PRELIMINARY DISCUSSION 5 Elements of Assurance Engagement

I. Three Party Relationship

Assurance Engagements Practitioner – person/s who provides assurance to intended user
about a subject matter that is the responsibility of another party. (CPA
 Objectives:
in public practice)
 Assurance Services 1) Independent 2) professional services that 3)
Responsible Party – person/s who are responsible for the subject
improve the quality of information or its context 4) for decision makers.
matter in a direct reporting engagement or the subject matter
 Assurance services include many areas of information, including non-
information maybe in an assertion base engagement.
financial areas
Intended Users – person/s or class of persons for whom the
 According to Philippine Framework for Assurance Engagement:
practitioners prepare the assurance report; they are the users to
 It is conducted to provide high level of assurance that a subject matter
whom practitioners usually address the report.
conforms in all material aspect with an identified suitable criteria; or
 To provide moderate level of assurance that the subject matter is NOTE:
1
plausible in circumstances. Responsible party and Intended users may often but not necessarily be from
separate organizations;
2 Types of Assurance Engagement 2
Practitioners may engage with Responsible party and intended users;
Reasonable Assurance Engagement Limited Assurance Engagement 3
Responsible party can be one of the intended user but not the only one;
(High-level Engagement) 4
Intended users may be established by agreement between Practitioners and
- provide high but not absolute level of - provide only moderate or limited
Responsible party or those engaging on employing practitioner; and
assurance. level of assurance. 5
In some circumstances, intended users may be established by law.
Objective: Objective:
A reduction in assurance engagement A reduction in assurance engagement II. Appropriate Subject Matter – info to be evaluated or measured
risk to an acceptable low level as a risk to an acceptable level as a basis against the criteria.
basis for a positive form of expression for a negative form of expression of a) Financial Performance (Condition) – e.g. Historical or
of the practitioner’s conclusion. the practitioner’s conclusion. Prospective Financial Statements.
 Where audit to FS belong  Thus, LAE Risk is greater than b) Non-financial Performance (Condition) – e.g. performance of
for a RAE Risk. an entity –> effectiveness and efficiency.
c) Physical characteristics – e.g. looking into a capacity of a
Assurance Engagement Risk certain facility
d) Systems and Processes – e.g. looking into entity’s internal
 The risk that practitioner expresses an inappropriate conclusion when
control or IT system.
the subject matter info is materially misstated.
e) Behavior
 Its components are the following:
For Subject matter to be Appropriate:
The risk of material misstatements, which includes inherent risks and
a) Must be Identifiable;
control risks, and depiction risk
b) Capable of consistent evaluation (measurement) against a suitable
criteria; and
c) In a form that can be subjected to procedures for gathering evidence
to support that evaluation or measurement.
III. Suitable Criteria – used as a benchmark to evaluate (measure) subject Quantity of evidence – is affected by the risk of the subject
matter. E.g. PFRS (Formal), internally developed Code of Conduct (Less matter info being materially misstated.
formal) *the greater the risk the more evidence is required: and
Established criteria – embodied in laws and regulation or *the higher the quality the lesser evidence is required.
issued by authorized or recognized bodies of expert that follow a Appropriateness – is the measure of quality of evidence i.e.,
transparent due process. relevance and reliability (reliability - influenced by its source and
Specifically developed criteria – designed specifically for the nature)
purpose of the engagement. *Sufficiency and Appropriateness of evidence are interrelated.
Characteristics of Suitable Criteria:
a) Relevance – a relevant criteria contribute to the conclusion V. Written Assurance Report – practitioner would provide written report
that assist the decision making by the intended users. containing a conclusion that conveys the assurance obtained about
b) Completeness – sufficiently complete -> when relevant factors the subject matter info. In addition, the practitioners consider other
that could affect the conclusion in the context of engagement reporting responsibilities including communication those charge with
circumstances are not omitted. governance.
c) Reliability – it allows reasonable consistent evaluation
(measurement) of the subject matter when used in similar Types of Assurance Engagement structure
circumstances by similar qualified practitioners.
Assertion Based Engagement Direct Reporting Engagement
d) Neutrality – free from material biases
(Attestation Engagement)
e) Understandability – when it contributes to the conclusion that
- evaluation (measurement) of - those engagements that
are clear, comprehensive and not subject to the significantly subject matter by the responsible practitioners will either directly
different interpretation. party and the subject matter info in perform the evaluation
IV. Sufficient and Appropriate Evidence – practitioner plans and performs the form of an assertion by the (measurement) of the subject
Assurance Engagement with an aptitude of professional skepticism to responsible party is made available matter or obtain a representation
obtain sufficient appropriate evidence about whether the subject to the intended users; from the responsible party that has
matter info. is free from material misstatements - the practitioner’s conclusion can performed the evaluation that is not
Evidence – refers to info obtained by practitioner in arriving at be worded in terms of responsible available to the intended user.
a conclusion on which the conclusion is based -> practitioners consider <
party’s assertion.
materiality, assurance engagement risk, quality and quantity of
available evidence when planning and performing the engagement.
Professional Skepticism – practitioner makes a critical
assessment with a questioning mind of the validity of the evidence
obtained and is alert to evidence that contradicts or brings into
question the reliability of documents of representation by the
responsible party.
Sufficiency – measure of the quality of the evidence that will
be gathered.
 Relationship between Assurance Engagement, Attestation Services and Subject matter of Attestation Services includes:
Auditing
 Financial and Non-financial in nature;
 Future-oriented Financial Information such as examination of
prospective Financial Info;
Assurance Services  Management discussion and analysis
Any information  Effectiveness of Internal Control
 Compliance with Statutory, Regulatory and Contractual obligations.

Attestation Services Auditing

Primary Financial Information
- Is the accumulation and evaluation of evidence about info to
determine and report on the degree of correspondence between the
info and established criteria
Auditing
Financial Statements Types of Audit

According to nature of assertion or data:

 External Audit – the FS audit

 Operation Audit
 Compliance Audit

Types of Auditor
Distinction: scope/coverage  External Auditors – hired by auditing firms; they conduct year-end
Audit – involves examination of historical financial statements in accordance audit
with gaap in our case the pfrs  Internal Auditors – working within the firm; they usually perform
operations audit
Attestation Services  Government Auditors – CPAs in government agencies(COA)
- A type of assurance service in which the CPA firm issues a report about
the reliability of an assertion that is the responsibility of another party.
Ex: Audit, Review and Other Attestation Services

Nature of Attestation Services

- Attestation generally refers to an expert’s written communication of a

conclusion about the reliability of someone else’s assertions.