ASSURANCE SERVICES (OR ASSURANCE ENGAGEMENT) May be one of the intended users, but should not be the only

he intended users, but should not be the only one.

 Assurance - It refers to the practitioner’s satisfaction as to the reliability Subject Matter, Subject Matter information and Responsible Party in
of an assertion being by one party for use by another party. Assurance a FS Audit
means how sure the practitioner is that the representation made by a Subject matter Financial position, financial performance and cash flows
of an enterprise
particular party is reliable
Subject matter The FS of the enterprise (balance sheet, income
 Assurance Engagements – means an engagement in which a information statement, statement of changes in equity, statement of
practitioner express a conclusion designed to enhance the degree of cash flows, and related notes)
confidence of the intended users other than the responsible party about Responsible Clint or entity management
the outcome off the evaluation or measurement of a subject matter party
against criteria. Extent of Responsibility of the Responsibility Party
 Three-party contracts in which assurers such as CPA) reports on the Responsible for.. Sample Assurance Engagement
quality of information Subject matter A government organization engages a practitioner to
information only perform an assurance engagement regarding a
 Its performed by CPAs (independent Professional) are intended to report about a private company’s sustainability
enhance the credibility of information about a subject matter conforms in practices that the organization has prepared and is to
all material respects with suitable criteria. distribute to intended users
 Example; audits if financial statements of listed and non-listed entities, Subject Matter and An entity engages a practitioner to perform an
Subject Matter assurance engagement regarding a report it has
assurance on the balloting of contests, such as the Academy Awards,
Information prepared about its own sustainability practices
and reporting of compliance with laws, rules and regulations.
 Assurance will be expressed in the form of an opinion or conclusion  INTENDED USERS
which will later be communicated in an assurance report. It’s the person, persons or class of persons for whom the
practitioner prepares the assurance report.
ELEMENTS OF ASSURANCE ENGAGEMENTS
1. A three party relationship involving a practitioner (CPA), a responsible  The responsible party can be one of the intended users, but
party, and intended users. not the only one.
2. An appropriate subject matter  The assurance report is addressed to all the intended users
3. Suitable criteria (whenever practical), but in some cases there may be other
4. Sufficient appropriate evidence; and intended users.
5. A written assurance report in the form appropriate to a reasonable  Intended users may be limited to major stakeholders with
assurance engagement or a limited assurance engagement significant and common interests.

1. THREE-PARTY RELATIONSHIP 2. SUBJECT MATTER

Three separate parties; a practitioner, a responsible party and intended user
Form Subject matter Subject matter information
 The responsible party and the intended users may be from different Financial Historical or Recognition, measurement,
entities or the same entity performance or prospective financial presentation and disclosure
From The investors, creditors, government and other FS users conditions position, financial represented in financial
different (intended users) may seek assurance about the fairness of the performance and cash statements
entities presentation of FS that company management (responsible flows
party) has prepared for their consumptions Non-financial Performance of an Key indicators of efficiency
From In a two-tier board structure, the supervisory board (intended performance or entity and effectiveness
the user)may seek assurance about information provided by the conditions
same management board of the entity (responsible party). Physical Capacity of a facility Specifications document
entity Characteristics
 The relationship between the responsible party and the intended users Systems and An entity’s internal An assertion about
need to be viewed within the context of a specific engagement and Processes control or IT system effectiveness
Behavior Corporate governance, A statement of compliance or
may differ from more traditionally define lines of responsibility. compliance with a statement of effectiveness
regulation, human
 PRACTITIONER resource practices
 The term practitioner as used here is broader than the term
auditor as used in PSAs, which relates only to practitioner Characteristics:
performing audit or review engagements concerning historical  Degree to which information about them is qualitative versus
financial information. quantitative
 It may be requested to perform assurance engagements on a  Objective vs subjective
wide range of subject matters. Some subject matters may  Historical vs prospective
require specialized skills and knowledge beyond those  Relates to a point in time or covers a period
ordinarily possessed by an individual practitioner such as Such characteristics affect the precision with which the subject matter
expertise. can be evaluated or measures against criteria and the persuasiveness
 the practitioner should not accept an engagement of preliminary of available evidence. In any case, the assurance report notes
knowledge of the engagement circumstances indicates that characteristics of particular relevance to the intended users.
ethical requirements regarding professional competence will not
be satisfied. Characteristics of subject matter to be considered appropriate
 Responsible for determining the nature, timing and extent of a. identifiable, and capable of consistent evaluation or
procedures to be performed in the engagements measurement against the identified criteria, and
 RESPONSIBLE PARTY b. Such that the information about it can be capable of being
It is the persons responsible for the subject matter or the subject subjected to procedures for gathering sufficient appropriate
matter information (the assertion) in the assurance engagement.
 evidence a reasonable/limited assurance conclusion, as
appropriate.
3. SUITABLE CRITERIA
 Criteria are the benchmarks used to evaluate or measure the
subject matter including, where’s relevant, benchmarks for
presentation and disclosure.
 Suitable criteria are required for reasonably consistent evaluation or
measurement of a subject matter within the context of professional
judgment, without the same of reference provided by suitable
criteria, any conclusion is open to individual interpretation and
misunderstanding. Suitable criteria are context sensitive, that is,
relevant to the engagement circumstances.
 Criteria may be classified as follows:
a. Formal
Assurance Applicable Criteria
Engagement
Audit of FS Philippine Financial Reporting Standard (PFRS)
Assurance on Established internal control framework (e.g., COSO)
internal control or individual control objectives specifically designed
for the engagements
Compliance Applicable Law, regulation or contract
Audits
b. Less Formal Criteria
Internally developed code of conduct (e.g., entity’s by-laws) or an
agreed level of performance (such as the number of times a
particular committee is expected to meet in a year).
For the same subject matter there can be different criteria. For
example, one responsible party might select the number of
customer complaints resolved to the acknowledged satisfaction of
the customer for the subject matter of customer satisfaction;
another responsible party might select the number of repeat
purchases in the three months following the initial purchases
c. Established Criteria and Specifically Developed Criteria
 Established Criteria are those embodied in laws or regulations,
or issued by authorized or recognized bodies of experts that
follow a transparent due process.
 Specifically developed criteria are those designed for the
purpose of the engagements. Whether criteria are established
or specifically developed affects the work that the practitioner
carries out to assess their sustainability for a particular
engagement
Either of the two is used, criteria need to be available to the intended
users to allow them to understand how the subject matter has been
evaluated or measured.
Criteria are made available to the intended users in one or more of the
following ways:
1. Publicly
2. Through inclusion in a clear manner in the presentation of the
subject matter information.
3. Through inclusion in a clear manner in the assurance report
4. By general understanding, for example the criterion for measuring
time in hours and minutes.
Criteria may also be available only to specific intended users, for example
the terms of a contract, or criteria used by an industry association that re
available only to those in the industry.
4. SUFFICIENT APPROPRIATE EVIDENCE
Evidence pertains to all information gathered by the practitioner in evaluating
the subject matter against the criteria, on which the conclusion is based.
The practitioner performs the engagement with an attitude of professional
skepticism to obtain sufficient appropriate evidence about whether the
subject matter information is free from material misstatement.
Without the evidence, the practitioner will not be able to attain the objective
of an assurance engagement which is formulating and expressing an opinion
or conclusion.
Considerations in Planning and performing the Engagement
1. Quantity of evidence (Sufficiency)
2. Quality of evidence (Appropriateness)
3. Materiality
4. Assurance Engagement Risk
5. Cost-Benefit consideration
6. Professional Judgment
Sufficiency vs Appropriateness
 Two characteristics must be possessed by the evidence to be gathered
in an assurance engagement.
 Interrelated. However, merely obtaining more evidence may not be
compensate for its poor quality. In terms of obtaining sufficient
appropriate evidence, it is generally more difficult to obtain assurance
about subject matter information covering a period than about subject
matter information at a point in time.
 What is sufficient and appropriate shall be determined by the practitioner
using his or her professional judgment and exercising professional
skepticism
 Sufficiency is the measure of the quantity of evidence. The quantity of
evidence is affected by the
 Risk of the subject matter information being materially misstated
(the greater the risk, the more evidence is likely to be required)
 Quality of such evidence (the higher the quality, the less may be
required
 Appropriateness (previously called competence) is the measure of the
quality of evidence; that is relevance and reliability.
Generalizations about the reliability of evidence
The ff generalizations about the reliability of evidence may be useful;
 External vs. Internal Source
Evidence is more reliable when it is obtained from independent sources
outside the entity
 Effective Internal Control
Evidence that is generated internally is more reliable when the related
controls are effective
 Direct vs indirectly obtained by the practitioner
Evidence obtained directly by the practitioner (e.g., observation of the
application of a control) is more reliable than evidence obtained indirectly or
by inference (e.g., inquiry about the application of a control).
 Written vs oral representation
Evidence is more reliable when it exists in documentary form, whether paper,
electronic or other media (e.g., a contemporaneously written record of a
meeting is more reliable than a subsequent oral representation of what was
discussed)
 Original vs Reproduced copies
Evidence provided by original documents is more reliable than evidence
provided by photocopies or facsimiles.
Materiality
Materiality is relevant when the practitioner determines the nature, timing and
extent of evidence-gathering procedures and when assessing whether the
subject matter information is free of misstatement.
When considering materiality, the practitioner understands and assesses
what factors might influence the decisions of the intended users. The
assessment of materiality and the relative importance of quantitative and
qualitative factors in a particular engagement are matters for the
practitioners’ judgment.
Assurance Engagement Risk
 Assurance Engagement risk is the risk that the practitioner expresses an  Adverse – Do not present fairly, in all material aspect
inappropriate conclusion when the subject matter information is materially  Disclaimer of opinion – we do not express a conclusion
misstated.
It is considered when determining the nature, timing and extent of evidence- CLASSIFFICATIONS OF ASSURANCE ENGAGEMENT
gathering procedures. The more extensive the evidence gathering
procedures, the lower the chances of an inappropriate conclusion (assurance According to Level and Forms of Assurance
engagement risk), and the higher the level of assurance that a practitioner The level (high or moderate) and forms (positive or negative) of assurance
can provide. provided by the practitioner is dependent on the type of assurance
Components of Assurance Engagement Risk engagement being rendered.
Inherent Risk – the susceptibility of the Risk of Material 1. Reasonable Assurance Engagement - the objective is a
Subject
subject matter information to a material Misstatement
Matter
misstatement, assuming that there are no reduction in assurance engagement risk to an acceptably low
Information level in the circumstances of the engagement as the basis for a
related controls The risk that the
Control Risk – the risk that a material subject matter positive form of expression of the practitioners’ conclusions. Such
Internal misstatement that could occur will not be information is form conveys “reasonable assurance’’.
Controls prevented, or detected and corrected, on materially 2. Limited Assurance Engagement – the objective is a reduction in
a timely basis by related internal controls misstated assurance engagement risk to a level that is acceptable in the
Detection Risk – the risk that the Risk of Non-
Assurance circumstances of the engagement, but where the risk is greater
practitioner will not detect a material detection
Engagement than of a reasonable assurance engagement, as a basis for a
misstatement that exists.
Not all of these will be necessarily be present or significant for all assurance engagements. negative form of expression of the practitioner’s conclusion. Such
The degree to which the practitioners considers each of these components is affected by the form conveys “limited assurance’’.
engagement circumstances, in particular by the nature of the subject matter and whether a
reasonable assurance or a limited assurance engagement is being performed Reasonable vs Limited Assurance Engagement
Reasonable Limited
Cost-Benefit Considerations Level of Assurance Reasonable or High but not Limited or
 The practitioner considers the relationship between the cost of obtaining Provided absolute moderate
Form Positive Negative
evidence and the usefulness of the information obtained. Example Audit Review
 However, the matter of difficulty or expense involved is not in itself a Inquiry Inquiry
valid basis for omitting an evidence-gathering procedures for which there Observation Analytical
is no alternative. Inspection Procedures
Procedures
Analytical procedures
 The practitioner uses professional judgment and exercise professional performed
Confirmation
skepticism in evaluating the quantity and quality of evidence and thus its Reperformance
sufficiency and appropriateness, to support the assurance report. recalculation

Professional Skepticism According as to structure

 An attitude of professional skepticism means the practitioner makes a
critical assessment, with a questioning mind, of the validity of evidence
obtained and is alert to evidence that contradicts or brings into question
the reliability of documents or representations by the responsible party.
 Risk may include; overlooking suspicious circumstances, of over
generalizing when drawing conclusions from observations, and of
using faulty assumptions in determining the nature, timing and extent
of evidence gathering procedures and evaluating the results thereof.
 Professional skepticism is an attitude that includes being alert to. For
example:
1. A. evidence that is incorrect with other evidence obtained
2. Information that calls into question that reliability of documents and
responses to inquiries to be used as evidence
3. Circumstances that suggests the need for procedures in addition to
those required by relevant Assurance Standard and
4. Condition that may indicate likely misstatement
 This dictates that whenever the practitioner gathers information, he/she
considers the possibility that the information received might contain
misstatement
5. ASSURANCE REPORT
The practitioner provides a written report containing a conclusion that
conveys the assurance obtained about the subject matter information.
The practitioner considers other reporting responsibilities, including
communicating with those charged with governance. The opinion to be
expressed by the practitioner may include either of the following:
Types of Opinion
 Unmodified/Unqualified – Present fairly, in all material aspect
 Qualified – Except for
1. Attestation Engagement - is an engagement in which a practitioner is
engage to issue, or does issue, a written communication that
expresses a conclusion about the reliability of a written assertion that
is the responsibility of another party
a. The responsible party carries out the measurement or evaluation of
the subject matter and reports the information
b. The subject matter information contains the responsible party’s
assertion
c. The practitioners’ main task is to provide assurance through the
expressions of a conclusion on this assertion
d. Also known as assertion-based engagement- are assurance
engagements that which the evaluation or measurement of the
subject matter information is in the form of an assertion by the
responsible party that is made available to the intended users.
e. Common types:
a) Audit Engagement – in which the auditors provide a
reasonable (but not absolute) level of assurance that the
subject matter is free from material misstatements
b) Review Engagement – in which the auditor provides a
moderate level of assurance that the information subject to the
engagement is free of material misstatement.
2. Direct Engagements
 It is a residual definition of assurance of assurance engagement
as to structure
 The responsible party does not present the subject matter
information.
 It’s also called direct reporting engagement – 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 prospective financial d. Management advisory services
not available to the intended users in the assurance report. information
Three-party contract Two-party contract
Output: assurance in the Output: recommendation on how
form of an opinion to use the information

Examples of Common Assurance and Non-Assurance

Engagements
Assurance Non-Assurance
Attestation
 Audit
 Compilation Bookkeeping
 Review
 Management advisory
 Other attestation services
 Agreed-upon procedures
Other Services
 Tax services where no
 Performance review
conclusion is expressed
 Examination of
Forecasts

NON-ASSURANCE ENGAGEMENTS

A. Agreed-upon procedures
 The 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 the findings.
 Recipient of the reports must form their own conclusions from the
report by the auditor
 The report is restricted to those parties who have agreed to the
procedures to be performed.
B. Compilation of Financial and other Information
 An accountant is engaged to use accounting expertise as
opposed to auditing expertise to collect, classify and summarize
financial information
 Ordinarily entails detailed data in a manageable and
understandable form
 An accountant will not express any assurance on the financial
information
 Intended users derived some benefits as a results on the financial
involvement.
C. Some tax service where no conclusion is expressed, and tax
consulting
 The practitioner provides advise or income tax and business
strategies
 Develop tax strategies to minimize businesses’ tax liability and
worries.
D. Management consulting and other advisory services
 The practitioner provides advice or recommendations for the
improvement of the clients use of its capabilities and resources to
achieve the objective of the clients organization
E. Non-assurance engagements do not provide assurance to intended
users.

Assurance Engagements Non-Assurance Engagements

Design to improve the quality Designed to provide comments,
or enhance the credibility of suggestions, or recommendations
the subject matter on how to use the information
Should be provided by an Independence is not required
independent professional
Common examples include; Common example includes;
a. Audit a. Agreed-upon procedures,
b. Review, and b. Compilation
c. Examination of c. Preparation of tax returns, and