Assurance Engagements

It is a type of assignment that professional practitioners undertake. It

involves the expression of an opinion by the practitioner regarding a provided
subject matter. Practitioners use suitable criteria to evaluate the subject matter.
During this process, they collect sufficient and appropriate evidence. Once they
have done so, they provide an opinion regarding their findings.

Nature of Assurance Engagements

1. A three party relationship
2. An appropriate subject matter
3. Suitable Criteria
4. Sufficient appropriate evidence; and
5. A written assurance report

1. Three Party Relationship

▪ Professional accountant who adheres to the fundamental
principles required by the Code of Ethics.
▪ The party responsible for the subject matter of the assurance
engagements.
▪ The intended users to whom the professional accountant
usually addresses the report.

2. Subject Matter
▪ Data
▪ Systems and Processes
▪ Behavior
▪ Physical Characteristics

3. Criteria - Standards or benchmark used to evaluate or measure the

subject matter of an assurance engagement.

4. Evidence – The practitioner should plan and perform the

engagement to obtain sufficient appropriate evidence to determine
whether the assertions are free of material misstatement.

5. Assurance Report – The professional accountant’s conclusion

provides either high or moderate level of assurance about
the subject matter.
Objective of Assurance Engagements
1. Expressing an Opinion
For most assurance engagements, the primary objective is to express
an opinion. As mentioned, a practitioner evaluates the subject matter to
establish their views. They do so against suitable criteria and gather
sufficient appropriate audit evidence.

2. Providing Assurance
Giving assurance related to the subject matter. Usually, practitioners
provide this assurance to the users defined in the three-party relationship
for each assurance engagement. These involve reasonable and limited
assurance.

3. Enhancing Confidence
By providing assurance to the intended users, assurance
engagements enhance their confidence in the subject matter and
responsible party. As mentioned, this confidence will be higher for
reasonable assurance engagements than limited assurance. Similarly,
there are other factors that contribute to how the assurance enhances the
intended users’ trust.

4. Reducing Engagement Risk

While all of the above objectives relate to other parties, reducing
engagement risk is one of the objectives of an assurance engagement for
practitioners. By gathering sufficient appropriate audit evidence,
practitioners can lower this risk to an acceptably low level. Regardless of
the type of assurance they provide, this objective will be the same.

Range of Assurance Engagements

1. Attestation
In an attestation (also known as assertion-based engagement), the
responsible party carries out the measurement or evaluation of the subject
matter and reports the information. This subject matter information contains
the responsible party’s assertion (for example: "The subject matter
information is fairly stated as of date/month/year"). The work the
practitioner performs is to give an assurance conclusion on this assertion.
 2. Direct Reporting
In a direct (direct reporting) engagement, the responsible party does
not present the subject matter information in a report in a direct
engagement. Instead, the practitioner reports directly on the subject
matter and provides the intended users with an assurance report
containing the subject matter information.

TYPES OF ASSURANCE ENGAGEMENTS

Assurance engagements can be classified according to the level of
assurance that the practitioner gives to parties who may rely on his/her report.
Under the present standards, the two levels of assurance engagements
that a practitioner may perform are:

a. Reasonable Assurance Engagement - the objective is a reduction in

assurance engagement risk to an acceptably low level in circumstances of
the engagement as the basis for a positive form of expression of the
practitioner's conclusion

Example: Financial statement audit.

According to the auditor's opinion, in conformity with the relevant financial

reporting standards, the financial statements provide a truthful and fair
representation.

b. Limited Assurance Engagement - the objective is a reduction in assurance

engagement risk to a level that is acceptable in circumstances of the
engagement, but where the risk is greater than for a reasonable assurance
engagement, as a basis for a negative form of expression of the
practitioner's conclusion.
FIVE ELEMENTS OF AN ASSURANCE ENGAGEMENTS

1. Three-Party Relationship
Parties Responsibilities
✓ Expression of an opinion on the
financial statement
✓ Compliance with ethical requirements
Practitioner/Auditor ✓ Determining the scope of audit in
accordance with PSAs and other
applicable regulations of professional
bodies
✓ Preparation and presentation of
financial statements in accordance
with the applicable financial reporting
Responsible party/
framework
management and those
✓ Prevention and detection of fraud
charged with
and error
governance
✓ Adoption and implementation of
adequate accounting and internal
control systems
✓ Use the audit report which contains
Intended users/ uses of FS
the opinion expressed by the auditor

2. Appropriate subject matter

Adequate supporting records and documents should be available in order
for the financial statements prepared by management to be considered
appropriate subject matter of an audit engagement

3. Suitable criteria
Criteria used in audit generally includes Philippine Financial Reporting
Standards (PFRS), Generally Accepted Accounting Principles (GAAP)
and other applicable financial reporting framework.
 4. Sufficient appropriate evidence
Evidence is all the information used by the practitioner in arriving at the
conclusions on which the assurance report is based which should be
sufficient and appropriate in forming an opinion.

An assurance engagement rarely involves the authentication of

documentation, nor is the practitioner trained as or expected to be an expert in
such authentication.

• Sufficiency is the measure of the quantity of evidence.

• Appropriateness is the measure of the quality of evidence; that is its
relevance and its reliability.

5. A written assurance report or conclusion

The practitioner provides a written report containing a conclusion that
conveys the assurance obtained about the subject matter information. In
addition, the auditor considers other reporting responsibilities including
communication with those charged with governance.

ASSURANCE SERVICES
The name assurance services are used to describe the broad range of
information enhancement services performed by a certified public accountant
(CPA) that are designed to enhance the degree of confidence in the
information. In general, assurance services consist of two (2) types: (a) those that
increase the reliability of information and (b) those that involve putting information
in a form or context that facilitates decision making.

A significant portion of the assurance services provided by CPAs is referred

to as attestation services. To attest to information means to provide assurance as
to its reliability. In an attestation engagement, CPAs provide a report on subject
matter or an assertion about that subject matter. One of the most sought-after
attestation services is the examination or audit of historical financial statements.

Examples of Common Assurance Engagements:

Attestation
▪ Audit
▪ Review
▪ Other Attestation Services
Other Services
▪ Performance Review
▪ Examination of Forecasts

ASSURANCE ENGAGEMENTS AS TO STRUCTURE

1. Attestation Engagements
An engagement in which a practitioner is engaged to issue, or does issue,
a written communication that expresses a conclusion about the reliability of a
written assertion that is the responsibility of another party.

Main Characteristics:
▪ In an attestation, the responsible party carries out the measurement or
evaluation of the subject matter and reports the information.

▪ The subject matter information contains the responsible party’s assertion.

Example: The financial statements of ABC Company are fairly stated as of
December 31, 2023.
▪ The practitioner’s main task is to provide assurance through the expression
of a conclusion on this assertion.

Example: “In our opinion, the accompanying financial statements present

fairly, in all material respects, the financial position of ABC Company as at
December 31, 2023, and its financial performance and its cash flows for the
period ended December 31. 2023, in accordance with the Philippine
Financial Reporting and Standards (PFRSs).

• Also known as Assertion-Based Engagements. These are assurance

engagements that which the evaluation or measurement of the subject
matter is performed by the responsible party, and the subject matter
information is in the form of an assertion by the responsible party that is
made available to the intended users.

COMMON TYPES OF ATTESTATION ENGAGEMENTS

a. Audit Engagement – an engagement in which the auditor
provides a reasonable (but not absolute) level of assurance
that the subject matter is free from material misstatements.
 b. Review Engagement – an engagement in which the auditor provides a
moderate level of assurance that the information subject to the
engagement is free of material misstatement.

2. Direct Engagements
A residual definition of assurance engagement as to structure. In a direct
(direct reporting) engagement, the responsible party does not present the
subject matter information in a report in a direct engagement. Instead, the
practitioner reports directly on the subject matter and provides the intended users
with an assurance report containing the subject matter information.

An example of a direct engagement would be an engagement to report

on the effective control over the financial reporting process.

A direct assurance conclusion would be constructed as follows:

"In our opinion the company maintained, in all material respects, effective
internal control over financial reporting as of date/month/year, based on the
criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO)."

NON-ASSURANCE ENGAGEMENT
Not all engagements performed by CPAs are assurance services. Non-
assurance services lack one or more of the elements of assurances
engagements.

NON-ASSURANCE SERVICES
Agreed-upon procedures
In an engagement to perform agreed-upon procedures, an auditor is
engaged to carry out those procedures of an audit nature which the auditor and
the entity and any appropriate third parties have agreed and to report on factual
findings. The recipient of the report must form their own conclusions from the
report by the auditor. The report is restricted to those parties that have agreed to
the procedures to be performed since others, unaware of the reasons for the
procedures, may misinterpret the results.
Compilation of Financial or Other Information
In a compilation engagement, the accountant is engaged to use
accounting expertise as opposed to auditing expertise to collect, classify and
summarize financial information. This ordinarily entails reducing detailed data to
manageable and understandable form without a requirement to test the
assertion underlying that information. The procedures employed are not designed
and do not enable the accountant to express any assurance on the financial
information. However, users of the compiled financial information derive some
benefit as a result of the accountant’s involvement because the services have
been performed with due professional skill and care.

Some tax services, such as preparation of tax returns where no conclusion is

expressed, and tax consulting.
Individuals and business leaders look to CPAs for advice on income tax and
business tax strategies. A CPA can develop tax strategies to help individuals or
businesses legally minimize their tax liability. Tax services save clients money and
worry. Non-assurance tax services also include assistance in preparing tax returns;
and presentation of clients to tax authorities.

Management Consulting and Other Advisory Services

Technically, “Management consulting refers to both industry and the
practice of helping organizations improve their performance, primarily through
analysis of existing business problems and development of plans for
improvement.” Some examples of areas where CPAs can offer advice are:

1. Small business management

2. Cash management
3. Compensation plan evaluations
4. Growth planning
5. Purchasing or selling a business
6. Measuring the performance of a business
This table summarizes the non-assurance services, together with the elements of
assurance engagement that are missing from each one:

Agreed-upon
No Conclusion is expressed by the practitioner.
procedures

Compilations No Conclusion is expressed by the practitioner.

Non-assurance if tax returns are prepared with no

Some tax services conclusion expressed. Tax consulting services are
two-party contracts.

Management
consulting and Two-party contracts that recommend uses for
other advisory information.
services.