Acca aa s21 Notes

Positive assurance
is also known as 
reasonable assurance
a practitioner cannot give a guarantee, eg
that the financial statements are free from material misstatement.
Negative assurance
is also known as 
limited assurance
.
A practitioner would not express an unmodified conclusion for either type of assurance engagement 
when:
๏
There is a limitation on the scope of the practitioner’s work (ie sufficient appropriate evidence 
cannot be obtained); or
๏
The assertion is not fairly stated (in all material respects) or the subject matter information is 
materially misstated (ie the assertion is incorrect).
WHEN YOU FINISHED THIS CHAPTER YOU SHOULD ATTEMPT THE 
ONLINE AA MCQ TEST
 
September 2021 to June 2022 exams
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Chapter 2
CORPORATE GOVERNANCE
1. Why corporate governance is needed
Corporate governance may be defined as "the system by which companies are directed and 
controlled". 
Therefore, the objectives of corporate governance are: 
๏
To ensure that the company’s assets are used efficiently and productively and in the best 
interests of its shareholders and other stakeholders; 
๏
To eliminate or mitigate conflicts of interest, particularly those between management and 
shareholders.
The problem with bad corporate governance is that although the shareholders own companies, the 
day-to-day management and direction of companies is given to the Board of Directors. In large 
companies many shareholders are relatively passive and the Board of Directors is given more or less 
free rein to make whatever decisions they wish.
Auditing was instituted so that at least once a year, when the financial statements (FS) were presented 
to the members of the company, an auditor would examine them and give some expression of 
opinion to the members of the company as to whether the financial statements were “true and fair”. 
Without that assurance the members of the company really would have a little idea whether or not 
the information could be relied on. The auditor therefore examines the financial statements and this 
adds credibility to those statements, the shareholders have a much better idea of the performance of 
the directors and the company.