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INTRODUCTION TO ASSURANCE
Decision-making has been a normal part of our lives. The
countless number of decisions made every day can
significantly affect the life of every person and every
organization.
To have a favorable outcome, decision-makers heavily rely on
information available that, more often than not, is prepared
or provided by other persons or organizations. However, in
most instances, the interests of the providers of information
contradict those of the users of the information. Thus,
creating the need for an objective evaluation of the
information to have more reliable information.
In business, reliable information becomes an essential aspect
of decision making. Decision-makers gather relevant and
reliable information before making any economic decisions
that normally include the following:
Commonly, these users will rely on the financial information
embodied in the financial statements presented and
prepared by the entity where they plan to invest, grant a
loan, request salary increases or additional benefits, or
change taxation policies. This situation had created the need
for an independent Certified Public Accountant (CPA) who is
equipped with the appropriate skills and knowledge to
objectively evaluate the information. The CPA is expected to
provide reasonable assurance as to the fairness of
preparation and presentation of the financial information.
Such assurance will be expressed in the form of an opinion
or conclusion which will later be communicated in an
assurance report.
What is assurance?
Assurance refers to the practitioner’s satisfaction as to the
reliability of an assertion being made by one party for use by
another party.
Simply stated assurance means how sure the practitioner is
that the representation made by a particular party is reliable.
ASSURANCE ENGAGEMENTS
Assurance engagement (or services) 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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Assurance services are three-party contracts in which
assurers report on (or improve) the quality of information. It
is used to describe the broad range of information
enhancement services that are provided by CPAs.
These services are performed by an independent
professional designed to improve the quality or enhance the
credibility of the subject matter of the engagement.
The objective and elements of assurance engagements
The objective of an assurance engagement is for a
practitioner to evaluate or measure a subject matter that is
the responsibility of another party against identified suitable
criteria and express a conclusion that provides the intended
user with a level of assurance about that subject matter.
As depicted in Exhibit 1-1, the following are the elements of
an assurance engagement (3SECC):
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 (Conclusion) in the form
appropriate to a reasonable assurance engagement
or a limited assurance engagement.
1) Three-Party Relationship:
An assurance engagement involves three separate parties,
namely
a) The practitioner
 is broader than the term auditor as used in
Philippine Standards on Auditing (PSAs) and
Philippine Standards on Review Engagements
(PSREs), which relates only to practitioners
performing audit and review engagements
concerning historical financial information
 must be independent of both the responsible party
and the intended users
 is governed by ethical requirements (i.e. professional
competence} regarding the conduct of the
engagements
 may use the work of persons from other
professional disciplines, referred to as experts for
engagements requiring specialized skills and
knowledge beyond those ordinarily possessed by an
individual practitioner
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 responsible for determining the nature, timing, or internal control framework (e.g. of internal
extent of procedures required by the engagement process COSO control
Framework)
So as not to be confused with the terms professional Various aspects Relevant Entity-specific
accountant, practitioner, and auditor, the following explains of Performance measurement performance
the uses of these terms. methodologies measures
Professional Certified Public Accountant engaged in any Entity's Recognition, Greenhouse gas
Accountant area of accountant accountancy greenhouse measurement, statement
Practitioner CPA rendering professional services Emissions and presentation
(assurance or non-assurance) protocols Law
Auditor A practitioner rendering audit and review and regulations
services Compliance by an Law and Statement about
entity regulations compliance
b) The responsible party
 is the person/s responsible for the subject matter, Furthermore, subject matters have different characteristics,
the subject matter information, or both including the degree to which information about them is:
 may or may not be the engaging party to the  qualitative/quantitative;
practitioner  objective/subjective;
 may or may not be from the same organization as  historical/prospective; and
the intended users  relates to a point in time/covers a period
 may be one of the intended users, but should not be
the only one Such characteristics affect the:
a) Precision with which the subject matter can be
c) The intended users evaluated or measured against criteria, and
 are the person/s for whom the practitioner prepares b) The persuasiveness of available evidence. The
the assurance report. The assurance report shall be assurance report notes characteristics of particular
addressed to all users whenever practical. relevance to the intended users.
 in case of a broad range of interests by the readers
of the assurance report, the intended users may be Characteristics of a subject matter to be considered
limited to major stockholders with significant and appropriate
common interests. An appropriate subject matter is:
 may be identified by agreement between the a) Identifiable, and capable of consistent evaluation or
practitioner and the responsible party or engaging measurement against the identified criteria, and
party, or by law. Once identified, the report to be b) Such that the information about it can be subjected
issued must be restricted only to parties identified. to procedures for gathering sufficient appropriate
evidence to support a reasonable assurance or
2) Appropriate Subject Matter limited assurance conclusion, as appropriate.
The subject matter is the nature of the assertion the
practitioner gathers sufficient evidence. On the other hand, 3) Criteria
subject matter information pertains to the outcome of the The benchmarks used to evaluate or measure the subject
evaluation or measurement of the subject matter against matter include, where relevant, benchmarks for presentation
criteria. It is for which the practitioner gathers sufficient and disclosure. Criteria may be classified as follows:
appropriate evidence to provide a reasonable basis for a) Formal
expressing a conclusion in an assurance report  PFRS - preparation of the financial statement
 Established internal control framework (e.g. COSO)
The subject matter and subject matter information of an or internal control objectives specifically designed
assurance engagement can take many forms. The table for the engagement - reporting on internal
below summarizes the illustration given in the Philippine controls
Framework for Assurance Engagements.  Applicable laws, regulations, or contracts -
reporting for compliance
Underlying Criteria matter Subject matter
subject information b) Less formal
(outcome)  Internally developed code of conduct (e.g. entity’s
Entity's financial Applicable Financial by-laws)
position, financial financial statements  Agreed level of performance (e.g. the number of
performance, reporting times a particular committee is expected to meet
and cash flows framework (e.g. in a year)
PFRS)
Effectiveness of Relevant Internal Statement about
an entity's control the effectiveness c) Established

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 those embodied in laws or regulations or issued by
authorized or recognized bodies of experts that
follow a transparent due process
 associated with formal criteria
d) Specifically developed
 those designed for the engagement > associated
with less formal criteria
Suitable criteria are required for reasonably consistent
evaluation or measurement of a subject matter within the
context of professional judgment. Without the frame 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. Even 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 purchase.
Characteristics of suitable criteria: (RUN CR)
a) Reliability - reliable criteria allow reasonably consistent
evaluation or measurement of the subject matter
including, where relevant, presentation and disclosure
when used in similar circumstances by similarly qualified
practitioners.
b) Understandability - contribute to clear, comprehensive
conclusions, and not subject to significantly different
interpretations.
c) Neutrality - contribute to conclusions that are free from
bias.
d) Completeness - criteria are sufficiently complete when
relevant factors that could affect the conclusions in the
context of the engagement circumstances are not
omitted. Complete criteria include, where relevant,
benchmarks for presentation and disclosure.
e) Relevance - relevant criteria contribute to conclusions
that assist decision-making by the intended users.
Communication of criteria to intended users 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:
a) Publicly
b) Through inclusion in a clear manner in the
presentation of the subject matter information
c) Through inclusion in a clear manner in the assurance
report
d) By general understanding, for example, the criterion
for measuring time in hours and minutes
4) Sufficient Appropriate Evidence
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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.
Exhibit 1-2 Considerations in Planning and Performing the
Engagement
The following are the practitioner’s considerations when
planning and performing the engagement (determining the
nature, timing, and extent of evidence-gathering
procedures).
Sufficiency vs. Appropriateness
Two characteristics must be possessed by the evidence to be
gathered in an assurance engagement. These are sufficiency
and appropriateness.
Sufficiency is the measure of the quantity of evidence. The
quantity of evidence needed 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), and
 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, its relevance and
its reliability.
Accordingly, the sufficiency and appropriateness of evidence
are interrelated. However, merely obtaining more evidence
may not compensate for its poor quality.
What is sufficient and appropriate shall be determined by the
practitioner using his or her professional judgment and by
exercising professional skepticism.
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.
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In addition, conclusions provided on processes ordinarily are
limited to the period covered by the engagement. The
practitioner provides no conclusion about whether the
process will continue to function in the specified manner in
the future.
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. For example, when the identified criteria
allow for variations in the presentation of the subject matter
information, the practitioner considers how the adopted
presentation 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 practitioner's judgment.
Assurance engagement risk
Definition
Assurance engagement risk is the risk that the practitioner
expresses an inappropriate conclusion when the subject
matter information is materially misstated.
Managing assurance engagement risk
The practitioner may reduce assurance engagement risk to a
lower level by increasing the assurance level provided by the
procedures performed. To be meaningful, the level of
assurance obtained by the practitioner is likely to enhance
the intended users’ confidence about the subject matter
information to a degree that is more than inconsequential.
The three general components of assurance engagement risk
are depicted in Exhibit 1-3. However, not all of these
components will necessarily be present or significant for all
assurance engagements. The degree to which the
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practitioner considers each of these components is affected
by the engagement circumstances, in particular by the nature
of the subject matter and whether a reasonable assurance or
a limited assurance engagement is being performed.
Materiality and assurance engagement risk (audit risk) will be
discussed in further detail in Chapter 5.
Cost-benefit Consideration
In performing evidence-gathering procedures, the
practitioner is expected to observe cost-benefit
consideration. This means that “the benefits that will be
derived from obtaining the evidence should exceed the cost
of obtaining it’.
The practitioner considers the relationship between the cost
of obtaining However, the evidence and the usefulness of the
information obtained. matter of difficulty or expense
involved is not a valid basis for omitting evidence-gathering
procedures for which there is no alternative.
To simplify, in case there is a significant evidence-gathering
procedure that is required but involves high cost or high level
of difficulty, the practitioner may:
1) Identify and perform alternative procedures that can
minimize the associated cost or level of difficulty.
2) In the absence of alternative procedures, required to
perform the procedures as long as he/she believes that
performance of it is necessary and beneficial to the
entire engagement.
Professional Skepticism
The practitioner plans and performs an assurance
engagement with an skepticism recognizing that
circumstances may attitude of professional exist that cause
the subject matter information to be materially misstated.
This 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.
Simply stated, professional skepticism dictates that whenever
the practitioner gathers information, he/she considers the
possibility that the information received might contain
misstatement. The practitioner will then validate the
information received by performing additional procedures to
exhibit professional skepticism. Accordingly, the more the
practitioner intends to exhibit the attitude of professional
skepticism, the more critical procedures will be required.
The following are examples of exhibiting professional
skepticism is necessary throughout the
1) An attitude of professional skepticism reduce the risk of
engagement process for the practitioner to overlooking
suspicious circumstances, over-generalizing when
drawing conclusions from observations, and using faulty
assumptions and extent of evidence-gathering
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determining the nature, timing, procedures and Types of Opinion

evaluating the results thereof. Type Common phrase used
1. Unmodified/Unqualified Present fairly, in all material
2) An assurance engagement rarely involves the respect
authentication of documentation, nor is the practitioner 2. Qualified Except for
trained as or expected to be an expert in such 3. Adverse Do not present fairly, in all
authentication. However, the practitioner considers the material respect
reliability of the information to be used as evidence, for 4. Disclaimer of opinion We do not express a
example, photocopies, facsimiles, filmed, digitized, or conclusion
other electronic documents, including consideration of
controls over their preparation and maintenance where Levels and forms of assurance
relevant. The levels (high or moderate) and forms (positive or
negative) of assurance provided by the practitioner is
3) When receiving contradicting information from different dependent on the type of assurance engagement being
sources, the practitioner ordinarily performs procedures rendered.
to identify the possible causes of the discrepancies (e.g.
bank reconciliation, subsidiary and general ledgers The following are types of assurance engagement as to the
reconciliation, and inquiries with parties involved to level of assurance provided:
account for the differences). 1) Reasonable assurance engagement – the objective is a
reduction in assurance engagement risk to an
However, if the practitioner had already exhausted all acceptably low level in the circumstances of the
possible means to identify the differences but still there engagement as the basis for a positive form of
are items unaccounted for, the following generalizations expression of the practitioner’s conclusion. Such form
about the reliability of evidence may be useful. conveys “reasonable assurance”.

a) External vs. internal source Example of expressing an opinion in reasonable

Evidence is more reliable when it is obtained from assurance engagement: “In our opinion, internal control
independent sources outside the entity. is effective, in all material respects, based on XYZ
b) Effective internal control criteria.”
Evidence that is generated internally is more
reliable when the related controls are effective. 2) Limited assurance engagement - the objective is a
c) Directly vs. indirectly obtained by the practitioner reduction in assurance engagement risk to a level that is
Evidence obtained directly by the practitioner (for acceptable in the circumstances of the engagement, but
example, observation of the application of a where the risk is greater than for a reasonable
control) is more reliable than evidence obtained assurance engagement, as a basis for a negative form of
indirectly or by inference (for example, inquiry expression of the practitioner’s conclusion. This form
about the application of a control). conveys “limited assurance”.
d) Written vs. oral representations
Evidence is more reliable when it exists in Example of expressing an opinion in limited assurance
documentary form, whether paper, electronic or engagement: “Based on our work described in this
other media (for example, a contemporaneously report, nothing has come to our attention that causes us
written record of a meeting is more reliable than a to believe that internal control is not effective, in all
subsequent oral representation of what was material respects, based on XYZ criteria.”
discussed).
e) Original vs. reproduced copies Reasonable vs. Limited Assurance Engagement
Evidence provided by original documents is more Reasonable Limited
reliable than evidence provided by photocopies or Level of Reasonable or High, Limited or
facsimiles. assurance but not absolute Moderate
provided
5) Written Assurance Report Form Positive Negative
The practitioner provides a written report containing a Example Negative Review
conclusion or an opinion that conveys the assurance
Procedure  Inquiry  Inquiry
obtained about the subject matter information. In addition,
s  Observation  Analytical
the practitioner considers other reporting responsibilities,
performed  Inspection Procedure
including communicating with those charged with
 Analytical s
Procedures
governance. The opinion to be expressed by the practitioner
 Confirmation
may include either of the following:
 Reperformanc
e

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 Recalculation
Moreover, the following are types of assurance engagement
as to structure.
Assurance Engagements as to structure
The following are the assurance engagements according to
the structure.
A) Attestation engagements
Definition
Attestation engagement is an engagement in which a
practitioner is engaged 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.
Main characteristics
1) In an attestation, the responsible party carries out the
measurement or evaluation of the subject matter and
reports the information.
2) The subject matter information contains the responsible
party’s assertion.
For example:
The financial statements of ABC Company are fairly
stated as of December 31, 2023.
3) The practitioner's main task is to provide assurance
through the expression of a conclusion on this assertion.
For example:
“In our opinion, the accompanying financial statements
present fairly, in all material respects, the financial
position of ABC Company as at December 31, 2023, and
its financial performance and its cash flows for the
period ended December 31, 2023, in accordance with
Philippine Financial Reporting Standards (PFRSs).
4) Attestation engagements are also known as assertion-
based engagements.
Definition
Assertion-based engagements are assurance
engagements that which 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 the
intended users.
With this, in an attestation, both the subject matter
information including the responsible party’s assertion
and the practitioner’s assurance report are made
available together to the intended users.
However, at times, the responsible party may engage
another third party to carry out the measurement or
evaluation of the subject matter. The assurance practitioner
will need to understand the split of responsibilities between
the responsible party and the third-party preparer. For
example, are management in any case, required to take
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responsibility for the third party's evaluation and assertion —
to determine how best to structure and contract for the
engagement.
Common types of attestation engagements are:
1) Audit engagement is an engagement in which the
auditor provides a reasonable (but not absolute) level of
assurance that the subject matter is free from material
misstatements.
2) Review engagement is an engagement in which the
auditor provides a moderate level of assurance that the
information subject to the engagement is free of
material misstatement.
Practitioners more commonly perform attestation
engagements. This is because, ultimately, management (as
the responsible party) is responsible for their business and,
therefore, should be in a position to present relevant
assertions in the subject matter information. They are also in
a better position to understand who would use the
information, what users want to see, in what format, and for
what purpose.
B) Direct engagements
Direct engagement is a residual definition of assurance
engagement as to structure.
In a direct engagement, the responsible party does not
present the subject matter information. Instead, the
practitioner reports directly on the subject matter and
provides the intended users with an assurance report
containing the subject matter information.
Because of this attribute, direct engagements are also called
direct reporting engagements. Auditing standards define
direct reporting engagements as assurance engagements in
that 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 in the assurance reports.
An example of a direct engagement would be an engagement
to report on the effective control over the financial reporting
process.
A direct assurance conclusion would be constructed as
follows:
"In our opinion, the company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2023, based on the criteria established in
the Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO).”
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NON-ASSURANCE ENGAGEMENTS
Non-assurance engagements lack one or more of the
elements of assurance engagements. Common examples
include:
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
 recipients of the report must form their own
conclusions from the report by the auditor.
 The report is restricted to those parties who have GLOBAL ORGANIZATIONS AND STANDARD-SETTING
agreed to the procedures to be performed BOARDS OF THE ACCOUNTANCY PROFESSION

B) Compilation of financial and other information The International Federation of Accountants (IFAC) is the
 An accountant is engaged to use accounting global organization for the accountancy profession. The
expertise as opposed to auditing expertise to collect, organization was founded in 1977 and is comprised of 180
classify and summarize _ financial information member and associate organizations in 135 countries and
 ordinarily entails detailed data in a manageable and jurisdictions, representing nearly 3 million professional
understandable form accountants. It supports the development, adoption, and
 an accountant will not express any assurance on the implementation of high-quality international standards’.
financial information
 intended users derived some benefits as a result of To pursue its purpose, it supports four independent
the accountant’s involvement standard-setting boards namely:
1) International Auditing and Assurance Standards
C) Some tax services where no conclusion is Board (IAASB)°
expressed, and tax consulting 2) International Accounting Education Standards Board
 The practitioner provides advice on income tax and (IAESB)™ 2
business strategies 3) International Ethics Standards Board for
 Develop tax strategies to minimize businesses’ tax Accountants (IESBA) °
liability and worries 4) International Public Sector Accounting Standards
Board (IPSASB) °
D) Management consulting and other advisory
services Exhibit 1-6 presents a diagram of the structure of these
 The practitioner provides advice or organizations and their respective roles and
recommendations for the improvement of the pronouncements.
client’s use of its capabilities and resources to
achieve the objective of the client’s organization

Needless to say, non-assurance engagements do not provide

assurance to intended users.

NOTE: The details of agreed-upon procedures and

compilation engagements will be discussed in Chapter 15.

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STANDARDS GOVERNING THE PROFESSIONAL SERVICES OF to make them Philippine-specific. Changes to international
CPAs IN THE PHILIPPINES pronouncements to make them Philippine-specific are made
clear in the AASC exposure draft and final Philippine
The below table lists the different professional standards Standards or Practice Statements.
containing basic principles and essential procedures
(together with related guidance in the form of explanatory
and other material, including appendices), which are used by
CPAs as guidelines in rendering professional services. All
these standards are issued by the Auditing and Assurance
Standards Council (AASC; formerly known as Auditing
Standards and Practices Council - ASPC).

At present, AASC pronouncements are mainly adopted from

the standards and practice statements issued by the IAASB.
Country-specific standards and practice statements are
developed to address specific auditing issues not covered by
the IAASB pronouncements.

IMPORTANT NOTES:
a) PSAs, PSREs, PSAEs, and PSRSs are known as
engagement standards.
b) These standards require professional accountants to
exercise professional judgment in applying them.
c) Practice Statements are issued to provide
interpretive guidance and practical assistance to
professional accountants in implementing the
related engagement standards and to promote good
practice.
d) A professional accountant shall be aware of and
consider the applicable practice statements to the
engagement.

In exceptional circumstances, a professional accountant may

judge it necessary to depart from a basic principle or
essential procedure of an engagement standard to achieve
the objective of the engagement. | When such a situation
arises, the professional accountant should be prepared to
justify the departure.

ADOPTION OF PHILIPPINE STANDARDS AND PRACTICE

STATEMENTS
Approach
The AASC undertakes a review of existing International
pronouncements and those that may be issued in the future

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