallyorwhenaggregatedwithmisstatementsinotherbalancesorclasses,assumingthere
were no relatedinternal controls. Inherentrisk isaffectedbythe nature ofentity.
3.28 Issues that might increase inherent risk
Inherentriskisthe riskthat will be misstateddue to characteristicsof those items.Examplesof issuesthatmight
increase inherentrisk are:
A. Balance isor includesan estimate.
B. Balance isimportantinaccount
C. Financial statementsare liable tomisstatementsbecause:
i. Companyisin trouble
ii. Companyisseekingtoraise finance
iii. Othermotivationfordirectorstomisstate the figures(suchasprofittargetsorprofitrelated bonuses)
D. Financial statementscontainbalanceswith complexfinancial accountingrequirements orchoice of treatment
The auditor mustuse theirprofessional judgementandall available knowledgetoassessinherentrisk,if nosuch
informationorknowledge isavailablethenthe inherentriskishigh.
Inherentriskisaffectedby the nature of the entity;forexamples,the industryitisin andthe regulationitfall
under,andthe nature of strategiesitadopts.
3.29 Control risk:
The risk that a material misstatementwould notbe prevented,detectedorcorrected bythe accountingand
internal control systems.
3.30 Detection risk:
The risk that the auditors'procedures will notdetecta misstatementthatexistsinan accountbalance or classof
transactionsthatcouldbe material,eitherindividuallyorwhenaggregatedwithmisstatementsinotherbalances
or classes.
3.31 Objective of an audit as per BSA 200.
As perBSA 200, ‘The auditorshouldplanandperformthe auditto reduces auditrisktoan acceptably lowlevel
that isconsistentwiththe objective of the audit’, thatis,givingreasonable assurance onthe truthandfairnessof
the financial statements.
Note 1: The auditorwill obviouslyconsiderhow riskyanew clientinduringthe acceptance process,andmay
decide notto aheadwithwiththe relationshipforhighriskyclient.
Note 2: It is notin the auditors’powertoaffectinherentandcontrol risk.Astheyare risksintegral tothe client,
the auditorcannot change the level of these risks.

8. Note 3: The auditormanagesoverall auditriskby manipulating(বনপুনভালি পবিচালনা কিা) detectionrisk,the only
elementof auditriskthe auditorhascontrol over.
3.32 Identifying and assessing the risk as per BSA 315.
BSA 315 says that 'the auditorshould identifyandassessthe risks of material misstatement at the financial
statementlevel,andat the assertion (বিিৃবি) level forclassesof transactions,accountbalances,anddisclosures'.
It requiresthe auditortotake the followingsteps:
Step1: Identifyrisksthroughoutthe processof obtaininganunderstandingof the entity
Step2: Relate the riskstowhatcan go wrongat the assertionlevel ( thisassertionismade inthe financial
statementsbythe director,forexample,thatinventoryisCUx)
Step3: Considerwhetherthe risksare of a magnitude (Large,Give importance)thatcould resultinamaterial
misstatement
Step4: Considerthe likelihoodof the riskscausingamaterial misstatement
3.33 Significant risk as per BSA 315/ Mention some significant risk.
Some risksmaybe significantrisks,whichrequire special auditconsideration.BSA 315 setsoutthe following
factors whichindicate thatarisk mightbe a significantrisk:
1. Riskof fraud
2. Relatedtorecentsignificanteconomic,accountingorotherdevelopment
3. The complexityof the transaction
4. The degree of subjectivityinthe financial information
5. It isan unusual transaction
6. It is a significanttransactionwitharelatedparty
3.34 Explain the risk based approach.
Auditorsanalyse the risksassociatedwiththe client'sbusiness,transactionsandsystemswhichcouldleadto
misstatementsinthe financial statements,anddirecttheirtestingtoriskyareas.
3.35 What are the major contents of audit risk?
Major componentsof auditrisk:
a) Dependentonthe client
b) Dependentonthe auditors.
 END OF THE CHAPTER 
Chapter 4: Processof Assurance [Evidence andReporting]
4.1 Audit Evidence
Auditevidencemeans all the informationusedbythe auditorin arriving at the conclusions on whichthe audit
opinionis based.Auditormustobtain sufficientandappropriate auditevidence.
4.2 How to collectAudit evidence
There are two types of potentiallytestsbyauditorscarryout to gatherevidence –
1. Testsof controls: Auditprocedures Performedtoobtain auditevidence aboutthe effectivenessofcontrols
inpreventing,ordetectingandcorrectingmaterial misstatementsatthe assertionlevel.
2. Substantive procedures:Auditproceduresperformedtodetectmaterialmisstatementsatthe assertion
level.Theyinclude/There are twotypesof substantive test:
 Testsof detail of classesoftransactions, account balancesand disclosures.
 Substantive analytical procedures.
4.3 Whydo auditorsneedto carry out test ofcontrol?
For followingreasons:
1) The directorssetup systemsof internal controlstoensure theyreportcorrectlytothe shareholders

9. 2) The auditorsare requiredtoconclude whetherthe financialstatementsgive atrue andfairview.
3) The auditorsevaluate the control system.
4) The auditorstestthe control system.
4.4 Whydo you collectsufficientandappropriate audit evidence?
As per BSA 500, auditevidencerequire,auditorstoobtainsufficientappropriate auditevidence tobe able todraw
reasonable conclusions on whichtobase the auditopinion.
4.5 What do you mean by the terms “Sufficiency” & “Appropriateness”?
Sufficiencyisthe measure of the quantity of auditevidence.
Appropriatenessisthe measure of the quality or reliabilityof the auditevidence.
If the evidence ishigh quality,the auditormayneedlessthanif itwere poorquality.
4.6 Describe the qualityof audit evidence / List the sources of audit evidence.
The reliabilityof auditevidence isinfluencedbyitssource andnature.
I. External: Auditevidence from external sourcesismore reliable thanthat obtainedfromthe entity'srecords
II. Entity: Evidence obtainedfromthe entity'srecordsismore reliablewhenrelated control systemsoperate
effectively
III. Auditor: Evidence obtained directlybyauditors ismore reliable thanthatobtainedindirectly.
IV. Written:Evidence inthe formof documents(paper or electronic) or writtenrepresentations are more
reliable thanoral representations
V. Originals:Original documentsare more reliable thanphotocopies.
4.7 Whyauditors carry out substantive procedures?
Auditorscarryout substantive proceduresbecause of the limitationofinternal control systems.
4.8 Financial Statement Assertion
The re-presentations (বিিিণ) by management,explicit(স্পষ্ট ) or otherwise,thatare embodied(সুস্পষ্টভালি প্রকাবিি )
inthe financial statement.
4.9 Assertionusedby the auditors / Managementassertionsunder differentcategories
1. Assertionsabout classesoftransactions and eventsforthe periodunderaudit:
i. Occurrence
ii. Accuracy
iii. Completeness
iv. Cut-off
v. Classification
2. Assertionabout accountbalances at the periodend:
i. Existence
ii. Rightsand obligations
iii. Completeness
iv. Valuationandallocation
3. Assertionabout presentationanddisclosure:
i. Accuracy and valuation
ii. Occurrence and rightsand obligations
iii. Completeness
iv. Classificationandunderstandability
4.10 Whenauditors use test of control?
Auditorsshoulduse testof control when
 The auditorbelieve controlsare operatingeffectively
 It isnot possible toobtainsufficientappropriateauditevidence from substantive procedure
4.11 How do you performtest of control?
We mayuse the followingprocedurestoperformtestof control:

10. 1. Inquiry
2. Inspection
3. Re-performance
4.12 Whensubstantive proceduresare performedmust?
The auditormust alwayscarry out substantive proceduresonmaterial items.Inadditionauditorsmustcarry
out the followingsubstantiveprocedures:
 Agreeingthe financialstatementstothe underlyingaccountingrecords
 Examiningmaterial journalentries
 Examiningotheradjustmentsmade inpreparingthe financial statements
4.13 What is the difference between“Analytical procedures”& “Testofdetail”?
Analytical procedures tendto be appropriate forlarge volumesof predictable transactionsi.e.wagesand
salaries. Testsofdetail (Other procedures) maybe appropriate togain informationaboutaccountbalances
i.e.inventoriesortrade receivables,(particularlyverifyingthe assertionsof existenceandvaluation).
Whensignificantrisk existstestsof detail are likelytobe more appropriate,butthe auditormustdetermine
proceduresthatare specificallyresponsive(দ্রুতসাড়াদেয়এমন) tothatrisk,whichmay include analytical
procedures.
4.14 What is the difference betweenthe Reviewreport& the Auditreport?
Reviewreportopiniongiveslimitedassurance atmoderate (পরিমত,সীরমত) level withanegativelanguage,
while Auditreportopiniongivenreasonable assuranceathighlevel withpositive language.
4.15 What is unqualifiedReviewReportOpinion?
Basedon our review,nothinghascome toour attentionthatcausesus to believe thatthe accompanying
financial statementsdonotgive atrue and fairview (or‘are not presentedfairly,inall materialrespects’) in
accordance withInternationalAccountingStandards.
4.16 What is Reasonable assurance opinion?
In our opinion,the financial statementspreparedinaccordance withBangladeshAccountingStandards(BAS),
give a true and fairviewof the state of the Company'saffairsasof December31, 20XX, and of the resultsof
itsoperationsanditscash flowforthe year thenendedandcomplywiththe applicablesectionsof the
CompaniesAct1994 and otherapplicable lawsandregulations.
4.17 What is the elementsauditreport according to BSA 700?
Accordingto BSA 700, the auditreportshouldinclude the followingbasicelements,usuallyinthe following
layout.
1. Title
2. Addressee
3. Introductory paragraph identifyingthe financial statementsaudited
4. A statementof management'sresponsibilityforthe financialstatements
5. A statementof the auditor'sresponsibility
6. Scope paragraph, includingadescriptionof the workperformedbythe auditor
7. Opinionparagraph containinganexpressionof opiniononthe financialstatements
8. Date of the report
9. Auditor'saddress
10. Auditor'ssignature
(A measure of uniformityinthe formandcontentof the audit reportisdesirable becauseithelpsto
promote the reader'sunderstandingandtoidentifyunusualcircumstanceswhentheyoccur)

11. 4.18 What are the explicitopinionsgivenbythe auditors?
 In respectof the state of the company'saffairs at the endof the financial year
 In respectof the company's profitor loss for the financial year
 The information giveninthe directors' report isconsistentwiththe financial statements
4.19 What is the expectationgap?
The expectationgapisdefinedasthe difference betweenthe apparentpublicperceptionsof the
responsibilityof auditorsonthe one hand(andhence the assurance that theirinvolvementprovides) andthe
legal andprofessionalrealityonthe other.
The above definitionof the expectationsgapisnotdefinitive (চুড়ান্ত) anditisnota 'static(রিরতশীল)
phenomenon(অসাধািন েৃশয বা ঘটনা)'.However,we canhighlightsome specificissues.
1. Misunderstandingofthe nature of auditedfinancial statements,forexample that:
i. The balance sheetprovidesafairvaluationof the reportingentity.
ii. The amountsin the financial statementsare statedprecisely.
iii. The auditedfinancial statementswill guarantee thatthe entityconcernedwillcontinuetoexist.
2. Misunderstandingas to the type and extentof work undertakenby auditors, forexample that:
i. All itemsinfinancial statementsare tested
ii. Auditorswill uncoverall errors
iii. Auditorsshoulddetectall fraud
4.20 Misunderstandingaboutthe level ofassurance providedby auditors,
for example, that:
i. The auditorsprovide absolute assurance thatthe figuresinthe financial statementsare correct
(ignoringthe conceptof materialityandthe problemsof estimation).
Note:The actual nature of the descriptioninthe accountsisdefinedbythe PartsI,II & III of the Schedul e XItothe
CompaniesAct1994.
CHAPTER 9: INTERNAL AUDIT
9.1 Internal audit
Internal auditisan appraisal (Evaluation)ormonitoringactivityestablishedwithinanentityasaservice tothe entity.
Its functions included examining, evaluating,and reporting to management about effectiveness of the accounting
and internal control systems.

12. 9.2 Corporate objectivity
Corporate objectivitywillvaryfromcompanytocompany,and will be found,forexample,in companies’mission
statements andstrategicplans
9.2 How the internal audit function can assist the board?
The internal audit function can assist the board in other ways as well:
(1) By acting as auditors for board, reports not audited by the external auditors.
(2) By assisting in implementation of new standards.
(3) By liaisingwithexternal auditors,internal auditorscancheckthat external auditorsare reportingbackto the
board everything they are required to under auditing standards.
9.3 External audit and the objectives of external audit?
External audit means an audit carried out by an external auditor as opposed to (নিপরীন্তত) an internal auditor.
Objectives: The objective of an external auditof financial statements is to enable the auditor to express an opinion
whether the financial statements are prepared, in all material respects, in accordance with an applicable financial
recording framework.
9.4 Distinguish between internal auditor and external auditor? (May-June’ 2010, 2011)
Distinguish between internal auditor and external auditors are mentioned below: (Four R)
Point of view Internal audit External audit
Reason
Internal auditisanactivitydesignedtoaddvalue
and improve an organization’s operations.
An exercise toenableauditorsto express
an opinionon the financial statements
Reportingto
Internal auditreporttothe board of directors,
or the audit committee
The external auditorsreporttothe
shareholdersof a company
Relatingto
An internal audit’sworkrelatestothe
operationsof the organization
External auditor’sworkrelatestothe
financial statements
Relationshipwith
the company
Internal auditorsare veryoften employeesof
the organization
External auditorsare independentof the
companyand itsmanagement.Theyare
appointedbythe shareholders.
9.5 What does internal audit do? / Define the activities of inter audit? May-June’ 2011,2013
Internal audit activities usually involve:
(a) Monitoring internal controls
(b) Examining financial and operating information.
(c) Review of the economy (সুপবিচালনা), efficiency and effectiveness of operations.
(d) Review of compliance with laws, regulations and other external requirements.
(e) Special investigations, for instance suspected fraud
What are roles of the internal audit department in relation to risk management? (Page-164)
The internal audit department has a two-fold role in relation to risk management.
(1) Monitoring the company’s overall risk management policy to ensure it operates effectively.
(2) Monitoring the strategies implemented to ensure that they continue to operate effectively.
Identify the role of internal auditor as part of internal control. (Page -164)
The roles of internal auditor as part of internal control are mentioned below:
(a) Development of internal control systems
(b) Monitoring the overall internal control process
(c) Meet objectives effectively.
(d) Focused on all the operations of the company.
(e) Testing will be far greater than the external auditor.
Operational / management / efficiency audit? (Page-164) _Nov – Dec’ 2014
Operational auditisauditsof the operational processesof the organization.Theyare also knownas managementor
efficiency audits. Their prime objective is the monitoring of management’s performance.
Objectives of an operational assignment? (Page-164)
Ans: There are two aspects of an operational assignment:
(1) Ensure policies are adequate
(2) Ensure policies work effectively.
In term of adequacy, the internal auditor will have to review the policies of a particular department by:
(a) Reading them

13. (b) Discussion with members of the department.
What are the other functions of an internal auditor in addition to regular function? (Page-165)
Internal audit may also carry out other functions for the directors in a company. For instance, theymight undertake
special investigationsinrespectof a suspectedfraud,or theymightcarry traditional financial audits.Internalauditor
will not become involved in the operational activities of the company.
 All Self-test,Interactive Question& WorkedExample shouldbe done from the manual.
Previous year’s question (ICAB):
May-June’ 2010
8. What are the keydifferencesbetweenexternalandinternal audit?Asobjectivityisakeyissue forinternalauditors,
they are likely to routinely be involved in operational activities, do you agree? Explain (Self-test-4, Page-166)
May-June’ 2011
8. What does internal audit do? What are the key differences between external and internal audit?
May-June’ 2013
3.(c) List the activities usually undertaken in an internal audit.
Nov - Dec’ 2014
5. Write down short notes on following terminology: a) Operational Audit