Mod2-Assurance Engagements & Other Services Handout

25/08/2020
AUDITING & ASSURANCE

PRINCIPLES
RIAN CEASAR P. SOLIMAN, CPA, MBA
Faculty, Far Eastern University
Module 2 – Introduction to Assurance Services
Contents
1. Services of a Practitioner
2. Fundamentals of Assurance Engagements
3. Classification of Assurance Engagements
4. Non-Assurance Services
Services of A
Practitioner
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Services of A Practitioner
Assurance Engagements Non-Assurance Engagements

1. Audit of Financial 1. Agreed-Upon Procedures
Statements
2. Compilation Services
2. Review of Financial
Information 3. Management Consulting
3. Other Assurance Services 4. Other Tax Services
Fundamentals of
Assurance Engagements
Definition of Assurance
Engagement
• an engagement in which a practitioner expresses
a conclusion
• designed to enhance the degree of confidence of
the intended users other than the responsible
party
• about the outcome of the evaluation or
measurement of a subject matter against
criteria.
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Enhanced
Responsible Subject Matter
Quality Users
Party S.M.I
Conclusion that
Examination of
enhances
evidence
confidence
Criteria
Assurance
Practitioner Report
Definition of Assurance
Engagement
• an engagement in which a practitioner expresses
a conclusion
• designed to enhance the degree of confidence of
the intended users other than the responsible
party
• about the outcome of the evaluation or
measurement of a subject matter against
criteria.
Demand for Assurance Services
• Bias of responsible party
• Remoteness of users
• Complexity of subject matter
• Risk management—information risk reduction
• Cost of capital reduction
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Elements of an Assurance
Engagement
1. Three Party Relationship

2. Appropriate Subject Matter
3. Suitable Criteria
4. Sufficient Appropriate Evidence
5. Written Assurance Report
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Three-Party Relationship
• Practitioner, Responsible Party &

Intended Users
• Responsible party & intended
users may be from different
entities or the same entity
• The relationship between the
responsible party & intended
users needs to be viewed within
the context of specific
engagement
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• Practitioner
- Broader than auditor.
- May be engaged on wide
range of subject matters.
- Ethical consideration: Should
not accept engagements if
professional competence is
not satisfied.
- Use of experts
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• Responsible Party
- Responsible for the subject
matter or subject matter
information.
- May or may not be the
engaging party.
- Ordinarily provides the CPA a
written representation.
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• Intended Users
- Person or class of persons for
whom CPA prepares the
assurance report.
- Responsible party can be one
of the intended users, but
not the only one.
- CPA considers restricting the
assurance report if reporting
for specified users.
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Appropriate Subject Matter
• Subject matter - subject of evaluation or

measurement from which the users wish to obtain
information.
• Subject matter information – the outcome of
evaluation/measurement of subject matter against
criteria.
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• When is Subject Matter considered appropriate?

1. Capable of being measured or evaluated, AND
2. Evidence is available
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Form Subject Matter Subject Matter
Information
Financial performance or Historical or Financial Statements
condition prospective financial
information
Non Financial Performance of Sales Sales Report showing
performance or condition Personnel volume of sales
attained
Physical Characteristics Capacity of facility Specifications
Systems and processes Internal Control/IT Report on
System effectiveness
Behavior Corporate Governance, Statement of
Compliance with Compliance/
regulation, HR Practices Effectiveness
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Suitable Criteria
• Criteria are benchmarks used to evaluate or

measure the subject matter.
Assurance Applicable Criteria
Engagements
Audit of FS PFRS/PFRS for SME/US GAAP
IT Audit COBIT/Control Objectives
Compliance Audit Laws & Regulations
Capacity of Bridge Tonnage
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Suitable Criteria
• Characteristics of a suitable criteria

1. Relevant
2. Complete
3. Reliable
4. Neutral
5. Understandable
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Suitable Criteria
• Basis or Form of Criteria

• Established criteria
• Specifically developed
• Applicable Criteria should be clearly communicated to
Intended Users.
• Criteria may also be restricted to specific intended
users in which case use of the assurance report is
restricted to those users only.
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Sufficient and Appropriate

Evidence
• Basis of CPA’s conclusion
• Application of professional
skepticism
• The practitioner considers materiality, assurance
engagement risk and quantity & quality of
evidence.
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Evidence
• Materiality
• Helps CPA determine nature, timing & extent of
procedures.
• What is material information?
• Materiality is relative: depends on size & nature
• Professional judgment
• Effect on evidence
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Evidence
• Assurance Engagement Risk
• Inappropriate conclusion + subject matter
information is materially misstated
• Effect on evidence
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Evidence
• Quantity and Quality of Evidence
• Quantity – Sufficiency
• Quality – Appropriateness/Competence of
Evidence
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Evidence
• Quantity of Evidence
• Affected by risk of the SMI

(higher risk = more evidence required)
• Affected by quality
(higher quality = less may be required)
• Merely obtaining more evidence may not

compensate for its poor quality
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Evidence
• Quality of evidence
• Affected by relevance & reliability
• Relevance – ability of the evidence to address

the objective of the procedure
• Generalization about relaibility
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Evidence
• Generalizations about reliability
• More reliable if obtained from independent sources
• Internally generated evidence is more reliable when
related controls are effective
• More reliable if obtained directly by the CPA than by
inference
• More reliable if it exists in documentary form than
oral evidence
• More reliable if original documents
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Evidence
• Cost Benefit Considerations
• Cost or difficulty is considered in obtaining evidence
• Cost or difficulty is not in itself a valid basis in

omitting an evidence gathering procedure for which
there is no alternative
• Professional judgement
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Written Assurance Report
• Communicates to users the conclusion reached by

practitioners.
• Should be in writing.
• Levels of assurance
• Reasonable assurance
• Limited Assurance
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Written Assurance Report
Types of Conclusion
Unqualified The CPA believes that the subject

Conclusion information, in all material respects,
conforms with the criteria.
Modified The CPA either believes that
Conclusion • the subject matter/information is
materially misstated; or
• the CPA was not able to obtain sufficient
appropriate evidence.
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Classification of
Assurance Engagements
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According to Level of Assurance

Reasonable Assurance Limited Assurance Engagement
Engagement
• High but not absolute level of • Limited level of assurance
assurance
• SAAE – understanding, risk • SAAE – procedures are limited
assessment, risk response, compared to reasonable
further procedures assurance engagement
• Level of engagement risk – • Level of engagement risk –
LOW greater than for a reasonable
assurance engagement
• Basis of positive form of • Basis of negative form of opinion
opinion
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According to Level of Assurance
Reasonable Assurance Limited Assurance Engagement

Engagement
• Audits of financial • Review of financial information
statements
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Level of Assurance and

Engagement Risk
Level of Assurance Engagement Risk

• Absolute • Zero (0)
• High Level of
• Less than high
Assurance
• Moderate Level of
• High
Assurance
• No Assurance • 100%
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According to Structure
Assertion Based Assurance Direct Reporting Assurance

Engagement (Attestation) Engagement
• Representation by responsible • No representation from responsible
party that is made available to party
intended users • Representation by responsible party
not made available to intended users
• Evaluation/measurement • Evaluation/measurement performed
performed by responsible party by the practitioner
• Responsible party is responsible • Responsible party responsible for
for SMI & may be responsible to subject matter only
subject matter
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Attestation Engagements
• Independent audit of financial statements

• Provides high but not absolute level of
assurance that the financial statements are free
from material misstatements
• Review engagement
• Narrower scope than audit
• Provides limited assurance
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Other Assurance Services
• Business Performance Measurement

• Healthcare Performance Measurement
• Elder Care Plus
• Risk Assessment Services
• CPA WebTrust/ Systrust
• Information Systems Reliability
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Limitations of Assurance
Engagements
• Selective testing
• Judgment
• Inherent limitations of internal control
• Persuasive evidence rather than conclusive
• Characteristics of subject matter
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Non-Assurance Services
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Non-Assurance Engagements
• Agreed-upon procedures – carrying out those

procedures of an audit nature to which the practitioner
and the entity and any appropriate third parties have
agreed and to report on factual findings.
• Compilation engagement – engaged to use accounting
expertise as opposed to auditing expertise to collect,
classify and summarize financial information.
• Some Tax services
• Management consulting
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Do-it-Your Drill Answers
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End of Discussion
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25/08/2020

AUDITING & ASSURANCE

Module 2 – Introduction to Assurance Services

Assurance Engagements Non-Assurance Engagements

3. Other Assurance Services 4. Other Tax Services

Demand for Assurance Services

• Bias of responsible party

• Complexity of subject matter

• Risk management—information risk reduction

• Cost of capital reduction

1. Three Party Relationship

• Practitioner, Responsible Party &

Appropriate Subject Matter

• Subject matter - subject of evaluation or

Appropriate Subject Matter

• When is Subject Matter considered appropriate?

Appropriate Subject Matter

• Criteria are benchmarks used to evaluate or

• Characteristics of a suitable criteria

• Basis or Form of Criteria

Sufficient and Appropriate

Sufficient and Appropriate

Sufficient and Appropriate

Sufficient and Appropriate

Sufficient and Appropriate

• Affected by risk of the SMI

• Merely obtaining more evidence may not

Sufficient and Appropriate

• Affected by relevance & reliability

• Relevance – ability of the evidence to address

• Generalization about relaibility

Sufficient and Appropriate

Sufficient and Appropriate

• Cost or difficulty is considered in obtaining evidence

• Cost or difficulty is not in itself a valid basis in

Written Assurance Report

• Communicates to users the conclusion reached by

Written Assurance Report

Unqualified The CPA believes that the subject

According to Level of Assurance

According to Level of Assurance

Reasonable Assurance Limited Assurance Engagement

Level of Assurance and

Level of Assurance Engagement Risk

Assertion Based Assurance Direct Reporting Assurance

• Independent audit of financial statements

Other Assurance Services

• Business Performance Measurement

• Agreed-upon procedures – carrying out those

Do-it-Your Drill Answers

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Mod2-Assurance Engagements & Other Services Handout

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