ASR-01 Assurance Engagements & Other Services FEU-IABF

AUDITING & ASSURANCE

PRINCIPLES
RIAN CEASAR P. SOLIMAN, CPA, MBA

ASR-01 Introduction to Assurance Services

Course Outline
Module Title

1 Introduction to Assurance & Other Services

2 Introduction to Auditing

3 Risk-based Audit Process, Objectives and Responsibilities

4 Preliminary Engagement Activities

5 Planning an Audit of Financial Statements

6 Study & Evaluation of Internal Controls

7 Substantive Audit Procedures

ASR-01 – Introduction to Assurance Services

Course Outline
Module Title

8 Audit Sampling and Other Means of Testing

9 Completing the Audit

10 Audit Reporting

11 Professional and Legal Responsibilities

12 Code of Ethics for Professional Accountants in the Philippines and

Quality Controls

13 Attestation and Other Services

ASR-01 – Introduction to Assurance Services

Rian Ceasar P. Soliman, CPA, MBA

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ASR-01 Assurance Engagements & Other Services FEU-IABF

Course Outline
Module Title

1 Introduction to Assurance & Other Services

2 Introduction to Auditing

3 Risk-based Audit Process, Objectives and Responsibilities

4 Preliminary Engagement Activities

5 Planning an Audit of Financial Statements

6 Study & Evaluation of Internal Controls

7 Substantive Audit Procedures

ASR-01 – Introduction to Assurance Services

References:

• Philippine Framework for Assurance Engagements

• Philippine Standards on Assurance Engagements

ASR-01 – Introduction to Assurance Services

Contents

1. Services of a Practitioner

2. Fundamentals of Assurance Engagements

3. Classification of Assurance Engagements

4. Non-Assurance Services

ASR-01 – Introduction to Assurance Services

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Services of A Practitioner

Services of A Practitioner

Assurance Engagements Non-Assurance Engagements

1. Audit of Financial 1. Agreed-Upon Procedures
Statements
2. Compilation Services
2. Review of Financial
Information 3. Management Consulting

3. Other Assurance Services 4. Other Tax Services

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Fundamentals of Assurance
Engagements

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Definition of Assurance Engagement

• an engagement in which a practitioner expresses a

conclusion

• designed to enhance the degree of confidence of

the intended users other than the responsible party

• about the outcome of the evaluation or

measurement of a subject matter against criteria.
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Enhanced
Responsible Subject Matter
Quality Users
Party S.M.I

Conclusion that
Examination of
enhances
evidence
confidence

Criteria

Assurance
Practitioner Report

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Definition of Assurance Engagement

• an engagement in which a practitioner expresses a

conclusion

• designed to enhance the degree of confidence of

the intended users other than the responsible party

• about the outcome of the evaluation or

measurement of a subject matter against criteria.
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Demand for Assurance Services

• Bias of responsible party

• Remoteness of users

• Complexity of subject matter

• Risk management—information risk reduction

• Cost of capital reduction

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Elements of an Assurance Engagement

1. Three Party Relationship

2. Appropriate Subject Matter
3. Suitable Criteria
4. Sufficient Appropriate Evidence
5. Written Assurance Report

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Three-Party Relationship

• Practitioner, Responsible Party &

Intended Users
• Responsible party & intended users may
be from different entities or the same
entity
• The relationship between the
responsible party & intended users
needs to be viewed within the context of
specific engagement

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Three-Party Relationship

• Practitioner
- Broader than auditor.
- May be engaged on wide range of subject
matters.
- Ethical consideration: Should not accept
engagements if professional competence is
not satisfied.
- Use of experts

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Three-Party Relationship

• Responsible Party
- Responsible for the subject matter or
subject matter information.
- May or may not be the engaging party.
- Ordinarily provides the CPA a written
representation.

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Three-Party Relationship

• Intended Users
- Person or class of persons for whom CPA
prepares the assurance report.
- Responsible party can be one of the intended
users, but not the only one.
- CPA considers restricting the assurance
report if reporting for specified users.

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ASR-01 Assurance Engagements & Other Services FEU-IABF

Appropriate Subject Matter

• Subject matter - subject of evaluation or measurement from

which the users wish to obtain information.
• Subject matter information – the outcome of
evaluation/measurement of subject matter against criteria.
• When is Subject Matter considered appropriate?
1. Capable of being measured or evaluated, AND
2. Evidence is available

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Appropriate Subject Matter

Form Subject Matter Subject Matter

Information
Financial performance or Historical or prospective Financial Statements
condition financial information
Non Financial performance or Performance of Sales Sales Report showing
condition Personnel volume of sales attained
Physical Characteristics Capacity of facility Specifications
Systems and processes Internal Control/IT System Report on effectiveness
Behavior Corporate Governance, Statement of Compliance/
Compliance with regulation, Effectiveness
HR Practices

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Suitable Criteria

• Criteria are benchmarks used to evaluate or measure the subject

matter.

Assurance Applicable Criteria

Engagements
Audit of FS PFRS/PFRS for SME/US GAAP
IT Audit COBIT/Control Objectives
Compliance Audit Laws & Regulations
Capacity of Bridge Tonnage
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Suitable Criteria

• Characteristics of a suitable criteria

1. Relevant

2. Complete

3. Reliable

4. Neutral

5. Understandable

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Suitable Criteria

• Basis or Form of Criteria

• Established criteria
• Specifically developed
• Applicable Criteria should be clearly communicated
to Intended Users.
• Criteria may also be restricted to specific intended
users in which case use of the assurance report is
restricted to those users only.
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Sufficient and Appropriate Evidence

• Basis of CPA’s conclusion

• Application of professional
skepticism

• The practitioner considers materiality, assurance

engagement risk and quantity & quality of
evidence.

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Sufficient and Appropriate Evidence

• Materiality
• Helps CPA determine nature, timing & extent of procedures.
• What is material information?
• Materiality is relative: depends on size & nature
• Professional judgment
• Effect on evidence

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Sufficient and Appropriate Evidence

• Assurance Engagement Risk

• Inappropriate conclusion + subject matter information is
materially misstated
• Effect on evidence

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Sufficient and Appropriate Evidence

• Quantity and Quality of Evidence

• Quantity – Sufficiency
• Quality – Appropriateness/Competence of Evidence

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ASR-01 Assurance Engagements & Other Services FEU-IABF

Sufficient and Appropriate Evidence

• Quantity of Evidence
• Affected by risk of the SMI
(higher risk = more evidence required)
• Affected by quality
(higher quality = less may be required)
• Merely obtaining more evidence may not compensate for its poor
quality

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Sufficient and Appropriate Evidence

• Quality of evidence
• Affected by relevance & reliability
• Relevance – ability of the evidence to address the objective of the
procedure
• Generalization about reliability

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Sufficient and Appropriate Evidence

• Generalizations about reliability

• More reliable if obtained from independent sources
• Internally generated evidence is more reliable when related controls
are effective
• More reliable if obtained directly by the CPA than by inference
• More reliable if it exists in documentary form than oral evidence
• More reliable if original documents

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Sufficient and Appropriate Evidence

• Cost Benefit Considerations

• Cost or difficulty is considered in obtaining evidence
• Cost or difficulty is not in itself a valid basis in omitting an evidence
gathering procedure for which there is no alternative
• Professional judgement

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Written Assurance Report

• Communicates to users the conclusion reached by

practitioners.

• Should be in writing.

• Levels of assurance

• Reasonable assurance

• Limited Assurance
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Written Assurance Report

Types of Conclusion

Unqualified The CPA believes that the subject information, in all

Conclusion material respects, conforms with the criteria.
Modified The CPA either believes that
Conclusion • the subject matter/information is materially
misstated; or
• the CPA was not able to obtain sufficient
appropriate evidence.

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ASR-01 Assurance Engagements & Other Services FEU-IABF

Classification of Assurance
Engagements

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Level of Assurance and Engagement Risk

100%
Engagement Risk

High

Less than
High

Zero
No Moderate Reasonable Absolute
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According to Level of Assurance

Reasonable Assurance Engagement Limited Assurance Engagement

• High but not absolute level of • Limited level of assurance

assurance
• SAAE – understanding, risk • SAAE – procedures are limited
assessment, risk response, further compared to reasonable assurance
procedures engagement
• Level of engagement risk – LOW • Level of engagement risk – greater
than for a reasonable assurance
engagement
• Basis of positive form of opinion • Basis of negative form of opinion
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ASR-01 Assurance Engagements & Other Services FEU-IABF

According to Level of Assurance

Reasonable Assurance Engagement Limited Assurance Engagement

In our opinion, the financial statements
present fairly, in all material respects, the
financial position of the Company as of
December 31, 20X1, and (of) its financial
performance and its cash flows for the
year then ended in accordance with
Philippine Financial Reporting Standards
(PFRSs).
Audit of financial statements
Based on our review, nothing has come to
our attention that causes us to believe that
the financial statements are not presented
fairly, in all material respects in accordance
with Philippine Financial Reporting Standards
(PFRSs).
Review of financial information

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According to Structure

Assertion Based Assurance Engagement Direct Reporting Assurance Engagement

(Attestation)
• Representation by responsible party
that is made available to intended
users
• Evaluation/measurement performed
by responsible party
• Responsible party is responsible for
SMI & may be responsible to subject
matter
• No representation from responsible party
• Representation by responsible party not
made available to intended users
• Evaluation/measurement performed by
the practitioner
• Responsible party responsible for subject
matter only

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Example of Assertion-based Engagement

Practitioner

Company

Another Users
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Introduction to Assurance Services

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ASR-01 Assurance Engagements & Other Services FEU-IABF

Example of Direct Reporting Engagement

Practitioner

Company

Users
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Attestation Engagements

• Independent audit of financial statements

• Provides high but not absolute level of assurance that the financial
statements are free from material misstatements
• Review engagement
• Narrower scope than audit
• Provides limited assurance

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Other Assurance Services

• Business Performance Measurement

• Healthcare Performance Measurement
• Elder Care Plus
• Risk Assessment Services
• CPA WebTrust/ Systrust
• Information Systems Reliability

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ASR-01 Assurance Engagements & Other Services FEU-IABF

Limitations of Assurance Engagements

• Selective testing
• Judgment
• Inherent limitations of internal control
• Persuasive evidence rather than conclusive
• Characteristics of subject matter

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Non-Assurance Services

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Non-Assurance Engagements

• Agreed-upon procedures – carrying out those procedures of an audit

nature to which the practitioner and the entity and any appropriate
third parties have agreed and to report on factual findings.
• Compilation engagement – engaged to use accounting expertise as
opposed to auditing expertise to collect, classify and summarize
financial information.
• Some Tax services
• Management consulting

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ASR-01 Assurance Engagements & Other Services FEU-IABF

End of Discussion

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