ASSURANCE – MEANING
The term “Assurance” refers to the Auditor’s satisfaction as to the reliability of an assertion being made by one party for use by another party.
To provide such assurance, the auditor assesses the evidence collected as a result of procedures conducted and expresses a conclusion.
CONCEPT OF TRUE & FAIR
- True and fair is a fundamental concept of auditing.
- Primarily it is the responsibility of management of the entity to prepare financial statement that provides true and fair view of the state of entity’s affairs. For example as per Section 128(1) of the Companies Act, 2013 books of accounts of the Company shall provide true and fair view and as per Section 129 (1) of the Companies Act, 2013, financial statement of the company shall provide true and fair view of the state of company’s affairs.
- Primary responsibility of auditor is to express an opinion on true and fair view of the financial statement. For example as per section 143 (2) of the Companies Act, 2013, it is the duty of auditor to report on true & fair view of the financial statement.
- What Constitutes “true and fair”, however, has not been defined in any legislation.
- It is a matter of an auditor’s judgment in the particular circumstances of a case. An auditor has to see that
- The assets are neither undervalued nor overvalued.
- No material asset is omitted.
- The charge, if any, on assets are disclosed
- Material liabilities should not be omitted.
- The profit and loss account discloses all the material maters required to be disclosed by Part II of Schedule III and the balance sheet has been prepared in accordance with Part I of Schedule III.
- Accounting policies have been followed consistently; and
- All unusual, exceptional or non-recurring items have been disclosed separately.
Past Attempt Questions
Question 1
Explain the concept of “True and Fair” view.
Question 2
Correct or incorrect
Financial Statement should show “True and Correct” view of the affairs of the entity.
Answer Incorrect
Financial statements are frequently described as showing a true and fair view of the financial position, performance and cash flows of an enterprise. The application of the principal qualitative characteristics and of appropriate accounting standards normally results in financial statements that convey what is generally understood as a true and fair view of such information. There has been a shift of emphasis from arithmetical accuracy to the question of reliability to the financial statements. A statement may be reliable even though there are some errors or even frauds, provided they are not so big as to vitiate the picture. The word “correct” was somewhat misplaced as the accounting largely consists of estimates.
Question 3
Correct or incorrect
The primary objective of an audit is to detect fraud and errors in Financial Statement.
Answer Incorrect
Detection of fraud and errors in the financial statements is not the primary objective of audit. The primary objective of an audit is to obtain reasonable assurance about whether the financial statements are free from material misstatements thereby enabling the auditor to express an opinion on the financial statements.
Question 4
Correct or Incorrect
Auditing implies systematic, critical and special examination of the records of a business for a specific purpose.
Answer
Incorrect
Auditing involves examination of financial information contained in financial statements to express an opinion on their true and fair view.
Systematic, critical and special examination of the records of a business for a specific purpose is termed as investigation.
Question 5
Correct or Incorrect
It is the responsibility of the auditor to ensure that Statement of Profit and Loss and Balance Sheet of the Company shall comply with Accounting Standards.
Answer Incorrect
As per Section 129 (1) of the Company Act, 2013 every company shall prepare financial statement that shall comply with Accounting Standards so it is responsibility of the Company to ensure that Statement of Profit & Loss and Balance Sheet of the Company shall comply with the accounting standards.
Question 6
Correct or Incorrect
Maintenance of internal control system is responsibility of auditor.
Answer Incorrect
Maintenance of internal control system is the responsibility of those charged with governance, management and personnel of the entity.
Question 7
State in brief, the management’s responsibilities relating to the audit of financial statements.
Question 8
Correct or Incorrect
Management of the organization is solely responsible for the compliance of auditing standards while preparing financial statements.
Answer Incorrect
Management of the organization is solely responsible for the compliance of accounting standards while preparing financial statements. Auditor of entity is responsible to conduct auditing engagement in compliance with auditing standards.
