International Framework for Assurance Engagements

1. Introduction:

To facilitate the understading of the elements and objectives of an assurance engagement. It is not a standards

It provides frame of reference for:

 Assurance Practitioners (professional accountant in public practice)
 Others involved with AE including intended users and responsible party
 IAASB in development of ISAs, ISREs and ISAEs

2.Ethical Principles and Quality Control Standards

A practitioner who performs AE is subject to Code of Ethics and ISQC.

3.Description of Assurance Engagements

Engagement in which:
 practitioner expresses a conclusion;
 to enhance the degree of confidence of;
 the user (other than responsible party);
 about the outcome of;
 subject matter;
 against criteria
ISAs, ISREs and ISAEs contain basic principles, essential procedures and related guidance for performance of
assurance engagement.
Outcome is the information that results from applying the criteria to the subject matter. e.g. recognition,
measurement, presentation and disclosure (outcome) result from applying financial reporting framework
(criteria) to financial position, performance and cash flows (subject matter).
Subject Matter Information (SMI) means the outcome of evaluation or measurement of subject matter.

4. Attestation Engagements and Direct Engagements

AE may be in one of the two forms:
 Attestation engagement (In an attestation engagement, a party other than the practitioner
measures or evaluates the underlying subject matter against the criteria)
 Direct engagements (In a direct engagement, the practitioner measures or evaluates the
underlying subject matter against the criteria)

5. Reasonable Assurance Engagements and Limited Assurance Engagements

o Reasonable assurance engagement. Its objective is:
 reduction in engagement risk
 to an acceptable level
 in the circumstances
 as a basis of +ve conclusion
2. Limited assurance engagement. Its objective is:
 reduction in engagement risk (still greater than that of reasonable)
 to an acceptable level
 in the circumstances
 as a basis of –ve conclusion

6. Scope of the framework

Other than Assurance Engagements, not covered by framework:

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 International Framework for Assurance Engagements

 Engagements covered under International Standards for Related Services such as agreed upon
procedures, compilation of financial or other information
 Preparation of tax returns (where no conclusion is expressed)
 Consulting engagements (management, tax)
An assurance engagement may be as part of a larger engagement.
An engagement which meet the definition but to which framework does not apply include the
engagements:
 to testify in legal proceedings regarding accounting, tax and auditing
 that include professional opinions, views or wordings, if all of the following apply:
i. opinions, views or wording are merely incidental
ii. report issued is restricted for users specified in the report
iii. written understanding that engagement is not intended to be assurance engagement
iv. engagement is not presented as assurance engagement in the report
Report on non-assurance engagements: is clearly distinguished from report on an assurance
engagement. Such report avoids:
 implying compliance with framework, ISAs, ISREs or ISAEs
 inappropriately using words assurance, audit or review
 including a statement that could reasonably be mistaken to enhance the degree of confidence
Practioner and responsible party may agree to apply framework when there are no user other than
responsible party but where ISAs, ISREs and ISAEs are complied with. In such case report will include a
statement to restrict the use to the responsible party.

7. Preconditions for an Assurance Engagement

i. The roles and responsibilities of the appropriate parties

ii. Relevant ethical requirements (independence, professional competence) are satisfied
iii. Engagement exhibits all of the following:
 Subject matter is appropriate
 Criteria is suitable and available to users
 Access to audit evidence
 Conclusion to be in written form
 Rational purpose of
 When an engagement cannot be accepted as an AE, engaging party may be able to identify a
different engagement. e.g.
 If the original criteria were not suitable, an AE still may be performed if:
o Engaging party can identify an aspect of original SM for which criteria is suitable. In such case report
makes it clear that it does not relate to original SM in entirety
o Alternative criteria can be selected
 Engaging party may request non assurance engagement e.g. agreed upon procedures
Having accepted an assurance engagement, Practioner may not change (without proper justification)
from:
 Assurance to non-assurance engagement, or
 Reasonable to limited assurance engagement
Above justification may include:
 Change in circumstances resulting in change in user requirements
 Rectification of misunderstanding as to the nature of engagement

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 International Framework for Assurance Engagements

8. Elements of assurance engagement:

Three party relationship involving:

 Practioner
 Responsible party
 Intended users
Appropriate subject matter
Suitable criteria
Sufficient appropriate evidence
Written assurance report

8.1 Three party relationship:

Responsible party and intended users may be from same entity. e.g. supervisory board may seek assurance
about information provided by management board.
Relationship between responsible party and intended user should be viewed within context of
specific engagement. e.g. senior management (intended user) may engage practitioner to perform AE on
activities of lower management (responsible party), but for which senior management is ultimately
responsible.

Practitioner: the individual(s) conducting the engagement by applying assurance skills and techniques
to obtain reasonable assurance or limited assurance, as appropriate, about whether the subject matter
information is free from material misstatement

Responsible party: is the person who:

In an attestation engagement, the responsible party is often also the measurer or evaluator.
Responsible party may or may not be the engaging party.

Intended user: practitioner expects will use the assurance report. Responsible party can be one of the
intended users.

Whenever practicable, report is addressed to all intended users. Users may be identified by agreement
between practitioners and the responsible party or engaging party or by law.
When engagements are designed for specified intended users (e.g. regulators) or specific purpose, the
practitioner considers including restriction in the report to limit the use.

8.2 Subject Matter (SM):

SM and SMI can take many forms such as:

Historical financial performance or condition
Future financial performance or condition
Non-financial performance or conditions
Physical characteristics
Systems and processes
Behavior (e.g corporate governance)
 Financial performance or condition for which SMI may be recognition, measurement, presentation and
disclosure represented in financial statements.
 Non financial performance or conditions for which SMI may be key indicators of efficiency and
effectiveness

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 International Framework for Assurance Engagements

 Physical characteristics (e.g capacity of a facility)

 for which SMI may be a statement of compliance
 Systems and processes for which SMI may be assertion about effectiveness
Characteristics of SM include:
 Qualitative vs quantitative
 Objective vs subjective
 Historical vs prospective
 Relates to point of time or covers a period
Such characteristics affect the:
 Precision with which SM can be measured against criteria
 Persuasiveness of the evidence

Assurance report notes characteristics of particular relevance to the users.

An appropriate SM is:
 Identifiable
 Capable of consistent evaluation
 Such that information about it can be subject to procedures to gather evidence

8.3 Criteria:
Criteria are the benchmarks used to evaluate the SM. It can be formal (e.g. IFRS, COSO) or informal (e.g.
internally developed code of conduct). Suitable criteria exhibit the following characteristics:
 Relevance (assist decision making by users)
 Completeness (factors that could influence conclusions are not omitted0
 Reliability (allow reasonably consistent evaluation when used in similar circumstances by similarly
qualified persons)
 Neutrality (free from bias)
 Understandability
Evaluation on the basis of practitioner’s own expectations, experience or judgment will not constitute
suitable criteria.
Practitioner assesses the suitability of the criteria which is a matter of judgment. Criteria can either be
established (e.g. laws or regulation) or specifically developed.
Criteria need to be available to the users. When criteria is available to certain users then report is also
restrict to such users. Availability can be made through either of the following ways:
 Publicly
 Inclusion in subject matter information
 Inclusion in assurance report
 General understanding

8.4 Evidence:
Practitioner considers the following in respect of evidence while planning and performing the audit:
 Professional skepticism
 Professional Judgement
 Sufficiency and appropriateness
 Materiality
 Engagement risk
 Nature, timing and extent of evidence gathering procedures

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 International Framework for Assurance Engagements

 Quantity and quality of available evidence

8.5 Assurance report
Practitioner provides a written report containing conclusion. ISAs, ISREs and ISAEs establish basic elements
for the report.
Practitioner does not express an unqualified conclusion for either type of assurance engagement
when following circumstances exist and their effect is material:
 Limitation on scope (qualified, disclaimer or withdrawal)
 Where conclusion is worded directly in terms of responsible party’s assertion and that assertion is not
fairly stated (qualified or adverse)
 Where conclusion is worded directly in terms of SM and criteria and the SMI is materially misstated
(qualified or adverse)
 When after the acceptance it is discovered that criteria is not suitable or SM is not appropriate. The
practitioner expresses:
o Qualified or adverse opinion when unsuitable criteria or inappropriate SM is likely to mislead users
o Qualified or disclaimer in other cases
(In some cases practitioner considers withdrawal)

9. Other Matters
Other Communication Responsibilities
Documentation
10. Inappropriate use of the practitioner’s name:

Practitioner is associated when:

 Practitioner reports on information about that SM or
 Consents to the use of the practitioner’s name in a professional connection with that SM.

If practitioner is not associated in this manner then third party can assume no responsibility of the
practitioner. If third party is using the name inappropriately then practitioner can ask to cease the use and
considers other steps that may be needed to inform other parties.

Professionals’ Academy of Commerce - Muhammad Aleem Zubair, ACA