Auditing theory
31. Philippine Framework for Assurance
Engagements
This Framework defines and describes the
elements and objectives of an assurance
engagement, and identifies engagements to which
PSAs, PSREs and PSAEs apply. It does not of itself
establish standards or provide procedural
requirements for the performance of assurance
engagements.
Types of Services of Professional Accountants in
Public Service
33. Assurance Services or Engagements
These refer to engagements 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 practitioners, against criteria.
34. Non-Assurance Services or Engagements
These refer to those that do not result in a
practitioner’s expression of a conclusion that
provides a level of assurance, whether negative
assurance or other form of assurance.
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35. Assertion-Based Engagements
One party measures or evaluates the subject
matter against suitable criteria and makes an
assertion. Another party provides assurance on the
reliability of the assertion.
36. Direct Reporting Engagements
One party measures or evaluates the subject
matter against suitable criteria. The same party
reports directly on the subject matter.
Types of Assurance Engagements
38. Reasonable Assurance Engagement
It is an engagement that aims to reduce the
assurance engagement risk to an acceptably low
level in the circumstances of the engagement as the
basis for a positive form of expression in the
practitioner’s conclusion. “In our opinion, the
accompanying financial statements present fairly,
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in all material respects, (or give a true and fair view
of) the financial position, financial performance and
cash flows of the company for the year ended in
accordance with IFRSs.”
39. Limited Assurance Engagement
It is one that aims to reduce the assurance
engagement risk to a level that is acceptable in the
circumstance of the engagement but where that
risk is greater than for a reasonable assurance
engagement as a basis for a negative form of
expression of the practitioner’s conclusion. “In our
opinion, nothing has come to our attention that
causes us to believe that the accompanying
financial statements are not presented fairly, in all
material respects, in accordance with PAS.”
40. Other Assurance Services
These are assurance services performed by
professional accountants not falling under either
reasonable or limited assurance engagement
classification (e.g., annual environmental audit,
compliance with trading policies and procedures,
ISO 9000 certifications, assurance services on
information technology, etc.)
Specific Examples of Assurance Engagements
42. Independent Financial Statements Audit
Engagement
It is an assurance engagement to provide a
high (reasonable) level of assurance that the
financial statements are free of material
misstatement.
43. Review of Financial Statements
It involves limited investigation of much
narrower scope than an audit and undertaken for
the purpose of providing limited (negative)
assurance that the statements are presented in
accordance with identified financial reporting
standards.
44. Other Review Engagements
Financial institutions may require debtors to
engage CPAs to provide assurance about the
debtors’ compliance with certain covenant
provisions stated in the loan agreement. Other
examples are review of investment performance
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Auditing theory
statistics for organizations such as mutual funds
and computer software review.
***
45. Elements of an Assurance Engagement
a. A three-party relationship
b. An appropriate subject matter
c. Suitable criteria
d. Sufficient appropriate evidence
e. A written assurance report
46. A Three-Party Relationship
Assurance engagements always involve
three separate parties namely, the practitioner,
responsible party and intended user. The last two
will often but not necessarily be from separate
organizations (e.g., responsible party – accounting
department, intended user – board of directors).
Components of the Three-Party Relationship
48. Practitioner
He or she is the person who provides the
assurance to the intended users about a subject
matter that is the responsibility of another party.
49. Responsible Party
He or she (sometimes they) is the person
who in a direct-reporting engagement, is
responsible for the subject matter (the matter
represented by the financial statements); or in an
assertion-based engagement, is responsible for the
subject matter information (assertion or the
specific contents of the financial statements itself),
and may be responsible for the subject matter.
50. Intended Users
They are the person, persons or class of
person for whom the practitioner prepares the
assurance report. The responsible party can be one
of the intended users, but not the only one.
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51. An Appropriate Subject Matter
It is the matter presented for consideration
in the engagement.
Forms of Appropriate Subject Matter
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53. Financial Performance or Conditions
Examples: historical or prospective
financial position, financial performance and cash
flows.
54. Non-Financial Performance or Conditions
Example: operating efficiency of the
production division of an entity
55. Physical Characteristics
Example: capacity of a facility
56. Systems and Processes
Examples: an entity’s internal control or IT
system
57. Behavior
Examples: corporate governance,
compliance with regulation, human resource
practices
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58. Criteria for Appropriateness of Subject Matter
Suitable Criteria
An appropriate subject matter is:
a. Identifiable and capable of consistent
evaluation or measurement against
identified criteria; and
b. Such that the information can be
subjected to procedures for gathering
sufficient appropriate evidence to
support a reasonable assurance or
limited assurance conclusion, as
appropriate.
Characteristics of Suitable Criteria
60. Relevance
Relevant criteria contribute to conclusions
that assist decision-making by the intended users.