Assurance Engagements
Assurance Engagements
Assurance Engagements
STATEMENTS
Small entities usually request the professional
services of the CPAs to provide them with certain
level of assurance about the reliability of the FSs.
OBJECTIVE
To obtain limited assurance, primarily by
performing inquiry and analytical procedures, about
There are four types of services that are normally whether the FSs as a whole are free from material
performed in connection with the entity’s financial misstatement, thereby enabling the CPA practitioner
statements. These are: to express a conclusion on whether anything has
➢ Audit come to the CPA’s attention that causes him to
believe the FSs are not prepared, in all material
➢ Review
respects, in accordance with an applicable financial
➢ Compilation; and
reporting framework.
➢ Agreed-upon Procedures
The types of procedures to be performed and the LEVEL OF ASSURANCE
amount of evidence needed will depend primarily on A review engagement (limited procedures
the nature of services rendered and the level of performed) can only provide moderate level of
assurance that the professional accountant provides. assurance or limited assurance that the information
subject to review is free of material misstatements.
AUDIT OF FINANCIAL Expressed in the review report in the form of
STATEMENTS negative assurance by using negative phrase such as
An audit of financial statements is conducted “Nothing has come to my attention that causes me to
primarily to enable auditor to express an opinion on believe that the financial statements do not present
the entity’s FSs. fairly…”
The auditor provides the users with a high level of UNDERSTANDING THE ENTITY AND ITS
assurance (reasonable assurance) that the FSs are
free from material misstatements.
ENVIRONMENT
As a basis for designing procedures, the
Auditor shall determine the specific audit procedures
practitioner should understand the entity and its
to be performed which enables him to gather
environment, and of the applicable financial
sufficient appropriate audit evidence to be able to
express an opinion (positive assurance) about the fair reporting framework.
presentation of the FSs. This is a continual dynamic process of gathering,
updating, and analyzing information throughout the
engagement, and the practitioner’s understanding is
updated as changes in conditions and circumstances
occur.
PROCEDURES TO BE PERFORMED
Review principally consists of making
inquiries of management and others within the
entity and applying analytical procedures.
REPORTING RESPONSIBILITY
Review report should contain a clear written
expression of negative assurance.
Scope Limitation
AGREED-UPON PROCEDURES
ENGAGEMENT
This type of engagement may be accepted provided:
PROCEDURES TO BE PERFORMED
Agreed upon procedures may include:
ASSURANCE ENGAGEMENTS The responsible party and intended user will often be
from separate organizations but need not be. They
Auditors nowadays do not only provide assurance may be both within the same organization.
about the reliability of financial information but they
also perform services to improve the quality of the SUBJECT MATTER
information for decision makers.
It may take any forms such as:
Philippine Standards on Assurance Engagements
• Data (financial and non-financial information)
(PSAE) states that assurance engagements are
• Systems and processes (internal controls
intended to enhance the credibility of information
• Behavior (entity’s compliance with laws and
about a subject matter by evaluating whether the
regulations); or
subject matter conforms in all material respects with
• Physical characteristics (capacity of a plant
suitable criteria.
facility)
TYPES OF ASSURANCE ENGAGEMENTS To be considered appropriate, the subject matter
Two levels of assurance engagement a practitioner must be:
may perform:
• Identifiable
• A reasonable assurance engagement (audit • Capable of consistent evaluation and
engagement) measurement against suitable criteria; and
• A limited assurance engagement (review of • In a form that can be subjected to procedures
financial statements) for gathering evidence to support that
evaluation or measurement
Whether a particular engagement is an assurance
engagement will depend upon whether it exhibits all
the following elements:
Evaluation or measurement of the subject matter: • Agreed-upon procedures
• Compilation of financial or other information
Performed by the responsible party and the
• Preparation of tax returns when no
outcome is in the form of an assertion by the
conclusion is expressed, and tax consulting
responsible party that is made available to the
intended users. • Management consulting; and
• Other advisory services
Assertions-based engagements is the assertion about
Reports on Prospective Financial Information
which the practitioner gathers sufficient appropriate
evidence to provide a reasonable basis for expressing Auditors may be asked to examine and report on
a conclusion on the assurance report. prospective financial information to enhance its
credibility whether it is intended for use by third
Direct reporting engagements is when the practitioner
parties or for internal purposes.
either directly performs the evaluation or
measurement of the subject matter, or obtains a Prospective financial information is based on
representation from the responsible party that has assumptions about events that may occur in the
performed the evaluation or measurement that is future and possible actions of the entity.
not available to the intended users. The subject
Two general types of prospective financial
matter information is made available to users in the
information:
assurance report.
• Forecasts – prepared on the basis of the
CRITERIA
assumptions as to future events which
The standards or benchmark used to evaluate or management expects to take as of the
measure the subject matter of an assurance date the information is prepared (best-
engagement. Criteria must be suitable to enable estimate assumptions)
reasonable consistent evaluation or measurement of • Projection – prepared on the basis of
the subject matter within the context of professional hypothetical assumption or a mixture of
judgment. best-estimate and hypothetical
assumptions
EVIDENCE
AUDITOR’S RESPONSIBILITY
The practitioner should plan and perform the
engagement to obtain sufficient appropriate Auditor should evaluate the completeness and
evidence to determine whether the assertions are reasonableness of the underlying assumptions which
free of material misstatement. requires the auditor to obtain sufficient knowledge of
the client’s business as well as the entity’s process for
ASSURANCE REPORT
preparing financing information.
The professional accountant’s conclusion provides
When examining prospective financial information,
either high or moderate level of assurance about the
according to PSAE 3400, auditor should obtain
subject matter.
sufficient appropriate evidence that:
Other engagements frequently performed by
• Management’s best-estimate assumptions
professional accountants that are not assurance
are reasonable and, in the case of
engagements include:
hypothetical assumptions, such as
assumptions are consistent with the purpose
of the information;
• The prospective financial information is
properly prepared on the basis of the
assumptions;
• The PFI is properly presented and all material
assumptions are adequately disclosed; and
• The PFI is prepared on a consistent basis with
historical financial statements.