REASONABLE AND LIMITED ASSURANCE ENGAGEMENTS The Philippine Framework for Assurance Engagements directs that a practitioner can

enter into two types of assurance engagements or, effectively, provide two levels of assurance on any particular type of assurance engagement. These two types of assurance engagements are reasonable assurance engagements and limited assurance engagement. The difference between these types of assurance is reflected in the nature of the work performed, the level of engagement risk and the type of conclusion provided. The objective of a reasonable assurance engagement is a reduction in assurance engagement risk to an acceptably low level in the circumstances of the engagement as the basis for a positive form of expression of the practitioner's conclusion. Practitioners aiming to obtain reasonable assurance must obtain sufficient evidence in order that they may give a positive conclusion. To do this, they must reduce the assurance engagement risk to an acceptably low level. The audit opinion as currently expressed in audit report reflects a reasonable assurance conclusion.

TABLE 1.1 Expression of Conclusion in Reasonable Assurance Engagements and Limited Assurance Engagements Reasonable Assurance Engagements Limited Assurance Engagements In our opinion internal control is effective, in all "Based on our work described in this report, material respects, based on XYZ criteria." nothing has come to our attention that causes us to believe that internal control is not effective, in all material respects, based on XYZ criteria."

On the other hand, the objective of a limited assurance engagement 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, as the basis for a negative form of expression of the practitioner's conclusion. In a limited assurance engagement, the assurance engagement risk is greater than for a reasonable assurance engagement and hence, a negative conclusion is provided. An interim review of the financial statements of listed companies is an example of a limited assurance engagement. Table 1.2 summarizes the differences between reasonable assurance engagements and limited assurance engagements.

TABLE 1.2 Differences Between Reasonable Assurance Engagements and Limited Assurance Engagements Type of Engagement Objective Evidence-gathering The assurance report procedure Reasonable A reduction in Sufficient appropriate Description of the Assurance assurance evidence is obtained as part engagement Engagements engagement risk to of a systematic engagement circumstances and a an acceptably low process that includes: positive form of the level in the -Obtaining an understanding expression of the circumstances of the of the engagement conclusion. engagement, as the circumstances; basis for a positive -Assessing risks; form of expression of -Responding to assessed the member's risks; conclusion. -Performing further procedures using a combination of inspection, observation, confirmation, recalculation, reperformance, analytical procedures and inquiry. Such further procedures involve substantive procedures, including, where applicable, obtaining corroborating information, and depending on the nature of the subject matter, tests of the operating effectiveness of controls; and -Evaluating the evidence obtained Limited Assurance A reduction in Sufficient appropriate Description of the Engagements assurance evidence is obtained as part engagement engagement risk to a of a systematic engagement circumstances and a level that is process that includes negative form of the acceptable in the obtaining an understanding expression of the circumstances of the of the subject matter and conclusion. engagement but other engagement where the risk is circumstances, but in which greater than for a procedures are deliberately reasonable assurance limited relative to a engagement, as the reasonable assurance basis for a negative engagement. form of expression of the member's conclusion.

ASSERTION-BASED AND DIRECT REPORTING ENGAGEMENTS In some assurance engagements, the evaluation or measurement of the subject matter is performed by the responsible party (the preparer of the information), and the subject matter information is in the form of an assertion by the responsible party that is made available to the intended users. These engagements are called "assertion-based engagements." In other assurance engagements, 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. The subject matter information is provided to the intended users in the assurance report. These engagements are called "direct reporting engagements." It is necessary to distinguish between an assertion-based assurance engagement and a direct reporting assurance engagement. An assertion-based assurance engagement requires that auditor to issue an opinion on written assertions made by others. On the other hand, direct-reporting assurance engagement requires the auditor to provide assurance on an accountability matter on which the responsible party has not made a written assertion. For example, an audit report could be issue on the adequacy of internal control. Where management does not issue a report on the adequacy of internal control, and therefore the auditor is required to report directly on its adequacy, the engagement is classed as direct reporting assurance engagement. If, however, management has stated an opinion on the adequacy of internal control and the auditor is required to attest to this statement, it is an assertion-based assurance engagement.

ASSURANCE ENGAGEMENT ACCEPTANCE Acceptance decisions are crucially important, because new clients and/or engagements can pose threats to objectivity, or create risk exposure to the firm, which must be carefully evaluated. The practitioner (auditor or assurance provider) accepts an assurance engagement only where the practitioner's preliminary knowledge of the engagement circumstances indicates that: 1. The relevant ethical requirements, such as independence and professional competence will be satisfied. The Code of Ethics for Professional accountants requires firm to investigate potential client, its owners and business activities in order to evaluate whether there are any questions over the integrity of the potential client which may create unacceptable risk. Also, the firm's competence to perform the potential work should be evaluated, especially if the potential client operates in a specialized industry, or if the client has a complex structure. Practical matters such as the resources needed to perform the

work, the deadline for completion, and logistics like locations and geographical spread will have to be looked into as well. 2. Once a client has been accepted, the firm should consider the suitability of the specific engagement it has been asked to perform. The engagement exhibits all of the following characteristics: -The subject matter is appropriate; -The criteria to be used are suitable and are available to the intended users; -The practitioner has access to sufficient appropriate evidence to support his or her conclusion; -The practitioner's conclusion, in the form appropriate to either a reasonable or limited assurance engagement, is to be contained in a written report; and -The practitioner is satisfied that there is a rational purpose for the engagement.