Auditing, Attestation, and Assurance
What the engagement promises
Audit and attestation work is graded by the level of assurance provided. An audit of financial statements gives reasonable (high but not absolute) assurance and a positive opinion; a review gives limited assurance, primarily through inquiry and analytical procedures, expressed as negative assurance; a compilation provides no assurance. Attestation engagements (examination, review, agreed-upon procedures) apply the same assurance ladder to subject matter other than historical financial statements.
Evidence and assertions
Candidates must map procedures to assertions: existence, completeness, rights and obligations, valuation/allocation, cutoff, classification, and presentation. Direction of testing is the single most tested idea - vouching from the ledger back to source documents supports existence, while tracing from source documents forward into the ledger supports completeness. Evidence reliability ranks external above internal, original above copies, and auditor-observed above client-represented.
Traps that recur
- Confusing the auditor's responsibility (reasonable assurance, opinion) with management's (fair presentation, internal control).
- Believing a review or compilation provides audit-level assurance.
- Treating a scope limitation as anything other than a qualified opinion or disclaimer - never an adverse opinion.
- Forgetting that materiality is a matter of professional judgment and is not a fixed percentage.
- Missing that subsequent-events procedures run through the report date, not the balance sheet date.
Worked example
To test the completeness of recorded sales, the auditor selects a sample of shipping documents and traces them forward to the sales journal and invoices. Vouching recorded sales back to shipping documents would instead test existence - the opposite risk.