CHAPTER PRACTICE OF PUBLIC ACCOUNTANCY LSS Afier studying this chapter, you should be able to: 1. Know the scope of practice of public accountaney. 2. Enumerate and explain the different organizations, regulatory and professional that influence the profession. 3. Know the types of services of a professional accountant in public practice, 4. Understand the nature and objective of an assurance engagement. Learning Objectives 5. Identify and explain the types of assurance engagements, 6. Know and explain the non-assurance services, 7. Be familiar with the challenges faced by the public accountancy profession. ee Se esCHAPTER 2 PRACTICE OF PUBLIC ACCOUNTANCY Practice of Public Accountancy Defined Section 4 of the Philippine Accountancy Act of 2004 describes the scope of the practice of public accountancy as follows: “Practice of Public Accountancy shall constitute in a person, be his/her individual capacity, or as a partner or as a staff memi accounting or auditing firm, holding out himself/herself as one the knowledge, science and practice of accounting, and as a qualified person to render professional services as a certified public accountant; or offering or rendering, or both, to more than one client on a fee basis or otherwise, services such as the audit or verification of financial transaction and accounting records; or the preparation, signing, or certification for nts of reports of audit, balance sheet, and other financial, accounting and related schedules, exhibits, statements or reports which are to be used for publication or for credit purposes, or to be filed with a court or government agency, or to be used for any other purpose: or the design, installation, and revision of accounting system; or the preparation of income tax returns when related to accounting procedures; or when he/she represents clients before government agencies on tax and other matters related to accounting or renders professional assistance in matters relating to accounting procedures and the recording and presentation of financial facts or data.” Article IV, Section 26 of the same law provides: “No person shall practice accountancy in this country, or use the tithe “Certified Public Accountant”, or use the abbreviated title “CPA” or display or use any title, sign, card, advertisement, or other device 10 indicate that such person practices or offers to practice accountancy, or is certified public accountant, unless such person shall have received from the Board a certificate of registration/professional license and be issued a professional identification card or a valid temporary/special permit duly issued to him/her by the Board and the Commission.”30 Chapter 2 —— Certified Public Accountant CPA) is a person who, after obtaining the requineq in and is licensed by the country tg ic accountant (4 sap education passes an extensive examinatio practice as a professional accountant, ing to become CPAs usually would like start their "After they become CPAs, many leave the firm ation. These people may continue to be tice as independent auditors. CPAs Mast young professionals aspi careers working for a CPA firm. to work in industry, government or educ who practice as exercise their right to practice. 0 CPAs who do not practice as independent auditors. Regulatory and Professional Organizations Influencing the Profession A. Regulatory Government Agencies Professional Regulation Commission (PRC) PRC administers, implements and enforces the regulatory policies of the National Government with respect to the regulation and licensing of the various professions under its jurisdiction including the maintenance of professional standards and ethics and the enforcement of the rules and regulations relative thereto, This Commission has the overall jurisdiction over the regulatory boards in the Philippines among which is the Board of Accountancy. It derives its authority from the PRC Modernization Act of 2000. Professional Regulatory Board of Accountancy (BOA) This board, consisting of a chairman and six members, is the agency that is empowered to administer the Accountancy Law. As a licensing agency of the government, the board is the only body that may issue and revoke CPA certificates and grant licenses to practice. Its functions are provided for in the Philippine Accountancy Act of 2004,Practice of Public Accountancy _31 Securities and Exchange Commission (SEC) This is the government agency that regulates the registration and ‘operations of corporations, partnership and other forms of associations in the Philippines. The overall objective of the Securities and Exchange Commission, an agency of the national government, is to assist in providing investors with reliable information upon which to make investment decisions. To this end, companies planning to issue new securities to the public must submit a registration statement to the SEC for approval. They are required to file detailed annual reports with the Commission. The Commission examines these statements for completeness and adequacy before permitting the company to sell its securities through the stock exchange. The SEC has considerable influence in setting financial reporting standards and disclosure requirements for financial statements as a result of its authority for specifying reporting requirements considered necessary for fair disclosure to investors. It is represented in standard~ setting bodies such as the Philippine Financial Reporting Standards Council (PFRSC), Auditing Standards and Auditing and Assurance Standards Council (AASC) and in the Philippine Interpretations Committee (PIC). The SEC has power to establish rules for any CPA associated with audited financial statements submitted to the Commission Because large CPA firms usually have clients that must file accounting reports and the rules and regulations affecting filings with the SEC are extremely complex, most CPA firms have specialists who spend a large portion of their time ensuring that their clients satisfy all SEC requirements. Commission on Audit (COA) This is the agency that audits or determines whether government units handle their funds according to existing laws and whether their programs are being conducted efficiently and economically.3 2 Chapter 2 at Bureau of Internal Revenue (BIR) ‘The Bureau of Internal Revenue is responsible for enforcement of the tx laws, rules and regulations. Its agents conduct compfiance audits of the income tax returns of individuals and corporations to income has been computed and taxes paid as req Internal Revenue Code. B, Professional Organizations Philippine Institute of Certified Public Accountants (PICPA) PICPA is the accredited national professional organization of CPAS. It serves all members in the different sectors of the accounting profession, namely, public practice, education, government and commerce oo industry, through a set of technical and social services. Year-rouns professional development programs (seminars, technical sessions. symposium and dialogues) and regular fellowship and sport activities 2e Sponsored by the association for its members. PICPA publishes the ‘Accountants Journal that contains technical and formal papers, bulletins and pronouncements released by the Financial Reporting Standards Coureil (FRSC) and the Auditing and Assurance Standards Council (AASC). Sectoral Organizations The other professional organizations that ‘complement PICPA's objectives and provide the specific professional development and other requirements of CPAs in the different sectors are: 1. Association of CPAs in Public Practice (ACPAPP) 2. Association of CPAs in Education (ACPAE) 3. Association of CPAs in Commerce and Industry (ACPACI) 4, Government Association of CPAs (GACPA) C. Standard-Setting Bodies International Federation of Accountants (IFAC) IFAC was formally approved in Munich in 1977 and has as its mission the development and enhancement ‘of the profession to enable it to provide services of consistently high quality in the public interest. It is.a————________ Practice of Public Accountancy 33 non-profit, non-governmental, non-political i ization of ee political international organizat Membership in IFAC is open to accountancy bodies recognized by law Lor poral sonst within their countries as substantial national organizations o Standing within the accountancy profession (€.B-. PICPA). Membership in IFAC automatically includes’ membership the International Aecounting Standards Committee (IASC). The Assembly, consisting of one representative from each member accountancy body elects the members of Council. The work programs of the Council are implemented primarily by smaller working groups, or standing technical committees which include: © Education; Ethics; Financial and Management Accounting; Information Technology; International Auditing Practices; Membership; and Public Sector. nternational Accounting Standards Board (IASB) ‘The International Accounting Standards Board (IASB), based in London, began operations in 2001. It is funded by contributions from the major accounting firms, private financial institutions and industrial companies throughout the world, central and development banks, and other international and professional organizations. The 14 Board members (12 of whom are full-time) reside in nine countries and have a variety of functional backgrounds. The Board is committed to developing, in the public interest, a single set of high quality, global accounting standards ‘that require transparent and comparable information in general purpose financial statements. In pursuit of this objective, the Board cooperates with national accounting standard-setters to achieve convergence in accounting standards around the world, In April of 2001, the IASB assumed from the IASC the responsibility for setting international accounting standards. IASB adopted the IASs issued by the IASC and retained the designation and format of the Standards. New standards issued by the IASB were designated as International Financial Reporting Standards (IFRS). In December 2003, the IASB issued 15 revised IASs, withdrew IAS 15, information34 Chapter? Refecng the Efocts of Changing Prices. nd approved and issued IFRS 15. December 26, 2004, the Board of Accountancy upon the oe momendation of the FRSC, approved the adoption in the Philippines set ihe new, revised and improved LASs and IFRSs effective January 3008 and designated them as Philippine Financial Reporting Standards (PFRSs). Financial Reporting Standards Council The Commission upon the recommendation of the Board shall within ninety (90) days from the effectivity of the IRR to R.A. 9298, create an accounting standard setting body to be known as the Financial Reporting Standards Council (FRSC) to assist the Board in carrying out its powers and functions provided in Rule II, Section 9g). ‘The FRSC shall be composed of fifteen (15) members with a Chairman, who had been or presently a senior accounting practitioner in any of the scope of accounting practice and fourteen (14) representatives from the following: (a) Board of Accountancy (b) Securities and Exchange Commission (c) Bangko Sentral ng Pilipinas (d) Bureau of Internal Revenue (e) A major organization composed of preparers and users of financial statements 1 (8) Commission on Audit 1 (g) Accredited National Professional Organization of CPAs Public Practice Commerce and Industry Academe/Education Government Total aes Ek—_———_—_______fratce of Public Accountancy 38 International Auditing Practices Committee (IAPC) The International Auditing Practices Committee (IAPC) is a standing committee of the Council of IFAC and is responsible for the development and issuance on behalf of the Council, standards and statements on a variety of audit and attests functions in order to improve the degree of uniformity of auditing practices and related services throughout the world. IAPC issues the International Standards on Auditing (ISAs) that are to-be applied in the audit of financial statements, audit of other information and related services. Auditing and Assurance Standards Council (AASC) The Commission upon the recommendation of the Board shall within ninety (90) days from the effectivity of the IRR to R.A. 9298, create an auditing standard setting body to be known as the Auditing and Assurance Standards Council (AASC) to assist the Board in carrying out its powers and functions provided in Rule II, Section 9g). ‘The AASC shall be composed of fifteen (15) members with a Chairman, who had been or presently senior practitioner in public accountancy and fourteen (14) representatives from various sectors of the profession. However, in 2009, the Board of Accountancy amended the composition of the AASC as follows: Chairman 1 Members: (a) Board of Accountancy (b) Securities and Exchange Commission (©) Bangko Sentral ng Pilipinas (4) Commission on Audit (8) An association or organization of CPAs in active public practice of accountancy 1 (g) Accredited National Professional Organization of CPAs Public Practice 9 Commerce and Industry L Academe/Education | Total A36 Chapter 2 Types of Services of a Professional Accountant in Public Prag, ied The following are the most sought - after services AMONG professig,,, accountants. A. Assurance Services. Examples are: 1, Independent financial statement audit Reviews Other assurance services (8, CPA Web Trust, Business Performance Measurement Service) B. Non-Assurance Services. Examples are: 1. Agreed-upon procedures Compilation Tax Aceounting and data processing . Other non-assurance services (¢.g., Information Technology System Services) 2 3 4, Management consultancy/advisory services 5. 6 A. Assurance Engagements Nature of Assurance Engagements ‘Although the recent focus of the auditing profession has been on the audit of financial statements, the concept of assurance services is much broader. Assurance in the context of Philippine Framework for Assurance Engagements (2006) refers to the auditor's satisfaction as to the reliability of an assertion being made by one party for use by another party. To provide such assurance, the auditor assesses the evidence collected as a result of procedures conducted and expresses a conclusion, The degree of satisfaction achieved and, therefore, the level of assurance which may be provided is determined by the procedures performed and their results.— | ———$—$—$__—_____iustis of ti secommegy_31 Assurance engagement means an engagement 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 practitioner, against criteria. The outcome of the evaluation or measurement of a subject matter is the information that results from applying the criteria 10 the subject matter. For example: * The recognition, measurement, presentation and disclosure represented in the financial statements (outcome) result from applying a financial reporting framework for recognition, measurement, presentation and disclosure, such as Philippine Financial Reporting Standards, (criteria) to ‘an entity's financial position, financial performance and cash flows (subject matter) (c.g., independent financial statements audit, review of prospective financial statements). « Anassertion about the effectiveness of internal control (outcome) results from applying a framework for evaluating the effectiveness of internal control, such as COSO! or CoCo” (criteria) to internal control, a process (subject matter). The term “subject matter information” will be used to mean the outcome of the evaluation or measurement of subject matter. It is the subject matter information about which the practitioner gathers sufficient appropriate evidence to provide a reasonable basis for ‘expressing # conclusion in an assurance report (c.g., review of internal control). Objective of an Assurance Engagement The objective of an assurance engagement is for a professional accountant to evaluate or measure a subject matter that is the responsibility of another party against identified suitable criteria, and to express a conclusion that provides the intended user with a level of assurance about that subject matter. ‘Assurance engagement performed by a professional accountant is intended to enhance the credibility of information about a subject matter by evaluating whether the subject matter conforms in all material respects with suitable criteria, thereby improving the likelihood that the information will meet the needs of an intended user. * nueral control ~ Integrated Framework” The Committee of Sponsoring Organizations of the ‘Treadway Commission. 2Guidance on Assessing Control — The CoCo Principles” Criteria of Control Board, The Canadian Instinnte of Chartered Accountants.BB Chaperone In this regard, the level of assurance provided by the professic, accountants conclusion conveys the degree of confidence that the intendey user may place in the credibility of the subject matter. Assertion-Based Engagements vs. Direct Reporting Engagements Assertion-based engagements are assurance engagements that involve the evaluation or measurement of the subject matter by the responsible party ang the subject matter information in the form of an assertion by the responsible party is made available to the intended users. Independent financiay statement audit is an example of this type of engagement. Another example is when an entity engages a practitioner to perform an assurance en; regarding a report it has prepared about its own sustainabil Direct reporting engagement are engagements where the practitioner either directly performs the evaluation or measurement of the subject matter, o¢ obtains a representation from the responsible party that has performed the evaluation of measurement that is not available to the intended users. The subject matter is provided to the intended users in the assurance report, Types of Assurance Engagements Under the Philippine Framework for Assurance Engagements there are two types of assurance engagements that a practitioner is permitted to perform, These are a reasonable assurance engagement and 2 limited assurance engagement. A reasonable assurance engagement 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 of the practitioner's conclusion, Examples are engagement involving independent financial statement audit and review of prospective financial statements. A limited assurance engagement 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 chgagement as a basis for a negative form of expression of the practitioner's conclusion. Examples are engagements involving review of non-financial performance indicators such as capacity of a facility and review of human saPractice of Public Accountancy 39 resource practices, internal conmrol, IT compliance with regulation, I IF systems, corporate governance, Other Assurance Services In addition to audits and reviews, other assurance services that may be porn by the professional accountants include CP Web Trust, Eldercare ae Performance Measurement Services, information Reliability vie Brief Description of the Assurance Services Independent Financial Statements Audit The most predominant type of assurance engagement that the professional accountant may be involved in is the independent financial statements audit, also commonly referred to as external audit. An independent financial statements audit engagement is an assurance engagement to provide a high level of assurance that the financial statements are free of material misstatement. The objective of an audit of financial statements is to enable the au express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework, The phrases used to express the auditor's opinion are “give a true and fair view” or “present fairly, in all material respects,” which are ‘equivalent terms. A similar objective applics to the audit of financial or cother information prepared in accordance with appropriate criteria In forming the audit opinion, the auditor obtains sufficient appropriate audit evidence to be able to draw conclusions on which to base that opinion. The “s opinion enhances the credibility of financial statements by providing a high, but not absolute, level of assurance. Absolute assurance in auditing is not attainable as a result of such factors as the need for judgment, the use of testing, the inherent limitations of any accounting and internal control systems and the fact that most of the evidence available to the auditor is persuasive, rather than conclusive, in nature.40 Chapter 2 Review of Financial Statements - PSREs 2400 & 2410 Review involves limited investigation of much narrower scope than an ay, and undertaken for the purpose of providing limited (negative) assu the statements are presented in accordance with identified Finan 1 statements may be historical (covey, Reporting Standards. ‘The financial stat c ‘one whole accounting period or an interim period) oF prospective (forecac, and projections). The objective of the review is to enable an auditor to state whether on the basis of procedures which do not provide all the evidence required in aq audit, nothing has come to the auditor's attention that causes: the auditor 4) believe that the financial statements are not prepared, in all material respect, in accordance with an identified financial reporting framework, This ig referred to-as negative assurance, Whereas in an audit, the CPA firm performs an extensive examination that accumulates evidence sufficient to render a higher level of assurance about the client's financial statement, in a review, the evidence supports a moderate level of assurance that the information subject to review is free of material misstatement. Other Review Engagements “There are other engagements in which a practitioner is engaged to issue or does issue a written communication that expresses a conclusron with respect to the reliability of a written assertion that is the responsibility of another party. A number of assurance services are natural extensions of the audit of historical finaneial statements as users seek independent assurances about ‘other types of information. For example, a financial institution may require debtors to engage CPAs to provide assurance about the debtors’ compliance ‘with certain covenant provisions stated in the loan agreement. CPAs ray also provide assurance about the effectiveness of a client's internal controls over financial reporting. Other examples are review of imvestiment performance statistics for organizations such as mutual funds and computer software review.Limca of Pubic decountamey 4 Other Assurance Services (PSAE 3000 Ri Assurance Services on Information Technology The growth of the Intemet and electronic commerce has extensively affected the demand for other assurance services. Concerns over privacy, security of information and the reliability of processes generating information in a real- time format contributed to an even greater demand for assurance about computer controls surrounding information transacted electronically. CPAs can help provide assurance about these functions. Examples of assurance services related to information technology are assurance over website controls, assurance about information system reliability and electronic commerce assurance services. CPA Web Trust Service Some CPA firms are licensed to perform this service to provide assurance to users of web sites in the Internet. The CPA’s electronic Web Trust seal is affixed to the web site, This seal assures the user that the web site owner has met established criteria related to business practices, transaction integrity and information processes. Web Trust is an atestation service and the Web Trust sea! is a symbolic representation of the CPA's report on management assertions about its disclosure of electronic commerce practices. Information System Reliability Service In these engagements, CPAs provide assurance that an information system has been designed and operated to produce reliable data including tests of the system to determine whether the system protects against potential causes of data defects, Whereas, the Web Trust assurance service is primarily designed to provide assurance to third-party users of a web site, information systems reliability services might be performed by CPAs to provide assurance to management, the board of directors, or third parties about the reliability of information systems used to generate real-time information, Assurance Services on Other Types of Information ‘The Special Committee on Assurance Services of the AICPA has developed other assurance services designed to enhanee the relevance of information. Examples of these services are:42 Chapue (a) Business Performance Measurement (b) Health Care Performance Measurement (©) Risk Assessments (4) Eldercare Plus Business Performance Measurements Services ‘ACPA can provide assurance about whether financial and nonfinangig information being reported from the entity's performance meas, system (e.g., balanced scorecard) is reliable and whether the perfa measures being used are accurately leading the entity toward meeting ig, strategic goals and objectives. Health Care Performance Measurement ‘Assurance service involves evaluation of the quality of health care, medicy services and outcome, It looks into the health care delivery system, medical services provided, and quality attributes associated with ae services. Risk Assessment ‘Assurance on risk assessments identifies a set of risks that affect the ‘organization. It also involves the study of the link between risks ang organization's mission, vision, abjectives and strategies and development of new and relevant measures. Eldercare Plus This assurance service focuses on the needs of the elderly and whether caregivers are providing services that meet specified objectives or at an acceptable level. This service might include periodic reporting to family members about the degree to which caregivers are complying with the contracted level of care as supervising the investment and accounting for the elderly individual's estate. Figure 2.1 shows examples of other assurance services.Figure 2.1 ‘Assessment of risks of accumulation, sbibution, and storage of digital information ‘Compliance with trading policies and ‘Compliance with entertainment royalty agreements including policies related to derivatives [Complance wit aig polces and =| Examining rasacions beeen vadng | procedures ‘Controls over and risks related to investments, Other Assurance Services Examples Assessing whether company policies effectively ‘ensure the company's compliance with environmental standards and laws Assessing physical and on-line security risks ‘and related controls surrounding dts and ther information stored electronically, including the adequacy of back-up and of site storage partners to ensure that the handling of the transactions complies wih the terms of the trading agreement or contract, including the identification of sks surrounding the trade arrangement. ‘Assessing whether royalties paid to artists, ‘authors, and others are in agnordance with royalty agreement provisions Assessing the processes surrounding a ‘company's investment activities to Kdentfy ‘isks and to determine the effectiveness of those processes in meeting the company’s objectives investment Fraud and legal acts risk assessment Developing fraud rik profes and assessing the adequacy of company systems and polices in preventing and detecting fraud and legal acts Mystery shopping 180.9000 certficatans Cerying @ company ‘9000 quality contol standards, which help ensure company products are of high quality44 Chapter 2 Elements of an Assurance Engagement An assurance engagement should exhibit the following elements: (a) A three party relationship involving (i) a practitioner; (ii) a responsible party; and (ii)intended users: (b) An appropriate subject matter; (©) Suitable crite (a) Sufficient appropriate evidence: and (@) A written assurance report in the form appropriate to a assurance engagement or a limited assurance engagement, ‘sonable (a) Three Party Retationship ‘Assurance engagements always involve three separate parties: ‘The practitioner is the person who provides the assurance to the intended users about a subject matter that is the responsibility of another party. The practitioner gathers evidence to obtain assurance and provide a conclusion 1g the intended users about whether a subject matter that is the responsibility of ‘@ party other than the intended users or the practitioner conforms in all material respects with identified criteria. The responsible party and the futended user will often but not necessarily be from separate organizations, A responsible party and an intended user may both be within the same organization, for example, the board of directors _ ‘seek assurance about information provided by the accounting department of that organization, (i) Practitioner The term “practitioner” as used in the Philippine Framework for Assurance Engagements is broader than the term “auditor” as used in PSAs and PSREs, which relates only to practitioners performing audit or ‘review engagements with respect to historical financial information.ao Prt of Public Accountancy 48, (ii) Responsible Party The responsible panty is the person (or persons) who: (a) oe abe Feporting engagement, is responsible for the subject (b) in an assertion-based engagement, is responsible for the subject matter information (the assertion), and may be responsible for the subject matter. An example of when the responsible party is Fesponsible for both the subject matter information and the subject matter, is when an entity engages a practitioner to Perform an assurance engagement regarding a report it has Prepared about its own sustainability practices. An example of when the responsible party is responsible for the subject matter information but not the subject matter, is when a government ‘organization engages a practitioner to perform an assurance engagement regarding a report about a private company’s Sustainability practices that the organization has prepared and is to distribute to intended users. The responsible party may or may ee bbe the party who engages the practitioner (the engaging party). (ili) dntended Users The intended users are the person, persons or class of persons for whom the practitioner prepares the assurance report, The responsible party can be one of the intended users, but not the only one. In some cases, intended users (for example, bankers and regulators) impose a requirement on, or request the responsible party (or the engaging party if different) to arrange for, an assurance engagement to be performed for a specific purpose. When engagements are designed for specified intended users or a specific purpose, the practitioner considers including a restriction in the assurance report that limits its use to those users or that purpose.46 Choprer 2 (b) Appropriate Subject Matter The subject matter, and subject mater information, of an assurance engagement can take many forms, such as: Financial performance of conditions (for example, historical or prospective financial position, financial performance and cash flows) for Which the subject matter information may be the recognition, Measurement, presentation and disclosure represented in financial statement Non-financial performance or conditions (for example, performance of an entity) for which the subject matter information may be key indicators of efficiency and effectiveness, Physical characteristics (for example, capacity of a focility) for which the subject matter information may be a specifications document Systems and processes (for example, an entity's internal control or IT system) for which the subject maticr information May be an assertion about effectiveness, Behavior (for example, corpornte governance, compliance with fequlation, human resource practices) for which the subject matter information maybe a statemont of compliance or a statement of offectivenens. Subject matters have different characteristics, inc! luding the degree to whieh information about them is qualitative versus quantitative, objective vorsus subjective, historical versus Prospective, and relatos to a point in time or ‘covers a period. Such characteristics affect the: (a) Precision with which the subject matter can be evaluated or measured against criterias and (b) Tho persinasiveness of available evidence, The assurance report notes characteristics of particular relevance to the intended users, An appropriate subject matter is: (a) Identifiable, and capable of consistent evaluation of measurement against (he identified criteria; and (b) Such that the information about it can be subjected 10 procedures for kathering sufficient appropriate evidence to support a reasonable Assurance or limited assurance conclusion, as appropriate,Practice of Public Accountancy _47 (6) Suitable Criteria Criteria are the benchmarks used to evaluate or measure the subject matter including, where relevant, benchmarks for presentation and disclosure. Criteria can be formal, for example in the preparation of financial statements, the criteria may be Philippine Financial Reporting Standards; when reporting ‘oh internal control, the criteria may be an established internal control framework or individual controt objectives specifically designed for the engagement; and when reporting on compliance, the criteria may be the applicable law, regulation or contract. Examples of less formal eriteria are an internally developed code of conduct or an agreed level of performance = as the number of times a particular committee is expected to meet in a year Suitable criteria exhibit the following characteristics: (a) Relevance: relevant criteria contribute to conclusions that assist decision-making by the intended users. (b) Completeness: criteria are sufficiently complete when relevant factors that could affect the conclusions in the context of the engagement circumstances are not omitted. Complete criteria include, where relevant, benchmarks for presentation and disclosure, (c) Reliability: reliable criteria allow reasonably consistent evaluation ‘of measurement of the subject matter including, where relevant, presentation and disclosure, when used in similar circurnstances by similarly qualified practitioners, (d) Neutrality: neutral criteria contribute to conclusions that are free from bias. (e) Understandability: understandable criteria contribute to conclusions that are clear; comprehensive, and not subject to significantly different interpretations. The evaluation or measurement of @ subject, matter on the basis of the practitioner's own expectations, judgments and individual experience would not constitute suitable eriteria. Criteria need to be reliable to the intended users to allow them to understand how the subject matter has been evaluated or measured. Criteria are made available to the intended users in one or more of the following ways: (a) Publicly;48 Chapter 2 (b) Through inclusion matter information. (©) Through inclusion in a clear manner in the assurance report, (d) By general understanding. for example the criterion for Messing time in hours and minutes. (d) Sufficient Appropriate Evidence The practitioner plans and performs an assurance engagement wig, attitude of professional skepticism to obtain sufficient appropriate eyj ‘about whether the subject matter information is free of Matergy misstatement. The practitioner considers materiality, assurance en, Fisk, and the quantity and quality of available evidence when planning ang Performing the engagement, in particular when determining the nant timing and extent of evidence-gathering procedures. (® Professional Skepticism The practitioner plans and performs an assurance engagement with an attitude of professional skepticism recognizing that circumstances may ‘exist that cause the subject matter information to be materially misstateg An attitude of professional skepticism means the practitioner makes 4 critical assessment, with a questioning mind, of the validity of evidence obtained and is alert to evidence that contradicts or brings into question the reliability of documents or representations by the respansible pany, For example, an attitude of professional skepticism is n throughout the engagement process for the practitioner to reduce the risk of overlooking suspicious circumstances, of over generalizing when drawing conclusions from observations, and of using faulty assumptions in determining the nature, timing and extent of evidence gathering procedures and evaluating the results thereof. An assurance engagement rarely involves the authentication of documentation, nor is the practitioner trained as or expected to be an ‘expert in such authentication, However, the practitioner considers the reliability of the information to be used as evidence, for example photocopies, facsimiles, filmed, digitized or other electronic documents, including consideration of controls over their preparation and maintenance where relevant.