LECTURE 3:

AUDITOR’S SERVICES

Learning objectives
After studying this chapter, you should be able to:
▪ Understand the general definition of assurance services.
▪ Identify the assurance and non-assurance services normally
performed by auditors.
▪ Explain what an assurance engagement entails.
▪ Describe the five elements exhibited by all assurance
engagements.
▪ Know the various subject matters that can be covered in an
assurance engagement.

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 Learning objectives
After studying this chapter, you should be able to:
▪ Distinguish between the different suitable criteria applicable to an
assurance service
▪ Understand what distinguishes a review from a compilation
Understand the place of professional judgement in audits
▪ Describe professional scepticism
▪ Give the inherent limitations of an audit
▪ Quality Control

3.1. International Framework for Auditor Services

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3.1. International Framework for Auditor Services

The International Auditing and Assurance Standards Board

(IAASB) is:
“an independent standard-setting body that serves the public
interest by setting high-quality international standards for
auditing, quality control, review, other assurance, and related
services, and by facilitating the convergence of international
and national standards” (IAASB 2019).

3.1. International Framework for Auditor Services

International Auditing and Assurance Standards Board
(IAASB) issues:
✓ International Standards on Auditing (ISAs) as the standards to be
applied by auditors in reporting on historical financial information.
✓ International Standards on Assurance Engagements (ISAEs) as the
standards to be applied by practitioners in assurance engagements
dealing with information other than historical financial information
✓ International Standards on Quality Control (ISQCs) as the
standards to be applied for all services falling under the Standards of
the IAASB, and
✓ International Standards on Related Services (ISRSs) as the
standards to be applied on related services, as it considers appropriate
✓ International Standards on Review Engagements (ISREs) as the
standards to be applied to the review of historical financial
information.
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3.1. International Framework for Auditor Services
▪ Guidance and Practical Assistance Provided by Practice
Statements (IAPS, IAEPs, IRSPSs):
• International Auditing Practice Notes (IAPNs),
represented by IAPN 1000–1100, are issued to provide
interpretive guidance and practical assistance to auditors
in implementing ISAs for audit, review and special
purpose engagements.
• International Assurance Engagement Practice Notes
(IAEPNs), provide interpretive guidance for ISAEs,
• International Related Services Practice Notes
(IRSPNs) will provide assistance for auditors
implementing ISRSs.
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3.2. Elements of an Assurance Engagement

▪ Definition of Assurance Engagement:
“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.”

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3.2. Elements of an Assurance Engagement

▪ Types of Assurance Engagement:

• A reasonable assurance engagement: The objective is a
reduction in assurance engagement risk to an acceptably
low level => a positive form of expression of the
practitioner’s conclusion.
• A 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 that risk is greater than for a reasonable assurance
engagement => a negative form of expression of the
practitioner’s conclusion.

3.2. Elements of an Assurance Engagement

▪ Five Elements Exhibited by all Assurance

Engagements:
✓ A three-party relationship involving a practitioner, a
responsible party, and the intended users;
✓ An appropriate subject matter;
✓ Suitable criteria;
✓ Sufficient appropriate evidence; and
✓ A written assurance report

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3.2. Elements of an Assurance Engagement
✓ Three-party relationship:

Three people or groups of people involved:

– the practitioner (accountant)
– the intended users
– the responsible party (the person(s) who prepared the subject matter)
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3.2. Elements of an Assurance Engagement

✓ Subject matter
The subject matter of an assurance engagement can take many
forms, such as:
• Financial performance or conditions for which the subject matter
information may be the recognition, measurement, presentation and
disclosure represented in financial statements
• Non-financial performance or conditions for which the subject
matter information may be key indicators of efficiency and
effectiveness.
• Physical characteristics for which the subject matter information may
be a specifications document.
• Systems and processes for which the subject matter information may
be a statement of effectiveness.
• Behaviour for which the subject matter information may be a
statement of compliance or a statement of effectiveness. 12

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3.2. Elements of an Assurance Engagement
✓ Suitable Criteria
• Suitable criteria are the benchmarks (standards, objectives, or
set of rules) used to evaluate evidence or measure the subject
matter of an assurance engagement.
• For example, in the preparation of financial statements, the
suitable criteria may be IFRS, US Generally Accepted
Accounting Principles (US GAAP), or national standards.
• The Characteristics for Assessing Suitable Criteria: Relevance,
Completeness, Reliability, Neutrality and Understandability.
• Criteria Established or Specifically Developed: are embodied in
laws or regulations, or issued by recognized bodies of experts
and are identified for the purpose of the engagement which are
consistent with the engagement objectives.

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3.2. Elements of an Assurance Engagement

✓ Evidence
The practitioner plans and performs an assurance engagement with
an attitude of professional scepticism to obtain sufficient
appropriate evidence about whether the subject matter information
is free of material misstatement.
• Sufficiency is the measure of the quantity of evidence.
• Appropriateness is the measure of the quality of evidence; that is,
its relevance and its reliability
• Materiality is relevant when the auditor determines the nature,
timing and extent of evidence-gathering procedures, and when
assessing whether the subject matter information is free of
misstatement. Materiality is considered in the context of
quantitative and qualitative factors, such as relative magnitude
and the nature and extent of the effect of these factors on the
evaluation of the subject matter.
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3.2. Elements of an Assurance Engagement
✓ Assurance Report
▪ The auditor provides a written report containing a conclusion
that conveys the assurance obtained from the subject matter
information. ISAs, ISREs and ISAEs establish basic elements
for assurance reports. Also, the auditor considers other
reporting responsibilities, including communicating with those
charged with governance when appropriate.

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3.2. Elements of an Assurance Engagement

✓ Assurance Report (cont.)
▪ In an assertion-based engagement, the practitioner’s
conclusion can be worded either:
• in terms of the responsible party’s assertion (for example:
‘In our opinion the responsible party’s assertion that
internal control is effective, in all material respects, based
on XYZ criteria, is fairly stated’); or
• directly in terms of the subject matter and the criteria (for
example: ‘In our opinion internal control is effective, in all
material respects, based on XYZ criteria’).

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3.2. Elements of an Assurance Engagement

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3.3. Audits of Historical Financial Information

▪ The overall objectives of an audit of financial statements is

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 whether the financial statements are
prepared, in all material respects, in accordance with an
identified financial reporting framework.
▪ The auditor also must report on the financial statements, and
communicate as required by the ISAs, in accordance with the
auditor’s findings.
▪ The expression of a conclusion by an auditor is designed to
enhance the degree of confidence intended users can have
about historical financial statements. 18

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3.4. Professional Judgement, Professional Scepticism and
Inherent Limitations

Professional Judgement

Professional Professional

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3.4. Professional Judgement, Professional Scepticism and

Inherent Limitations
▪ Professional Judgement
• Definition
Professional judgement is the application of relevant
training, knowledge and experience, within the context
provided by auditing, accounting and ethical standards,
in making informed decisions about the courses of
action that are appropriate in the circumstances of the
audit engagement

Professional judgement is required for the critical elements of auditing

including criteria, independence of mind, sufficient appropriate audit
evidence, determining and communicating significant deficiencies in
internal control and determination of whether an audit objective has been
achieved
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3.4. Professional Judgement, Professional Scepticism and
Inherent Limitations

▪ Professional Judgement
ISA 200 requires the auditor to exercise professional
judgement in planning and performing an audit of financial
statements, including, but not restricted to the following:
• Materiality and audit risk
• Nature, extent and timing of audit procedures
• Evaluating sufficient and appropriate audit evidence obtained
• Evaluating management judgements
• Drawing conclusions on the evidence obtained
• Determination of what other matters arising from the audit
significant to the oversight of the financial reporting process

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3.4. Professional Judgement, Professional Scepticism and

Inherent Limitations
▪ Professional Scepticism
• Definition
Professional scepticism is an attitude that includes a
questioning mind, being alert to conditions which may
indicate possible misstatement due to error or fraud,
and a critical assessment of audit evidence

An attitude of professional scepticism means the practitioner makes a

critical assessment, with a questioning mind, of the validity of evidence
obtained

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3.4. Professional Judgement, Professional Scepticism and
Inherent Limitations

▪ Professional Scepticism
• Requires auditor to be alert to:
✓ Audit evidence that contradicts other audit evidence
obtained;
✓ Information that brings into question the reliability of
documents and responses to inquiries to be used as audit
evidence;
✓ Conditions that may indicate possible fraud; and
✓ Circumstances that suggest the need for audit procedures
in addition to those required by ISAs
• Professional scepticism should be documented to provide
evidence of the auditor’s exercise of professional scepticism
in accordance with the ISAs. 23

3.5. Quality Control (ISQC #1 and ISA 220)

▪ International Standard on Quality Control #1 (ISQC #1)

applies to all firms of professional accountants in respect
to audits and reviews, other assurance, and related
services engagements.
▪ ISQC #1 gives the requirements designed to enable the
accounting firm to meet the objective of quality control.
▪ ISA 220 deals with quality control procedures for audits
of financial statements.

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3.5. Quality Control (ISQC #1 and ISA 220)
▪ A major objective of the audit firm is to establish and
maintain a system of quality control to provide it with
reasonable assurance that the accounting firm and its
personnel comply with professional standards, legal and
regulatory requirements and that reports issued are
appropriate in the circumstances.
▪ Quality control include the policies and procedures as
followings:
• Leadership responsibilities for quality within the firm.
• Relevant ethical requirements.
• Acceptance and continuance of client relationships and specific
engagements.
• Human resources.
• Engagement performance.
• Monitoring.

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3.5. Quality Control (ISQC #1 and ISA 220)

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