ACCA F8 | What is the Difference Between Negative Assurance and Positive Assurance?

Positive assurance is a positive assertion or in other words when opinion is stated in “positive form”. On the other hand, negative assurance is simply an opinion expressed in negative wordings.

We call negative assurances negative because of the sentence structure. Sentences that contain NOT in them are called negative sentences or negation

But such negations have an important status in auditing. Let’s understand why it is different then usual negation use in our daily life.

Usually when we say, for example, This car is NOT good then it is taken as as if car is bad.

But in auditing when we say that Financial statements are NOT bad then it does not mean that financial statements are GOOD.
Therefore, in auditing we can say that we have three levels:

• Good
• Not Bad
• Bad

Let’s understand the reason why we are differentiating in such detail and creating such kinds of differences that are apparently minor.
For example, you went with your friend to buy a new car. Your friend is with you as he has reasonable knowledge of few cars and can give you some advice. When you reached at the car dealer’s place you found three different cars. Car names were: Faster, Stronger and Efficient.
Now your friend’s opinion can be somewhat like the following:

1. Toyota is GREAT! I have personally used it and I know about its drives and even the parts are cheaper to buy.
2. Mazda is really bad! I know people complaining about its injection system and even spare parts are not easily available
3. Honda is NOT bad! Even though I have not used it neither I know much about it but so far as I can examine it in this limited time it is looking good

An expression of your friend about Toyota was rock solid as he had the relevant knowledge about the car and is also speaking after having an experience and thus holds an evidence that YES IT IS GOOD. Another thing to note is that expression contains high degree of assurance as he knows about it.
An expression about Mazda was also rock solid and he knows what he is saying and has based his opinion on his experience and also have the reasons why he is saying that it is BAD. Again, the point to note in this expression is that it is full and consists of high degree of assurance.
However, as he does not have any experience with Honda, so he just went on to check it for the first time and gave a short check up to this car. Though this limited examination gave him a hint that it is not a bad car but he is still not sure whether it is completely good either. Therefore he is moderate in his opinion and his expression is not full and is not giving stronger assurance. Thus it means that this car is NOT bad but it does not mean that it is good either because he does not know about this car much.
Same goes for auditors. When auditors are conducting reasonable assurance engagement they provide positive assurance i.e. either something is GOOD or BAD. Such kinds of assurances give higher level of assurance as the expression of opinion is more straight forward and are more clear.
However, if they are conducting limited assurance engagements then because of limited scope of examination they are unable to check everything (in such detail that enable the auditors to give reasonable assurance) they provide moderate assurance and this moderate assurance comes in negative form and when they have to say that have not found anything fishy, they just say that “… nothing has come to the knowledge of the auditor that cause to believe that the financial statements are NOT prepared, in all material respects, in accordance with applicable financial reporting framework. Such assurance engagements do not give the same level of assurance as Reasonable Assurance Engagement as the expression of opinion is not that clear and straight forward as auditor was unable to carry out same level and depth of examination that would have been carried out under reasonable assurance engagement.

ACCA BASIC | What Is The Difference Between COST And EXPENSE?

Most of the time the difference between the terms Cost and Expense is ignored and are used interchangeably. However, the difference is significant from accounting perspective and being an accountant it is good if we keep these two terms separate to cause lesser confusion and clearer communication of financial information.

Cost can be defined as the monetary value of the utility (or benefit) which is yet to be derived from the resources used by the business to earn income.
In simple words it is the benefit that we are expecting to have in future from the asset(s) by using such asset(s) for business purposes or by selling such asset in an arms length transaction.
Expense can be defined as the monetary value of the utility that has already expired because of the use of the resources in business activities directed towards generating income.
In simple words it is the monetary amount of the benefit used up in the asset(s). So, basically it is the consideration that we have paid in generating income.
Some students might still be confused about the relationship of cost and expense. Let’s understand it with an example.
A company bought one latest piece of machinery worth 100,000. It is expected that it will be useful for next five years and will be used to process raw material into finished goods.
The value of asset in example is 100,000 which is basically monetary representation of the total utility it has i.e. we have counted the total benefit it can provide us in money form and this is the total amount of benefits which we are expecting to recover over next five years. Now, if we use this asset then each year 20,000 (100,000 / 5) worth of utility will expire and at the end of the first year of its use we will left with only 80,000 of the total utility in the asset.

So, basically Expense is the amount of cost which has expired and Cost is the amount of expense which has not yet expired.

Due to same reason we will  report only 80,000 in the Statement of Financial Position (Balance sheet) as this is the benefit in the asset which we are left with for next four years. And 20,000 will be transferred to Income Statement as an expense to be set off against the revenues generated by the organization to calculate actual income earned.

From the above discussion we can understand how important it is to make cost versus expense comparison as costs are reported in SoFP as the value of assets whereas expenses are reported in the Income Statement. And we understood that these terms do have their accounting implications and differences in accounting treatments.

IFAC | Relevent To F7, F8, P2, P4, P7 - Reporting Supply Chain

In recent years, there have been significant efforts to change and improve financial reporting. What is the result of these changes? Has the financial reporting process become better or worse? Have the financial reports become more or less relevant reliable and understandable? What should be done next? IFAC commissioned an independent global survey of the participants in the financial reporting supply chain to get feedback on these questions. Participants in the survey and interviews were asked about their opinions on four areas of the financial reporting supply chain: corporate governance, the financial reporting process, the audit of financial reports and the usefulness of financial reports.

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             IFAC: Reporting supply chain