Chapter 1: Concept and need for

assurance

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Topic list

1. What is assurance?
2. Why is assurance important
3. Why can assurance never be absolute
4. The statutory audit

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1.What is assurance?

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1.1 Definition
• An assurance engagement is one 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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Elements of assurance engagement
5 elements of an assurance engagement: CREST
• Criteria
• Report
• Evidence
• Subject matter
• Three party relationship
 Intended users
 The responsible party (the persons who prepared
the subject matter)
 The practitioner

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Worked example: identify 5
elements of assurance
engagement

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Worked example: identify 5
elements of assurance
engagement
• Criteria:_______________
• Report:_______________
• Evidence: _______________
• Subject matter: _______________
• Three party relationship
 Intended users :_______________

 The responsible party (the persons who prepared

the subject matter): _______________

 The practitioner: ______________________________

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5 elements of audit engagement

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1.2 Level of assurance
• Reasonable assurance: A high level of assurance,
that is less than absolute assurance, that
engagement risk has been reduced to an acceptably
low level, which then allows a conclusion to be
expressed positively.
• Limited assurance: A meaningful level of assurance,
that is more than inconsequential but is less than
reasonable assurance, that engagement risk has
been reduced to an acceptable level, which then
allows a conclusion to be expressed negatively

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1.2 Level of assurance
• The key differences between the two types of
assurance engagement are therefore:
 The evidence obtained
 The type of opinion given
Types of engagement Conclusion given Example

Reasonable Positive Year-end audit

Limited Negative Limited review audit

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Limited assurance example:
evidence obtained

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 Limited assurance example:
conclusion

Based on our review, nothing has come to our attention that causes us to believe that the
accompanying interim separate financial statements do not give a true and fair view, in all material
respects, of the interim separate financial position of the Company as at 30 June 201X, and of the
interim separate results of its operations and its interim separate cash flows for the six-month
period then ended in accordance with Vietnamese Accounting Standards, Vietnamese Enterprise
Accounting System and the statutory requirements relevant to preparation and presentation of
interim separate financial statements.

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Reasonable assurance example:
evidence obtained

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 Reasonable assurance example:
conclusion

In our opinion, the separate financial statements give a true and fair view, in all
material respects, of the separate financial position of the Company as at 31
December 20X1, and of the results of its separate operations and its separate
cash flows for the [year then ended/period from ... to ...] in accordance with
Vietnamese Accounting Standards, Vietnamese Enterprise Accounting System
and the statutory requirements relevant to preparation and presentation of the
separate financial statements.

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2. Why is assurance important?
• Independence, professional opinion on the
subject matter
• Additional confidence in the subject matter
given to others.
• Prevent errors or frauds occurring in the first
place.
• Draw attention to the deficiencies in that
information

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3. Why can assurance never be
absolute?

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Limitations of assurance
• Subjective
• Sample
• Limitations of systems
• Information from 3rd parties
• Limitations of reporting
• Include estimates

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Expectation gaps
• Lack of understanding constitutes the expectations gap – meaning that there is a gap
between what the assurance provider understands he is doing and what the user of the
information believes he is doing.
• Misunderstanding of the nature of audited financial statements, for example that:
 The balance sheet provides a fair valuation of the reporting entity.
 The amounts in the financial statements are stated precisely.
 The audited financial statements will guarantee that the entity concerned will
continue to exist.
• Misunderstanding as to the type and extent of work undertaken by auditors
All items in financial statements are tested
Auditors will uncover all errors
Auditors should detect all fraud
• Misunderstanding about the level of assurance provided by auditors. The auditors
provide absolute assurance that the figures in the financial statements are correct

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4. The statutory audit

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Audit process

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Audit regulation
Audit is a regulated area in the UK. This means that audit work
undertaken is:
Ultimately signed off by an individual holding UK statutory audit rights
who:
- is a member of an recognised qualifying body (RQB)
- holds the audit qualification
- holds a licence to practise (known as a practicing certificate); and
- has been granted the title 'Responsible Individual' by an RSB. You
must be nominated for this title by your firm, or qualify under the EU
Statutory Audit Directive as a migrant auditor.
- Always supervised by a Recognised Supervisory Body (RSB)

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