Assurance

It is an engagement when one party appoints another party to provide the

satisfaction (confidence) to another party in order to increase the confidence
of another party and reducing the level of risk. and facilitating the decision making.

NOTE:-
Assurance on environmental matters.
Assurance on Internal controls.
Assurance on any subject matter.
Assurance on financial statement.(1 year)

AUDIT is the part of assurance.

Assurance and Audit 1 By:- Haris Hanif

5 Elements of Assurance Engagement
(1) Three Parties
- Intended User:
The individual or class of individual who need the assurance.

- Responsible party: Has got the custody of the subject matter

The party whose work is being assessed by the practitioner.

- Practitioner:
The one who provides the assurance to the intended user and should be independent and
expert in the relevant field.

(2) Subject Matter

This involves any data which is being evaluated by the practitioner for the purpose of
assurance to the intended user. e.g internal controls, F.s and enviroments

(3) Criteria KPI (key performance indicators)

These are the parameter (or Standards/criteria) against which the subject matter is being
evaluated by the practitioner.

(4) Evidence Auditor ju karta hai wo process hai aur ju gain karta hai from that process wo
evidence hai
These are all the information and explanation collected by the practitioner by applying
suitable procedures on the given subject matter and those evidences should be
sufficient (Quantity) and appropriate (Quality).

(5) Assurance Report

This is the written report by the practitioner containing the assurance (opinion) on the
subject matter, being addressed to the intended user.

Assurance and Audit 2 By:- Haris Hanif

International Standards
• IAS (International Accounting Standards)

• IFRS (International Financial Reporting Standards)

• ISAE (International Standards on Assurance Engagement)

• ISA (International Standards on Audit)

• ISRE (International Standards on Review Engagement)

Levels of Assurance
ISAE (International Standards on Assurance Engagement)

• Absolute Assurance (Guarantee) 100% assurance which is not allowed

• Reasonable Assurance

• Limited/Moderate Assurance

Reasonable Assurance

It is the high level of assurance in which the practitioner evaluates the subject matter in
greater detail with maximum procedures and being himself more confident, expresses the
opinion in the form of positive report.

Its like full course

Limited/Moderate Assurance

It is the low level assurance in which the practitioner evaluates the subject matter in less
detail with the limited procedures, normally inquiry and Analytical procedures and concludes
the opinion in the form of negative reports.

Its like crush course

Assurance and Audit 3 By:- Haris Hanif

Examples of Reports
Examples of report depends on wording and confidence level of practitioner.

POSITIVE REPORT

• Subject matter gives True and Fair View.

In our opinion, _____________

• Subject matter do NOT give True and Fair View.

In our opinion, _____________

NEGATIVE REPORT

Nothing has come to our attention which causes us to believe that Subject matteris NOT True and Fair.
__________

EXTERNAL AUDIT
Auditor. > check > F.S > on sample basis > material transaction > opinion > +report

The objective of external audit is to enable the auditor to express independent

reasonable assurance, whether the financial statement, in all material respect, are
in accordance with applicable accounting standards and whether or not it gives true
and fair view.

Assurance and Audit 4 By:- Haris Hanif

5 Elements of AUDIT Engagement
(1) Three Parties
- Intended User: Shareholders

- Responsible party: Company > BOD

- Practitioner:
Audit firm

(2) Subject Matter F.S of 1 year

(3) Criteria
Accounting standards

(4) Evidence
Auditor > apply > Audit procedures on F.s

Evidence should be sufficient and appropriate

(5) Assurance Report

Audit report > Opinion of auditor > addressed to shareholders

Assurance and Audit 5 By:- Haris Hanif

 Advantages of Audit
• It provides satisfaction to shareholders.

• It adds credibility in the financial statements. Value to F.S

• It also assist other stakeholders in making the economical decision, based on the financial
statements.

• It enables the auditor to give constructive advice to the management on the system
improvements. Suggestion after TOC to improve the controls.

Limitations of Audit
• There is limited time to do audit.

• Auditor works on sample basis and possible chances are that the sample which is ignored
may contain the misstatements.
Management may hide the misstatement and
• Evidences may be persuasive, rather than conclusive. trying to convince to auditor that evidence are
true, Persuasive means convince
• Audit is not the objective work, judgements have to be made and auditors’ judgement may
not be appropriate sometimes.

ASSURANCE ISAE

ISA AUDIT Engagement REVIEW Engagement ISRE

Compulsory for PLC Voluntary

F.S of 1 year Of anything other than F.S e.q Internal Controls

Maximum procedures Limited procedures ( Inquiry and Analytical procedure)

POSTIVE REPORT Limited/Moderate Assurance

Negative report

Assurance and Audit 6 By:- Haris Hanif

Review Engagement
It is the voluntary exercise in which a practitioner is engaged to evaluate the subject matter
other than financial statements (like internal controls) and applied limited procedures
mainly Inquiry and Analytical procedures and expresses the limited assurance in the form of
Negative report.

TYPES OF REVIEW ENGAGEMENT

(1) Direct Engagement
This is the engagement in which the practitioner evaluates the subject matter with the
limited procedures and then concludes the opinion.

(2) Attestation Engagement

This is the engagement in which the practitioner does NOT evaluate the subject matter, but
the practitioner ensures whether the information is free from material misstatements and
then grid the stamp as attested.

Non – Assurance Engagement

This is the engagement, in which the practitioner is engaged but NO ASSURANCE is
provided.
(1) Agreed upon procedures
This is the engagement in which practitioner is engaged to collect the facts and figures on
certain subject matter with some agreed procedures, but NO OPINION will be given, the
users will draw the opinion by themselves.

(2) Compilation Engagement

This is the engagement in which the practitioner is engaged to compile the information, but
NO ASSURANCE is given.
Example, Tax return compilation.

Assurance and Audit 7 By:- Haris Hanif