PHILIPPINE FRAMEWORK FOR ASSURANCE ENGAGEMENTS

1. The Framework does not itself establish standards or provide procedural requirements for the performance of assurance engagements.
2. In addition to the Framework and PSAs, PSREs and PSAEs, practitioners who perform assurance engagements are governed by:
 the Philippine Code of Ethics for Professional Accountants; and
 Philippine Standards on Quality Control (PSQCs).

ASSURANCE ENGAGEMENTS

1. “Assurance engagement” means 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.

2. “Subject matter information” refers to the outcome of the evaluation or measurement of a subject matter.

3. In some assurance engagements, the evaluation or measurement of the subject matter is 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 uses (assertion-based engagements).

4. In other assurance 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 (direct reporting engagements).

Two Types of Assurance Engagement

1. Reasonable assurance engagement – the objective is a reduction in assurance engagement risk to an acceptably low level in the circumstances
of the engagement as the basis for a positive form of expression of the practitioner’s conclusion.
2. Limited assurance engagement – the objective is a reduction in assurance engagement risk to a level that is acceptable in the circumstances of
the engagement, but where the risk is grater than for a reasonable assurance engagement, as a basis for a negative form of expression of the
practitioner’s conclusion.

Scope of the Framework

The following are non-assurance engagements and therefore are not covered by the Framework:

1. Engagements covered by PSRSs such as agreed-upon procedures engagements and compilations of financial or other information.
2. The preparations of tax returns where no conclusion conveying assurance is expressed.
3. Consulting (or advisory) engagements, such as management and tax consulting.

Elements of an Assurance Engagement

1. A three-party relationship involving:

 a practitioner;
 a responsible party; and
 intended users.
2. An appropriate subject matter;
3. Suitable criteria;
4. Sufficient appropriate evidence; and
5. A written assurance report in the form appropriate to a reasonable assurance engagement or a limited assurance engagement.

OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE CONDUCT OF AN AUDIT IN ACCORDANCE WITH PSAs

1. In conducting an audit of financial statements, the auditor’s OVERALL OBJECTIVES are:

a) To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to
fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material
respects, in accordance with an applicable financial reporting framework; and
b) To report on the financial statements, and communicate as required by the PSAs, in accordance with the auditor’s findings.

2. The auditor SHALL:

c) The auditor SHALL:
 Comply with all PSAs relevant to the audit.
 Comply with relevant ethical requirements, including those pertaining to independence relating to financial statement audit
engagements
 Plan and perform an audit with professional skepticism recognizing that circumstances may exist that cause the financial statements
to be materially misstated.
 Exercise professional judgment in planning and performing an audit of financial statements.
 Obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.

ENGAGEMENTS TO REVIEW FINANCIAL STATEMENTS

1. The objective of a review of financial statements is to enable a practitioner to state whether, on the basis of procedures which do not provide all
the evidence that would be required in an audit, anything has come to the practitioner’s attention that causes the practitioner to believe that
the financial statements are not prepared, in all material respects, in accordance with an identified financial reporting framework (negative
assurance).
 2. A review comprises INQUIRY and ANALYTICAL PROCEDURES which are designed to review the reliability of an assertion that is the responsibility
of one party for use by another party.

3. A review does not ordinarily involve an assessment of accounting and internal control systems, tests of records and of responses to inquiries by
obtaining corroborating evidence through inspection, observation, confirmation and computation, which are procedures ordinarily performed
during an audit.

4. The level of assurance provided in a review report is less than that given in an audit report.

ENGAGEMENTS TO PERFORM AGREEN-UPON PROCEDURES REGARDING FINANCIAL INFORMATION

1. In an engagement to perform agreed-upon procedures, an auditor is engaged to 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 ACTUAL FINDINGS.
2. The recipients of the report must form their own conclusion from the report of the auditor.
3. The report is restricted to those parties that have agreed to the procedures to be performed since others, unaware of the reasons for the
procedures, may misinterpret the results.

ENGAGEMENTS TO COMPILE FINANCIAL INFORMATION

1. In a compilation engagement, the accountant is engaged to use accounting expertise as opposed to auditing expertise to collect, classify, and
summarize financial information.
2. It ordinarily entails reducing detailed data to manageable and understandable form without a requirement to test the assertions underlying that
information.
3. The procedures performed are not designed and do not enable the accountant to express any assurance on the financial information.
4. Users of compiled financial information derive some benefit as a result of the accountant’s involvement because the service has been performed
with due professional skill and care.
There are four types of services that are normally performed in connection with the entity’s FS. These are:
AUDIT REVIEW COMPILATION AGREED-UPON PROCEDURES

Objective To express an To enable the CPA to report
opinion on the FS whether anything has come
to his attention that would
indicate the FS are not
presented fairly
To carry out audit To assist the client in
procedures agreed on the preparation of the
with the client and any FS
appropriate third parties
identified in the report

Level of High/ Reasonable Moderate/Limited None None

Assurance
provided by
the CPA

Type of Report Positive assurance Negative assurance Description of Identification of

Issued (opinion) procedures performed financial information
and actual findings compiled

Basic Risk assessment Inquiry and analytical As agreed Assemble FS based on

Procedure procedures, test of procedures. It does not client’s data.
controls, and include assessing control
substantive tests risk, test of records and of
responses to inquiries by
obtaining corroborating
evidence.

Independence Required Required Not Required Not Required

Requirement
ASSURANCE ENGAGEMENTS
 PSA 3000 states that assurance engagements are intended to enhance the credibility of information about a
subject matter by evaluating whether the subject matter conforms in all material respects with suitable criteria.

 Types of assurance engagement:

 reasonable assurance engagement (audit)
 limited assurance engagement (review).

 Elements of Assurance Engagements:

1. Three-party relationship
 Practitioner
 Responsible Party
 Intended Users
2. Appropriate subject matter
3. Suitable criteria
4. Sufficient appropriate evidence
5. Written assurance report

REPORTS ON PROSPECTIVE FINANCIAL INFORMATION

 Prospectivefinancialinformation is financial information based onassumptions about events that may occur in
the future and possible actions of the entity. There are two types:

1. Forecast - PFI prepared on the basis of the assumptions as to future events which managment expects to
take as of the date the information is prepared (best-estimate assumptions)
2. Projections – PFIpreparedonthebasisofhypotheticalassumptionsoramixtureof best-estimate
 and hypothetical.

 PSA 3400 states that the auditor, when examining PFI, should obtain sufficient appropriate evidence that PFI are
reasonable, properly prepared and presented, and on consistent basis.

 When reporting on the reasonableness of mgmt. assumptions, the auditor normally provides onlymoderate
level of assurance.