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  • Written by Muhammad Ejaz
  • 23 Jul

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The key reason for having an audit or review can be seen by working through the following case study.2.2 Accountability, stewardship and agency Case Study Vera decides to set up a business selling flowers. free acca books pdf She gets up early in the morning, visits the market and then sets up a stall by the side of the road. For the first year, all goes well. She sells all the flowers she is able to buy and she derives some income from the business.

However, Vera feels that she could sell more flowers if she was able to transport more to the place where she sells them, and she also knows that there are several other roads nearby where she could sell flowers, if she could be in two places at once. She could achieve these two things by buying a van and by employing people to sell flowers in other locations.

Vera needs more money to achieve this expansion of her business. free acca books download pdf She decides to ask her rich friend Peter to invest in the business.

Peter can see the potential of Vera's business and wants to invest, but he doesn't want to be involved in the management of the business. He also does not want to have ultimate liability for the debts of the business if it fails. He therefore suggests that they set up a limited company. He will own the majority of the shares and be entitled to dividends. Vera will be managing director and be paid a salary free acca study materails for her work.

At the end of the first year of trading as a limited company, Peter receives a copy of the financial statements. Profits are lower than expected, so his dividend will not be as large as he had hoped. He knows that Vera is paid a salary so does not care as much as him that profits are low.

Peter is concerned by the level of profits and feels free accounting books that he wants further assurance on the accounts. He doesn't know whether they give a true reflection of the last year's trading, particularly as the profits do not seem as high as those Vera had predicted when he agreed to invest. 

The solution is that the assurance Peter is seeking can acca study materails be given by an independent audit or review of the financial statements. 

An auditor can provide the two things that Peter requires:

• A knowledgeable review free download for pdf of the company's business and of the accounts

• An impartial view, since Vera's view might be biased

3.1 Other assurance engagements

As discussed earlier in this chapter, an audit can be used to give assurance to a variety of stakeholders on many issues. However, an audit is an exercise designed to give a high level of assurance and involves a high degree of testing, and therefore a high level of cost. In some cases, stakeholders may find that they receive sufficient assurance about an issue from a less detailed engagement, for example exam preparation & tutoring, a review. A review can provide a cost-efficient alternative to an audit where an audit is not required by law, and would provide limited assurance

The objective of a review engagement is to obtain limited assurance about whether the subject matter information is free from material misstatement.

The major outcome for recipients of a review engagement is that the level of assurance they gain from it is not as high as would be expected from an audit, although the procedures carried out in a review engagement are similar to an audit. 

Alternatively, if the engagement in question is not about the financial statements, then ISAE 3000 Assurance engagements other than audits or reviews of historical financial information states that this could be either a reasonable assurance or a limited assurance engagement, as appropriate in the circumstances.

3.1.1 Types of review engagements

There are two types of assurance engagements: attestation engagements and direct engagements. The main difference between the two lies in who is measuring, or evaluating, the underlying subject matter against the criteria.

(a) An attestation engagement: This is where the underlying subject matter has not been measured or evaluated by the practitioner, and the practitioner concludes whether or not the subject matter information is free from material misstatement.

A good example of an attestation engagement is the review of a sustainability report, which has been prepared by management. In this case, management measures and evaluates the extent to which the company has achieved its sustainability targets, and the practitioner provides a conclusion as to whether the measurement and evaluation is free from material misstatement.

(b) A direct engagement: This is where the underlying subject matter has been measured and evaluated by the practitioner, and the practitioner then presents conclusions on the reported outcome in the assurance report.

An example of this is when the practitioner is engaged to carry out a review of the effectiveness of  a company's system of internal controls. The practitioner would evaluate the internal controls, and then issue an assurance report explaining the outcome of the review.

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FREE ACCA F8  BPP TEXT BOOK 2017-2018 - Acca Lsbf Video Lectures Free Download

 FREE ACCA F8  BPP TEXT BOOK 2018-2019 - Acca Lsbf Video Lectures Free Download

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