Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao
Since 1977
AT.3101
Assurance Engagements and Other Services
of a Practitioner
References:
a. Philippine Framework for Assurance Engagements
b. PSA 120, Framework of Philippine Standards on Auditing
LECTURE NOTES
Introduction to Practitioners’ Engagements
Public practitioners offer a wide array of professional
services to various clients, profit or non-profit, private or
public, mainly dealing with its financial aspects. These may
include the traditional audit and review of financial
statements, tax compliance and consulting, transaction and
financial advisory services, etc. Categorically, these
services can be classified into two: assurance and non-
assurance.
Assurance Engagement: Definition and Objective
In an assurance engagement, 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. Hence, an assurance engagement
is an independent professional service that improves the
quality (credibility) of information for decision makers.
Assurance services are very broad, and can be done by CPAs
or by a variety of other professionals.
Types of Assurance Engagements
As to structure of engagement:
a. Assertion-based (Attestation) engagement. In this type
of engagement, the evaluation or measurement of the
subject matter is performed by the responsible party,
and the subject matter information is in the form of
assertion by the responsible party that is made available
to the intended users. Independent financial
statements audit normally falls under this type.
b. Direct reporting engagement. In this type of
engagements, the practitioner either directly performs
the evaluation or measurement of the subject matter,
or obtains a representation from the responsible party
that has performed the evaluation or measurement that
is not available to the intended users. The subject
matter information is provided to the intended users in
the assurance report.
Elements of an Assurance Engagement
The five elements of an assurance engagement are:
a. A three party relationship involving a practitioner, a
responsible party, and intended users;
b. An appropriate subject matter;
c. Suitable criteria;
d. Sufficient appropriate evidence; and
e. A written assurance report in the form appropriate to a
reasonable assurance engagement or a limited
assurance engagement.
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Three-party Relationship
Assurance engagements involve three separate parties:
1. Practitioner – the person, who performs the
engagement, and is broader than the term “auditor”
which relates only to practitioners performing audit or
review engagements with respect to historical financial
information.
2. Responsible party – is the person responsible for
a. Direct reporting engagement – subject matter; or
b. Assertion-based engagement – a subject matter
information (the assertion), and may be the subject
matter. The responsible party may or may not be
the party who engages the practitioner (the
engaging party).
3. Intended users – for whom the assurance report is
prepared. The responsible party can be one of the
intended users, but not the only one.
Appropriate Subject Matter
The subject matter, and subject matter information, of an
assurance engagement can take many forms, such as:
a. Financial performance or conditions (for example,
historical or prospective financial statements)
b. Non-financial performance or conditions (for example,
performance key indicators of efficiency and
effectiveness of an entity)
c. Physical characteristics (for example, capacity of a
facility)
d. Systems and processes (for example, an entity’s
internal control or IT system)
e. Behavior (for example, corporate governance,
compliance with regulation, human resource practices)
Suitable Criteria
Benchmarks used to evaluate or measure the subject
matter.
Examples of formal criteria are the following:
• In the preparation of financial statements, the criteria
may be Philippine Financial Reporting Standards;
• When reporting on internal control, the criteria may be
an established internal control framework; and
• When reporting on compliance, the criteria may be the
applicable law, regulation or contract.
Suitable criteria are required for reasonably consistent
evaluation or measurement of a subject matter within the
context of professional judgment. Without the frame of
reference provided by suitable criteria, any conclusion is
open to individual interpretation and misunderstanding.
The criteria must have the following characteristics to be
considered suitable:
a. Relevance – relevant criteria contribute to conclusions
that assist decision- making by the intended users.
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b. Completeness – criteria are sufficiently complete when
relevant factors that could affect the conclusions in the
context of the engagement circumstances are not
omitted. Complete criteria include, where relevant,
benchmarks for presentation and disclosure.
c. Reliability – reliable criteria allow reasonably consistent
evaluation or measurement of the subject matter
including, where relevant, presentation and disclosure,
when used in similar circumstances by similarly
qualified practitioners.
d. Neutrality – neutral criteria contribute to conclusions
that are free from bias.
e. Understandability – understandable criteria contribute
to conclusions that are clear, comprehensive, and not
subject to significantly different interpretations.
The criteria need to be available to the intended users to
allow them to understand how the subject matter has been
evaluated or measured.
Sufficient Appropriate Evidence
Evidence is the information obtained by the practitioner in
arriving at the conclusions on which the opinion is based.
The practitioner plans and performs an assurance
engagement with an attitude of professional skepticism.
DISCUSSION QUESTIONS
Introduction
1. Philippine Framework for Assurance Engagements
defines and describes the elements and objectives of an
assurance engagement.
Philippine Standards on Assurance Engagements
contain basic principles, essential procedures, and
related guidance, consistent with the concepts in the
Framework, for the performance of assurance
engagements.
a. Only Statement 1 is correct.
b. Only Statement 2 is correct.
c. Both statements are correct.
d. Both statements are incorrect.
Services of a CPA in Public Practice
2. Which of the following is not an assurance service?
a. Audit of financial statements.
b. Review of prospective financial information.
c. SysTrust engagement.
d. Preparation of income tax returns and attachments.
3. Which of the following professional services would be
considered an assurance engagement?
a. An engagement to report on compliance of a client
with a loan agreement.
b. An engagement to design internal control
framework for a client.
c. Preparation of financial statements based on the
accounting data extracted from client’s system.
d. Performance of agreed-upon procedures related to
application of the client with the SEC to increase its
authorized shares.
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In addition, the practitioner recognizes the existence of
assurance engagement risk (synonymous to audit risk) –
the risk that the practitioner expresses an inappropriate
conclusion when the subject matter information is
materially misstated.
Written Assurance Report
The practitioner provides a written report containing a
conclusion that conveys the assurance obtained about the
subject matter information.
Non-assurance Engagements
Engagements are considered non-assurance engagements
if they lack one or more of the five elements of an assurance
engagement.
Common examples of non-assurance engagements are:
a. Agreed-upon procedures engagement;
b. Compilations engagements;
c. Preparation of tax returns where no conclusion
conveying assurance is expressed;
d. Consulting (or advisory) engagements such as
management and tax consulting;
Demand for Assurance Services
4. Which of the following statements does not describe a
condition that creates a demand for auditing?
a. Conflict between the information preparer and the
user can result in biased information.
b. Information can have minimal economic
consequences for a decision maker.
c. Expertise is often required for information
preparation and verification.
d. Users often cannot directly assess the quality of
information.
Ethical Principles and Quality Control Standards
5. CPAs in public practice who perform assurance
engagements are governed by the following, except
a. Philippine Framework for Assurance Engagements
b. Code of Ethics for Professional Accountants in the
Philippines
c. Philippine Standards on Quality Control
d. Philippine Standards on Related Services
Definition and Objective of an Assurance Engagement
6. Assurance services are best described as
a. Independent professional services that improve the
quality of information, or its context, for decision
makers.
b. The assembly of financial statements based on
assumptions of a reasonable party.
c. Services designed to express an opinion on
historical financial statements based on the results
of an audit.
d. Services designed for the improvement of
operations, resulting in better outcomes.
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7. Which of the following best describes the objective of an
assurance engagement?
a. To assist the company in improving the
effectiveness and efficiency of its operations.
b. To benchmark the company’s information with
companies that are considered leaders in their
industry.
c. To assist the company in compiling information
needed for the preparation of its financial
statements.
d. To enhance the credibility of information being
provided by one party to another in such a way that
the other party receiving the information will be able
to use it in making informed decisions.
Scope of the Framework
8. The following engagements may meet the definition of
assurance engagement but are not covered by the
Framework:
I. Engagements to testify in legal proceedings
regarding accounting, auditing, taxation, or
other matters.
II. Engagements that include professional
opinions, views or wording from which a user
may derive some assurance, but those opinions,
views or wordings are incidental only to overall
engagement, a written report is expressly
restricted in use by specified users, there is a
written understanding with the users that the
engagement is not intended to be an assurance
engagement, and the engagement is not
represented as an assurance engagement in the
report.
III. An assurance engagement which is part of a
larger consulting engagement.
a. I, II, and III
b. III only
c. I and II only
d. Neither I, II, nor III
Reports on Non-Assurance Engagements
9. A practitioner performed a non-assurance engagement
with a client. Which of the following statements are
allowed to be included in the report of the practitioner?
a. A statement saying that the practitioner complied
with the Framework for Assurance Engagements.
b. Use of words such as “assurance,” “audit” or
“review.”
c. A conclusion designed to enhance the degree of
confidence of intended users about the outcome of
the evaluation or measurement of a subject matter
against criteria.
d. None of the above.
Engagement Acceptance
10. A proposed assurance engagement can only be
accepted when
I. The CPA’s preliminary knowledge about the
engagement circumstances indicates that relevant
ethical requirements will be satisfied.
II. The subject matter of the engagement is
appropriate, the criteria to be used are suitable and
are available to intended users, the practitioner
has access to sufficient appropriate evidence to
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support the conclusion, and the conclusion is to be
contained in a written report.
III. There is a rational purpose for the engagement.
a. I, II, or III.
b. I and II only.
c. II and III only.
d. I, II, and III.
Elements of an Assurance Engagement
Three Party Relationship
11. Which of the following statements is incorrect regarding
the three-party relationship element of assurance
engagement?
a. The intended user is generally the addressee of the
professional accountant’s report.
b. The responsible party and the intended user will
often be from separate organizations.
c. The responsible party may also be one of the
intended users.
d. The practitioner is expected to perform audit
services only.
Subject Matter
12. Which of the following items can be a subject matter of
an assurance engagement?
a. Historical or prospective financial information.
b. Performance of a basketball team.
c. Enrollment system of a university.
d. All of the above.
13. When is a subject matter considered appropriate?
a. Identifiable, and capable of consistent evaluation or
measurement against the identified criteria.
b. The information about it can be subjected to
procedures and for gathering of sufficient
appropriate evidence to support a conclusion.
c. Either a or b.
d. Both a and b.
14. In an assurance engagement, the outcome of the
evaluation or measurement of a subject matter against
criteria is called
a. Subject matter information
b. Subject matter
c. Assertion
d. Conclusion
Criteria
15. When performing an assurance engagement, CPAs use
standards or benchmarks to evaluate or measure the
subject matter of an assurance engagement. These are
referred to in the framework as
a. Evidence
b. Subject Matter
c. Criteria
d. Conclusion
16. Which of the following statements refer to the
‘Relevance’ characteristic of suitable criteria for
assurance engagements?
a. Relevant factors that could affect the conclusions in
the context of the engagements are not omitted.
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b. Allows reasonably consistent evaluation or
measurement of the subject matter including when
used in similar circumstances by similarly qualified
practitioners.
c. Contributes to conclusions that assist decision-
making by the intended users.
d. Contributes to conclusions that are free from bias.
17. Criteria that are embodied in laws, regulations, or
issued by authorized or recognized bodies of experts
that follow a transparent due process are called
a. Established criteria
b. Specifically developed criteria
c. Either a or b
d. Neither a nor b
18. Criteria may be made available to intended users to
allow them to understand how the subject matter has
been evaluated or measured.
Criteria may also be available only to specific intended
users, for example the terms of a contract, or criteria
issued by an industry association that are available only
to those in the industry.
a. Only Statement 1 is correct
b. Only Statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
Evidence
19. In determining the nature, timing and extent of
evidence-gathering procedures, the CPA considers
a. Materiality
b. Assurance engagement risk
c. The quantity and quality of available evidence
d. All of the above
20. Which of the following statements is incorrect?
a. The practitioner plans and performs an assurance
engagement with an attitude of professional
skepticism recognizing that circumstances may
exist that cause the subject matter information to
be materially misstated.
b. Assurance engagement risk is the risk that the
practitioner expresses an inappropriate conclusion
when the subject matter information is materially
misstated.
c. The assessment of materiality and the relative
importance of quantitative and qualitative factors in
a particular engagement are matters for the
practitioner’s judgement.
d. None of the above.
21. Which of the following is incorrect concerning evidence
in an assurance engagement?
a. Sufficiency is the measure of the quantity of
evidence.
b. Appropriateness or competence of evidence is the
measure of the quality of the evidence.
c. Obtaining more evidence may not compensate for
the poor quality of evidence.
d. Sufficiency and appropriateness of evidence are not
interrelated with each other.
Assurance Report
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22. Written assurance report is required for assurance
engagements.
Written report encompass hard copy reports and those
in electronic format.
a. Only Statement 1 is correct
b. Only Statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
23. An unqualified conclusion is appropriate when
a. Circumstances prevent the practitioner from
obtaining evidence required to reduce assurance
engagement risk to the appropriate level.
b. The responsible party or the engaging party
imposes a restriction that prevents the practitioner
from obtaining evidence required to reduce
assurance engagement risk to the appropriate level.
c. Both a and b
d. Neither a nor b
Types of Assurance Engagements
According to Level of Assurance
24. What type of assurance engagement is involved when
the practitioner expresses a positive form of conclusion?
a. Limited assurance engagement
b. Positive assurance engagement
c. Reasonable assurance engagement
d. Absolute assurance engagement
25. Which of the following is (are) characteristic(s) of a
limited assurance engagement?
a. A reduction in assurance engagement risk to a level
that is acceptable in the circumstances of the
engagement but where that risk is greater than for
a reasonable assurance engagement.
b. The assurance report includes description of the
engagement circumstances, and a negative form of
expression of the conclusion.
c. Sufficient appropriate evidence is obtained but in
which procedures are deliberately limited relative to
a reasonable assurance engagement.
d. All of the above.
According to Structure
26. In some assurance engagements, the evaluation or
measurement of the subject matter performed by the
responsible party, and the subject matter information is
in the form of an assertion by the responsible party that
is made available to intended users. These
engagements are called
a. Direct reporting engagements
b. Assertion-based engagements
c. Non-assurance engagements
d. Recurring engagements
27. The following are characteristics of direct reporting
assurance engagements, except
a. The subject matter information is in the form of an
assertion by the responsible party that is made
available to the intended users.
b. The subject matter information is provided to the
intended users in the assurance report.
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c. The practitioner either directly performs the

evaluation or measurement of the subject matter or
obtains a representation from the responsible party
that has performed the evaluation or measurement.
d. The representation of the responsible party that has
performed the evaluation or measurement of the
subject matter is not available to the intended
users.

Limitations of Assurance Engagements

28. Which of the following is not a limitation of assurance

services provided by professional accountants?
a. The practitioner does not test all of the transactions.
b. The evidence available are persuasive rather than
conclusive.
c. The practitioner does not possess the qualifications
for some complex subject matters.
d. The practitioner uses judgment in evaluating the
subject matter.

Non-Assurance Engagements

29. Engagements frequently performed by professional

accountants that are not assurance engagements
include the following, except
a. Agreed upon procedures
b. Reasonable assurance engagement
c. Management consulting
d. Compilation of financial information

30. In an engagement to perform agreed-upon procedures,

an auditor is engaged to
a. Carry out those procedures of an audit nature to
which the auditor and the entity and any
appropriate third parties have agreed and to report
on factual findings.
b. Use accounting expertise as opposed to auditing
expertise to collect, classify, and summarize
financial information.
c. Provide a moderate level of assurance that the
information is free of material misstatement.
d. Provide a high, but not absolute, level of assurance
that the information is free of material
misstatement.

End of AT.3101

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