CHAPTER 6

Fundamentals
Fundamentals of
of Assurance
Assurance Services
Services
Presented by: Ms. Catherine Joyce Cortez, CPA
 Expected
Expected Learning
Learning Outcomes
Outcomes

1. Understand the nature and objective of an assurance engagement.

2. Distinguish between:
● Reasonable assurance engagement vs. limited assurance engagement.
● Assertion-based engagement vs. direct reporting engagement.
1. Enumerate and explain the elements of an assurance engagement.
2. Describe the most-sought after type of assurance services such as independent financial
statement audit and review engagements.
3. Enumerate and describe other assurance services that could enhance the relevance of
given information.
4. Describe briefly four(4) non-assurance services performed frequently by professional
accountants.
HELLO!
I hope you are all doing good and had a good rest!
Assurance Engagements
 Nature
Nature of
of Assurance
Assurance Engagements
Engagements
ASSURANCE in the context of Philippines Framework for Assurance
Engagements (2006) refers to the auditor’s satisfaction as to the reliability of
an assertion being made by one party for use by another party.

TO PROVIDE SUCH ASSURANCE, the auditor assesses the evidence

collected as a result of procedures conducted and expresses a conclusion.
 Nature
Nature of
of Assurance
Assurance Engagements
Engagements

ASSURANCE ENGAGEMENT
- An engagement in which a practitioner expresses a conclusion designed
to enhance the degree of confidence that intended users can have about
the evaluation or measurement of a subject matter that is the
responsibility of a party, other than the intended users or the practitioner,
against criteria.

The outcome of the EVALUATION or MEASUREMENT of a subject matter

is the information that results from applying the criteria to the subject matter.
 OBJECTIVE
OBJECTIVE
The objective of assurance engagement is for professional accountant to:
● Evaluate and measure a subject matter that is the responsibility of another party against
identified suitable criteria.
● To express a conclusion that provides the intended user with a level of assurance about
that subject matter.

ASSURANCE ENGAGEMENT PERFORMED by a professional accountant is intended

to enhance the credibility of information.

In this regard, the level of assurance provided by the professional accountant’s conclusion
conveys degree of confidence that the intended user may place in the credibility of the
subject matter.
 Types
Types of
of Assurance
Assurance Engagements
Engagements

REASONABLE
REASONABLE LIMITED
LIMITED
One that aims to reduce the assurance
An engagement that aims to reduce
engagement risk to a level that is
the assurance engagement risk to an
acceptable in the circumstances of the
acceptably low level in the
engagement but where that risk is
circumstances of the engagement as
greater than for a reasonable
the basis for a positive form of
assurance engagement as a basis for a
expression of the practitioner’s
negative form of expression of the
conclusion.
practitioner’s conclusion.
 Assertion-based Direct Reporting
VS.
Engagements Engagements

Are engagements where the

Are assurance engagements that
practitioner either directly performs
involve the evaluation or
the evaluation or measurement of the
measurement of the subject matter by
subject matter, or obtains a
the responsible party and the subject
representation from the responsible
matter information in the form of an
party that has performed the
assertion by the responsible party is
evaluation or measurement that is not
made available to the intended users.
available to the intended users.
 01 Three Party Relationship

02 Appropriate Subject Matter

Elements
Elements of
of an
an
Assurance
Assurance 03 Suitable Criteria
Engagement
Engagement Sufficient Appropriate
04 Evidence

05 Written assurance report

in the form appropriate to a reasonable assurance or a
limited assurance engagement.
 Three
Three Party
Party Relationship
Relationship

Practitioner
Practitioner Intended
Intended Users
Users
The person who provides The person, persons or class
the assurance to the Responsible
Responsible Party
Party of persons for whom the
intended users. practitioner prepares the
DIRECT REPORTING -
assurance report.
subject matter
ASSERTION-BASED -
subject matter & subject
matter information
 The responsible party and the
intended user will often but not
necessarily be from the separate
organizations.
 Appropriate
Appropriate Subject
Subject Matter
Matter
An appropriate subject matter is:
● Identifiable, and capable of consistent evaluation or measurement
against the identified criteria
● Such that the information about it can be subjected to procedures for
gathering sufficient appropriate evidence to support a reasonable
assurance or limited assurance conclusion, as appropriate.
 Suitable
Suitable Criteria
Criteria
❖ Criteria are the benchmarks used to evaluate or measure the subject matter.
❖ Criteria can be formal and less formal.

CHARACTERISTICS:

❖ Relevance - contribute to conclusions that assist decision-making by the intended

users.
❖ Completeness - when relevant factors that could affect the conclusions in the context
of the engagement circumstances are not omitted.
❖ Reliability - allow reasonably consistent evaluation or measurement of the subject
matter.
❖ Neutrality - contribute to conclusions that are free from bias.
❖ Understandability - contribute to conclusions that are clear; comprehensive, and are
not subject to significantly different interpretations.
 Sufficient
Sufficient Appropriate
Appropriate Evidence
Evidence
The practitioner plans and performs an assurance engagement with an attitude of professional
skepticism to obtain sufficient appropriate evidence about whether the subject matter
information misstatement.

The practitioner considers materiality, assurance engagement risk, and the quantity and quality
of available evidence when planning and performing the engagement, in particular when
determining the nature, timing and extent of evidence-gathering procedures.

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.
 Sufficient
Sufficient Appropriate
Appropriate Evidence
Evidence
The practitioner plans and performs an assurance engagement with an attitude of professional
skepticism to obtain sufficient appropriate evidence about whether the subject matter
information misstatement.

The practitioner considers materiality, assurance engagement risk, and the quantity and quality
of available evidence when planning and performing the engagement, in particular when
determining the nature, timing and extent of evidence-gathering procedures.

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.
 Sufficient
Sufficient Appropriate
Appropriate Evidence
Evidence
The practitioner plans and performs an assurance engagement with an attitude of professional
skepticism to obtain sufficient appropriate evidence about whether the subject matter
information misstatement.

The practitioner considers materiality, assurance engagement risk, and the quantity and quality
of available evidence when planning and performing the engagement, in particular when
determining the nature, timing and extent of evidence-gathering procedures.

SUFFICIENCY (relevance) - is the measure of the quantity of the evidence.

APPROPRIATENESS (reliability) - is the measure of the quality of the evidence.
 Sufficient
Sufficient Appropriate
Appropriate Evidence
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 also by the quality of such evidence (the higher
the quality, the less may be required).
 Sufficient
Sufficient Appropriate
Appropriate Evidence
Evidence
The RELIABILITY OF EVIDENCE is influenced by its source and by its nature, and is dependent on the
individual circumstances under which it is obtained.

GENERALIZATIONS about the reliability of various kinds of evidence:

● Evidence is more reliable when it is obtained from independent sources outside the entity.
● Evidence that is generated internally is more reliable when the related controls are effective.
● Evidence obtained directly by the practitioner is more reliable than evidence obtained indirectly or
by inference.
● Evidence is more reliable when it exists in documentary form, whether paper, electronic, or other
media.
● Evidence provided by original documents is more reliable than evidence provided by photocopies
or facsimiles.
 Sufficient
Sufficient Appropriate
Appropriate Evidence
Evidence
ASSURANCE ENGAGEMENT RISK - is the risk that the practitioner
expresses an inappropriate conclusion when “the subject matter information is
materially misstated”

In REASONABLE ASSURANCE MANAGEMENT the practitioner reduces the

assurance engagement risk to an acceptably low level in the circumstances of the
engagement to obtain reasonable assurance.

In LIMITED ASSURANCE ENGAGEMENT the combination of the nature, timing

and extent of evidence gathering procedures is at least sufficient for the practitioner to
obtain a meaningful level of assurance.
HIGHER
 COMPONENTS
COMPONENTS OF
OFASSURANCE
ASSURANCE ENGAGEMENT
ENGAGEMENT RISK
RISK

1 2 3

Inherent
Inherent Risk
Risk Control
Control Risk
Risk Detection
Detection Risk
Risk
ASSURANCE
SERVICES
BRIEF DESCRIPTION
 Independent
Independent Financial
Financial Statements
StatementsAudit
Audit

Independent Financial Statements Audit

- The most predominant type of assurance engagement that the professional
accountant may be involved.
- Also commonly referred to as external audit.

Independent Financial Statements Audit Engagement

- Is an assurance engagement to provide a HIGH LEVEL OF ASSURANCE that
the financial statements are free of material misstatement.
 The objective of an audit of financial
statements is to enable the auditor to express an
OPINION whether the financial statements are
prepared, in all material respects, in accordance with
an identified financial reporting framework.

OBJECTIVE
OBJECTIVE
 OTHER
OTHER ASSURANCE
ASSURANCE SERVICES
SERVICES
● Assurance Services on Information Technology
● CPA Web Trust Service
● Information System Reliability Service

ASSURANCE SERVICES ON OTHER TYPES OF

INFORMATION
● Business Performance Measurement
● Health Care Performance Measurement
● Risk Assessments
● Eldercare Plus
NON-ASSURANCE
SERVICES
BRIEF DESCRIPTION
 Non-Assurance
Non-Assurance Services
Services
In Non-Assurance Services, CPA’s issue reports that do not express an opinion or
conclusion on the subject matter.

● Agreed-upon Procedures Services

● Compilation of Financial or Other Information
● Tax Services
● Management Consulting/Advisory Services
● Accounting and Data Processing or Information Technology System Services
Thank
You!