Fundamentals of Assurance Services

👣
Fundamentals of Assurance
Services
CLASS MODE REVISION
Completed
EXAM Week 1
FILES CHAPTER 1.pdf
CONCEPT OF ASSURANCE
📌 Relevance and reliability of information is critical for making the best

decision in a given situation
When is an information considered reliable? 2
Fairly stated
Presents true and fair view of what it purports to represent
Where does reliability of information depends? 2
Credibility of the source
Ability to verify the accuracy of the information
What does financial statements contain?
Financial statements contains information that is used by the investors,

creditors and other intended users
Who are the users of financial statements? Give examples of economic

decisions 5
Fundamentals of Assurance Services 1

Investors = whether to sell, buy or hold shares
Creditors = where to approved the loan by the debtor or the borrower
Government = whether to amend or retain taxation rules or regulations
Customers = whether to continue making business with the company or

find a new supplier
Employees = whether to demand increase, stay or find a new job
Does the users have the training or expertise to verify technical information?
Users of information doesn't have the training or expertise to verify

technical information hence they needed the CPAs to give assurance -
assurance which confirms that the information is verified
According to Webster, what does "to assure" means?
To give confidence or conviction
In auditing sense, what does assurance means?
Auditing refers to the auditor's satisfaction on the reliability of the

assertion which was made or prepared by one party for another party
ASSURANCE SERVICES
What is the deal with assurance services? It is also called?
Also called as "assurance engagements"
It is a three party contract in which the assurers CPAs) reports on the

quality of the information
Assurance performed by CPAs intends to?
Enhance the credibility of the information about a subject matter which in

this case is the financial statements by evaluating whether the subject
conforms in respect with all the materials with the suitable criteria
What are the examples of assurance engagements? 3
Auditing of financial statements of listed and non-listed entity
Balloting of contest such as academy awards

Compliance to rules and regulations
ELEMENTS OF ASSURANCE ENGAGEMENTS

What are the elements of assurance engagements? 5
Three party relationship: Practitioner CPA, Responsible Party and

Intended users
Appropriate subject matter
Suitable criteria
Sufficient appropriate evidence
Written assurance report in the form appropriate to a reasonable

assurance engagement or limited assurance engagement
When is an engagement classified as assurance engagement?
It is classified as assurance engagement if all the elements are present
THREE PARTY RELATIONSHIP

Can the responsible party and intended users be from the same/different
entity? Example?
Responsible party and the intended users can be from the same or
different entity
EXAMPLE Government and a private entity (diff); Supervisory body and

regulatory body of an entity (same)
How should the relationship between the responsible party and intended
users be viewed?
Should be viewed in the context within specific engagement and different

from the traditionally defined lines of responsibility
PRACTITIONER
Is the term "practitioner" broader than the term "auditor"? Auditor refers to?
Practitioner?

Practitioner is more broader than the auditor
AUDITOR is a practitioner that performs audit or review engagements

with regards to historical financial information
PRACTITIONER is more concern on a wide variety of subjects
Should the practitioner accept the engagement especially if it requires skill

and knowledge beyond those ordinarily possessed by an individual practitioner?
THE PRACTITIONER SHOULD NOT ACCEPT
How can the ethical requirement regarding professional competence be

satisfied by the practitioner?
Through workers from professional department or industries, the

experts
It can be satisfied through making sure that the experts have

collective required knowledge and skills. Also, trough the level of
participation, engagement and understanding of the practitioner
regarding the level of work.
RESPONSIBLE PARTY
Who is a responsible party? 3
Responsible party is the one responsible for the subject matter or subject
matter information in assurance engagement
May or may not be the one who engages the practitioner (engaging
party)
Provide for a written presentation which helps in the evaluation or

measurement as to whether the evidence of subject matter conforms to
the suitable criteria
What is the difference between the subject matter, subject matter

information and the responsible party?
SUBJECT MATTER = financial position, financial performance and

cash flow of the enterprise

SUBJECT MATTER INFORMATION = financial statements of the
enterprise/equity (balance sheet, income statement, etc.)
RESPONSIBLE PARTY = client or entity management
Extent of responsibility of the responsible party 2
Subject matter information only
Subject matter and subject matter information
INTENDED USERS
Who are the intended users?
Intended users are a person, persons, and a class of person to whom the
practitioner prepares the assurance report
📌 The responsible party can be one of the intended users but not the only
one
To whom shall the assurance report be addressed?
INTENDED USERS
Since the practitioner may not be able to identify all those who will read the
assurance report, the intended users are practically limited to?
Limited to major stockholders that have significant and common interests
How can the intended users be identified? 2
Agreement between the responsible party and the practitioner or

engaging party
By law
PARTIES INVOLVED IN DETERMINING ENGAGEMENT

REQUIREMENTS
Who are involved in determining engagement requirements? 3
Intended users

Responsible party
Practitioner
When dealing with requirement, what is the responsibility of the practitioner?

PNET
Nature
Timing
Extent of the procedures to applied in assurance engagement
Pursue the subject matter especially if the subject matter indicates

material modifications or adjustments
ASSURANCE ENGAGEMENTS FOR A SPECIFIC PURPOSE

Can assurance engagement be made for a specific purpose?
When intended users imposed a requirement or request the responsible

party to arranged for an assurance engagement for a specific purpose
When engagements are designed by specified intended users or a specific

purpose, what does the practitioner considers?
Considers including a restriction which limits its use to those user or for
that purpose
SUBJECT MATTER
📌 Subject matter and subject matter information may take many forms
Give examples of subject matter and subject matter information in their

respective forms 5
Financial performance and condition
SM historical or prospective financial information, financial

performance, and cash flows of an equity
SMI presentation, measurement, disclosures, recognition, etc.

Non-financial performance and condition
SM performance of an entity
SMI key indicators of effectiveness and efficiency
Physical Characteristics
SM capacity of facility
SMI specifications document
Systems and process
SM entity's internal control system or IT system
SMI assertion about effectiveness
Behavior
SM compliance to rules and regulations, corporate governance
SMI statement of compliance
Subject matter have different characteristic which includes? 3

Degree to which the information is:
Qualitative vs Quantitative
Objective vs Subjective
Historical vs Prospective
What does the characteristics of a subject matter affect? 2
Precision to which the subject matter can be evaluated or measured

against the criteria and the persuasiveness of the evidence
📌 Assurance reports notes characteristics of particular relevance to

intended users
When is a subject matter appropriate? 3
Identified

Capable of being constantly measured or evaluated in accordance to the
identified criteria
Capable of being subjected to different procedures to gather sufficient

appropriate evidence to support reasonable assurance or limited
assurance conclusion
SUITABLE CRITERIA
What is a criteria? 2
Criteria is the benchmark on evaluating or measuring the subject matter

including benchmark disclosures and presentation, if relevant
Criteria can be formal or less formal
Give examples of assurance engagements and its applicable formal criteria

3
Audit of Financial Statements = PFRS
Assurance on internal control = Established internal control framework,

individual control objectives designed for specific engagements
Compliance audit = compliance on laws, rules and regulations
What are the examples of less formal criteria? 2
Internally developed code of conduct
Agreed level of performance
Why is a suitable criteria required? 2
For reasonably consistent evaluation or measurement of subject matter

information within the context of professional judgment
To avoid individual interpretation and misunderstanding
What is the deal with a criteria being context-sensitive?
It becomes relevant to engagement circumstances
Can a subject matter have different criteria?
The same subject matter can have different criteria

How does the practitioner assess the suitability of a criteria?
Practitioner assess the suitability of the criteria as to whether they reflect

the characteristics that should be possesed by a suitable criteria
What are the characteristics of a suitable criteria? 5
Relevant = can lead to a relevant conclusion that could help or aid the
intended users when it comes to decision making
Completeness = if you also consider benchmark on presentation and

disclosure, relevant factors that could affect the conclusion was not
ommittted
Reliability = consistent evaluation or measurement of subject matter

including benchmarks for disclosures and presentation
Neutrality = free from bias
Understanding = clear, comprehensive, and cannot be subject to

significantly different interpretations
📌 The relative importance of each characteristic to a particular

engagement is a matter of judgment
What is the difference between an established criteria and specifically

developed criteria?
ESTABLISHED CRITERIA = embodied by laws or regulations or issued by

authorized or regulatory body of experts that has a transparent due
process
SPECIFICALLY DEVELOPED CRITERIA = developed for a specific purpose

or assurance engagement
Between established/specifically developed criteria, what affects the work of

a practitioner?
Both established or specifically developed criteria affects the work of the

practitioner since they are both carried out to assess the suitability of a
particular engagement

How can the intended users understand the criteria whether established or
specifically developed?
It should be made available to the intended users so that will understand

how the subejct matter was measured or evaluated based on the suitable
criteria
How can the criteria be made available to intended users? 4
Publicly
Through a clear manner in the presentation of the subject matter

information (included)
Through a clear assurance report
By general understanding
Can a criteria be available only to a specific intended users? 2
A criteria can be available only to a specific intended users
A criteria issued by an industry which can only be used by the people in

such industry
Terms of contract
If an identified criteria is available only to a specific intended users, what is

the deal with the assurance report?
Assurance report is restricted to the specific intended users or to such

specific purpose
SUFFICIENT APPROPRIATE EVIDENCE

What attitude should the practitioner have when planning and performing
assurance engagement? 2
PROFESSIONAL SKEPTICISM
In gathering sufficient appropriate evidence you have to consider as to

whether the evidence is free from material mistatement
You also consider that their might be some factors that will make the
evidence materially mistated

What do the practitioner considers when determinig the nature, timing, and
extent of evidence gathering procedures? MAQ
Materiality
Assurance engagment risk
Quality and quantity of the evidence
What does an attitude of professional skepticism means? 3 CAQ
Critical assessment
Questioning mind as to whether the evidences are valid
Alert as to evidences that might bring into question the validity of the
evidences
An attitude of professional skepticism is actually necessary because it

actually reduces? 3 ROU
risk of overlooking of evidences
overgeneralization of conclusion based on observations
using of faulty assumption in determining the nature, timing, extent of

gathering procedures and evaluating the results thereof
Professional skepticism is an attitude that includes being alert to? CECI
Evidences that might contradict other evidences obtain
Information that might bring questions as to the validity of the evidences
Conditions that must likely indicated misstatement
Circumstances that would need another procedure in addition to those

required by the assurance standards
Is assurance engagement involves in authentication? What do the practitioner

considers?
Assurance engagement is rarely involves when it come to authentication

nor does it means that the practitioner is expert or train when it comes to
authentication
It considers photocopy, facsimiles, digitized, etc.

What is the difference between sufficiency and appropriateness?
SUFFICIENCY = quantity of information
APPROPRIATENESS = quality of information
What factors affects the quantity of the evidence needed? 2
Risk of the subject information needed The greater the risk, the greater
the assurance or reliability of information)
The quality The higher the quality, the less that it may be required)
📌 1 Sufficiency and appropriateness of information is interrelated. 2

Merely obtaining evidence may not compensate its poor quality
What influences the reliability of evidence? It is dependent on?
It is influenced by the source and the nature
It is dependent on individual circumstances under which it was obtained
📌 Generalizations about the reliability of various kinds of evidence can be

made; however such generalizations are subject to important
exceptions
While recognizing that exceptions may exist, the following generalization

about the reliability of evidence may be useful: 5
More reliable if obtained from independent source outside the entity
If generated internally, more reliable if the related controls is effective
More reliable if obtained directly by the practitioner or through

observation rather than indirectly by inquiry
More reliable if it exists in documentary form whether paper, electronic or

other media
More reliable if original documents rather than photocopy and facsimiles

In getting evidences, where does the practitioner ordinarily obtains more
assurance? 2
Obtains more assurance if the consistent evidence is obtained from

different sources or different nature rather than items of evidence
considered individually
Since in comparison, evidence considered individually is less reliable
What is more difficult obtaining subject matter information covering a period

or subject matter information at a point in time?
SUBJECT MATTER INFROMATION COVERING A PERIOD
What are limitations regarding conclusions provided on processes ordinarily?
It is limited on the period of the engagement their is no way to learn as to

whether such process will continue on the future
What is the deal with cost-benefit considerations?
The practitioner considers the cost of obtaining the information and the
usefulness or the benefit of such information
📌 The matter of difficulty or expense involved is not in itself a valid basis

for omitting an evidence-gathering procedures for which their is no
alternative
When is materiality relevant? NETA
Nature
Extent of the gathering procedures
Timing
Assessing as to whether the subject matter information is free of

misstatement
What does the practitioner considers when it comes to materiality?
Consider, understand and assess factors that might influence the decision
of the intended users

When assessing materiality and relative factors, it is a matter of?
PRACTITIONER'S JUDGMENT
What is assurance engagement risk?
Assurance engagement risk is the risk that the practitioner might express
a conclusion based on a material that is misstated
The more extensive the gathering procedures....
The more extensive the gathering procedures, the lower the risk, the more
assurance the practitioner can provide
📌 Professional engagement standards establish basic elements for

assurance reports and reporting responsibilities
ASSURANCE REPORT
What is an assurance report?
It is a written report prepared by the practitioner expressing a conclusion

with regards to the assurance of a subject matter information
2 ways or levels on how the practitioner can express assurance
Reasonable (not absolute) assurance = higher level of assurance
Limited assurance = moderate level of assurance
How can the conclusion in an assurance engagement be expressed?
Positive assurance = it is more favored
Negative assurance
What does positive and negative assurance says?
Positive assurance = fairly stated
Negative assurance = no material error is found
What is the reason for different levels of assurance?
Nature

Timing
Extent of gathering procedures
📌 The practitioner may choose "short form" or "long form" style of

reporting to facilitate effective communication to intended users
What is the difference between short form and long form reports?
SHORT FORM = basic elements
LONG FORM = information and explanation that doesn't affect the

practitioner's conclusion
What is the content of long form reports? 7
Basic Elements
Criteria used
Description of the terms in the engagement
Details of qualifications and experiences of the practitioners and the

people involved in the engagement
Findings
Disclosures as to its materiality
Recommendations
📌 Whether to include such information depends on its significance to

the information needs of the intended users
📌 Not all conclusions in unqualified conclusions
What is the deal if the criteria is found unsuitable or the subject matter is
inappropriate? 3

Draw qualified conclusion
Disclosure of conclusion depending on how the subject or pervasive the

matter is
The practitioner withdraws from the engagement
CLASSIFICATION OF ASSURANCE ENGAGEMENT

According to level of assurance? 2
Reasonable assurance engagement = reducing the assurance engagement

risk n an acceptably low level based on engagement circumstances.
Hence, this is the basis of positive assurance Audit of historical financial
statements)
Limited assurance engagement = reducing the assurance engagement risk

in an acceptable level based on engagement circumstances which results
for the risk to be greater than the reasonable assurance which is the basis
for its negative assurance Review of financial statements)
According to structure? 2
Attestation Engagement
The measurer or evaluator (which is not the practitioner) evaluates or

measures the subject matter against the identified suitable criteria
which results to the subject matter information
What is the role of the practitioner?
To find appropriate sufficient evidence in order to express a

conclusion whether the subject matter information is free from
material misstatement
Direct Engagement
The practitioner directly evaluates or measures the subject matter

against the identified suitable criteria and presents the resulting
subject matter information as part or accompanying the assurance
report
What is the deal with the practitioner's conclusion? 2

The conclusion addresses the reported outcome of the
measurement or evaluation of the underlying subject matter
against the criteria
Sometimes the conclusion is part of the subject matter

information
ATTESTATION ENGAGEMENTS
What is an attestation engagement?
Attestation engagement is where the practitioner is engaged in the issue,

or does the issue, which is a written communication which expresses the
conclusion about the reliability of written assertion which is the
responsibility of another party
Based on the definition of the attestation, what are the four basic conditions
that distinguish assurance engagement from other services that an accountant
may provide? 4
Written assertion being made by one party, the reliability is the interest of
the other party
What is an assertion?
Assertion is a representation or statement which may be expressly

stated or implied by the responsible party
There must be an agreed-upon and objective criteria that can be utilized

to assess the accuracy of the assertion
All parties must agree as to how the assertion is to be evaluated

using:
Unit of measure
Measurement technology
📌 The measurement approach should be refined enough to allow

diffences

The assertion must be amenable to verification by an independent party
The accountant should prepare a written conclusion about the reliability

of the assertions
What are the common attestation engagements in practice today? 2
Independent audit engagement = the practitioner provides reasonable

assurance (not absolute) that the subject matter which is the financial
statement if free from material misstatement
Review engagement = with the purpose of having limited investigation

which is narrower than the scope of audit and with the objective of giving
limited assurance that the subject matter information is in accordance
with the identified suitable criteria
What is the difference between audit and review?
AUDIT = requires greater scrutiny of the financial statements
REVIEW = consist of making inquiries and performing analytical

procedures on the statements
OTHER ASSURANCE SERVICES
📌 Assurance services have existed long before CPAs started to provide

for them
What did AICPA did with regards to assurance services?
AICPA created the special committee on Assurance Services headed by

Robert K. Elliot for the purpose of developing a strategic plan which
professionally further forays on the assurance market
What are some of the assurance services that resulted from the project? 6
BUSINESS PERFORMANCE MANAGEMENT = provides assurance that the

financial and non-financial information reported by the entity's
performance management is reliable and that the criteria used in the
performance management is accurate

HEALTH CARE PERFORMANCE MANAGEMENT = provides assurance on
the quality of health, medical services, and others. It evaluates the
delivery of health system, medical services, etc.
ELDER CARE PLUS = provides assurance to the elders and their relative
with regard to the quality of care provided by the various care givers.
Compares the specific objectives of the facility and the services actually
rendered
RISK ASSESSMENT SERVICES = identifies the risk which is related to the

operation of the entity. Studies the connection of the risk with the
organization's mission, vision, strategies, procedures and etc.
CPAs WEBTRUST = WebTrust is the seal assurance service created by the

CICA and AICPA. With the objective of letting businesses and customer to
sell or purchase goods and services in the Web while providing assurance
that it has already meet the higher standards of the businesses
INFORMATION SYSTEMS RELIABILITY = provides assurance with regards

to financial and non-financial information used in making operational and
financial decisions
LIMITATION OF ASSURANCE ENGAGEMENTS

What is the highest level of assurance that may be provided?
REASONABLE ASSURANCE
Between reasonable assurance and absolute assurance, what is less?
REASONABLE ASSURANCE
Is reducing assurance engagement risk to zero, attainable?
Very rarely attainable or cost beneficial
What are the factors that affects it? 5
Used of selective testing
Internal limitations in internal controls
The evidence is more persuasive rather than conclusive

The used of judgment in gathering evidence and in evaluating and
forming conclusion from such evidence
Characteristics of the subject matter ( in some cases)
NON-ASSURANCE SERVICES
📌 Not all engagements performed by CPAs are assurance services
What is a non-assurance engagements?
Non-assurance engagement is engagement which lacks one or more

elements of the assurance services
What are the examples of common non-insurance services?
AGREEDUPON PURPOSES
The practitioner or the accountant carries on procedures or audit

nature based on what they have agreed upon by the entity and the
third parties
What is the deal with the recipients?
The recipients provide or express their own conclusion from the

report made by the auditor
Who are the intended users?
The intended users are only those who are knowledgeable of the
agreement
COMPILATION OF FINANCIAL OR OTHER INFORMATION
The practitioner makes use of his/her accounting sense rather than

his/her auditing sense to compile, classify and summarize information
He also reduces the detailed data into a more understanding and

manageable form hence he is not required to test the underlying
assertions from the information

Does the users gain benefit?
The users gain benefits because of the practitioner or the

accountants professional skill and care
SOME TAX SERVICES AND TAX CONSULTING
CPAs could create a strategic plan which enables entity to minimize

their tax liability hence saves money and worry from the entity
What are the examples of non-assurance tax services?
Preparation of tax returns wherein no conclusion is express
Tax consulting service
MANAGEMENT CONSULTING AND OTHER ADVISORY SERVICES
What is management consulting?
Management consulting is both an industry and practice, where

we help entities to improve their performance primarily through
analysis of existing business problems and development of plans
for improvement
What are the example of areas where CPAs can offer advice?
SCCGPDM
Small business management
Compensation plan evaluation
Cash management
Growth planning
Purchasing or selling business
Disaster planning recovery
Measuring the performance of business
What are the non-assurance service wherein no conclusion is expressed by

the practitioner?
Agreed-upon purpose
Compilation of financial or other information

Some tax services
What are the non-assurance services considered as a two party contract?
Tax consulting service
Management consulting and other advisory services = recommend the

use of information

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FILES CHAPTER 1.pdf

📌 Relevance and reliability of information is critical for making the best

When is an information considered reliable? 2

Presents true and fair view of what it purports to represent

Where does reliability of information depends? 2

Credibility of the source

Ability to verify the accuracy of the information

What does financial statements contain?

Financial statements contains information that is used by the investors,

Who are the users of financial statements? Give examples of economic

Fundamentals of Assurance Services 1

Creditors = where to approved the loan by the debtor or the borrower

Government = whether to amend or retain taxation rules or regulations

Customers = whether to continue making business with the company or

Employees = whether to demand increase, stay or find a new job

Users of information doesn't have the training or expertise to verify

According to Webster, what does "to assure" means?

To give confidence or conviction

In auditing sense, what does assurance means?

Auditing refers to the auditor's satisfaction on the reliability of the

Also called as "assurance engagements"

It is a three party contract in which the assurers CPAs) reports on the

Assurance performed by CPAs intends to?

Enhance the credibility of the information about a subject matter which in

What are the examples of assurance engagements? 3

Auditing of financial statements of listed and non-listed entity

Balloting of contest such as academy awards

Fundamentals of Assurance Services 2

ELEMENTS OF ASSURANCE ENGAGEMENTS

Three party relationship: Practitioner CPA, Responsible Party and

Appropriate subject matter

Sufficient appropriate evidence

Written assurance report in the form appropriate to a reasonable

When is an engagement classified as assurance engagement?

It is classified as assurance engagement if all the elements are present

THREE PARTY RELATIONSHIP

EXAMPLE Government and a private entity (diff); Supervisory body and

Should be viewed in the context within specific engagement and different

Fundamentals of Assurance Services 3

AUDITOR is a practitioner that performs audit or review engagements

PRACTITIONER is more concern on a wide variety of subjects

Should the practitioner accept the engagement especially if it requires skill

THE PRACTITIONER SHOULD NOT ACCEPT

How can the ethical requirement regarding professional competence be

Through workers from professional department or industries, the

It can be satisfied through making sure that the experts have

Provide for a written presentation which helps in the evaluation or

What is the difference between the subject matter, subject matter

SUBJECT MATTER = financial position, financial performance and

Fundamentals of Assurance Services 4

RESPONSIBLE PARTY = client or entity management

Extent of responsibility of the responsible party 2

Subject matter information only

Subject matter and subject matter information

To whom shall the assurance report be addressed?

Limited to major stockholders that have significant and common interests

How can the intended users be identified? 2

Agreement between the responsible party and the practitioner or

PARTIES INVOLVED IN DETERMINING ENGAGEMENT

Fundamentals of Assurance Services 5

When dealing with requirement, what is the responsibility of the practitioner?

Extent of the procedures to applied in assurance engagement