Assurance and Non-

assurance Engagements

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Engagement Standards

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 Auditing and Assurance Standards Council (AASC)

It is the body authorized to establish and promulgate generally

accepted auditing standards (GAAS) in the Philippines.
The International

International IAPC IAASB

Auditing and
International Auditing Assurance
Practices Committee Standards Board

ASPC AASC
Auditing Standards
Auditing And Assurance
and Practices
Standards Council
Council

Philippines
PRC SEC PICPA
PICPA ACPAPP
BSP COA ACPAPP

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 Definition of Terms

Auditing and Assurance Standards Council (AASC)

The AASC's objectives, organization and working
procedures are set out in the Preface to Philippine Standards
on Quality Control, Auditing, Review, Other Assurance and
Related Services.

AASC pronouncements are mainly adopted from the standards

and practice statements issued by the International Auditing
and Assurance Standards Board (IAASB).

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Pronouncements
Philippine Standards – basic principles and essential
procedures together with related guidance for the
performance of engagement.

Philippine Practice Statements – provide interpretive

guidance and practical assistance to professional
accountants in implementing Philippine Standards and promote
good practice.

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History

Pronouncements

Practice
Standards
Statements
PAPS
PSQC
PREPS
PSAs, PSREs, PAEPS
PSAEs, PSRSs PRSPS

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 Authority attaching to Philippine Standards issued by the AASC

Application Standards Practice Statements

Audit of historical financial
information
Review of historical financial
information
Assurance engagements dealing
with subject matters other than
historical financial information
compilation engagements
engagements to apply agreed upon on Related Services
procedures to information
other related services engagements
as specified by the AASC
Philippine Standards Philippine Auditing
on Auditing (PSAs) Practice Statements
(PAPSs)
Philippine Standards Philippine Review
on Review Engagement Practice
Engagements (PSREs) Statements (PREPSs)
Philippine Standards Philippine Assurance
on Assurance Engagement Practice
Engagements (PSAEs) Statements (PAEPSs)
Philippine Standards Philippine Related
Services Practice
(PSRSs) Statements (PRSPSs)
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 Definition of Terms

Philippine Framework for Assurance Engagements

defines and describes the elements and objectives of an
assurance engagement, and identifies engagements to which
PSAs, PSREs and PSAEs apply.

It does not itself establish standards or provide procedural

requirements for the performance of assurance engagements.

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Recap:
Assurance services
Assurance Services are independentprofessional services that improve the quality of the information
or its context, for decision makers

Assurance engagement
Level of assurance
Elements of an assurance engagement: a three party relationship, a subject matter, criteria,
evidence and an assurance report.

The following elements of an assurance engagement are discussed in this section:

Elements of assurance (a) A three party relationship involving a practitioner, a responsible party, and
intended users;
(b) An appropriate subject matter;

Types of assurance (c) Suitable criteria;

(d) Sufficient appropriate evidence; and - Sufficiency is the measure of the quantity of
evidence. Appropriateness is the measure of the quality of evidence; that is, its relevance
LEVEL OF ASSURANCE and its reliability. The quantity of evidence needed is affected by the risk of the subject matter
ABSOLUTE information being materially misstated (the greater the risk, the more evidence is likely to be
REASONABLE required) and also by the quality of such evidence (the higher the quality, the less may be
LIMITED required)

(e) A written assurance report in the form appropriate to a reasonable assurance

TYPES OF ASSURANCE engagement or a limited assurance engagement.
ASSERTION-BASED ENGAGEMENT - Assurance engagement risk is the risk that the practitioner expresses an inappropriate
DIRECT REPORTING conclusion when the subject matter information is materially misstated.

“Assurance engagement” means 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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Assurance Engagement

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 Elements of Assurance Engagement

Five elements of an Assurance Engagement

1. Three-party relationship
2. Appropriate subject matter
3. Suitable criteria
4. Sufficient appropriate evidence
5. Written assurance report in the form appropriate to a
reasonable engagement or a limited assurance
engagement

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 Elements of Assurance Engagement

Three-party relationship (Practitioners-Responsible Party-Intended User)

Expresses conclusion on Responsible for the subject

subject matter Intended matter to intended user
User

Practi- Respon-
tioners sible
Acknowledge responsibility
Party
for the subject matter

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 Elements of Assurance Engagement

Appropriate subject matter (Identifiable and reasonably subjected to procedures)

Example
Historical financial
information
Performance of entity
Capacity of a facility
Entity’s internal control or IT
system
Corporate governance,
compliance with regulation,
human resources practices
Subject Matter Subject Matter information
Financial performance or Recognition, measurement,
condition presentation and disclosure
in the Financial Statements
Non-financial performance or Key indicators of efficiency
condition and effectiveness
Physical characteristics Specifications
Systems and processes Effectiveness of systems and
internal control
Behavior Statement of compliance or
a statement of effectiveness
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 Elements of Assurance Engagement

Suitable Criteria (CRRUN)

1. Complete – relevant factors that could affect the conclusions in the
context of the engagement circumstances are not omitted
2. Relevant – contribute to the conclusion that assist decision-making by
the intended users of the assurance report
3. Reliable – to allow a reasonably consistent evaluation or measurement
of the subject matter when used in similar circumstances by similarly
qualified practitioners
4. Understandable – to contribute to conclusions that are clear,
comprehensive, and not subject to significantly different
interpretations
5. Neutral – contribute to conclusions that are free from bias

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 Elements of Assurance Engagement

Sufficient Appropriate Evidence (Quantity and Quality)

Sufficiency involves considerations of the quantity of evidence

Appropriateness considers the quality of the evidence in terms

of relevance and reliability

Quality and quantity of evidence is dependent upon the level of

assurance required and the risk of the subject matter
information being materially misstated or misrepresented.

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 Elements of Assurance Engagement

Written Assurance Report

The practitioner provides written report containing a conclusion
that conveys the assurance obtained about the subject matter
information or related assertion to the suitable criteria.

PSAs, PSREs, PSAEs establish basic elements for assurance

report.

The practitioner considers other reporting responsibilities, including

with those charged with governance when it is appropriate to do so.

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 Factors affecting the practitioner’s performance of an
assurance engagement

Five Factors (MAPES)

1. Materiality
2. Assurance engagement risk
3. Professional skepticism
4. Extent of work performed
5. Sufficiency and appropriateness of audit evidence

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 Factors affecting the practitioner’s performance of an
assurance engagement

Materiality
Materiality helps practitioners determine the nature, timing and
extent of evidence-gathering procedures, and when assessing
whether the subject information is free from misstatement.

Materiality is considered in the context of quantitative and

qualitative factors.

The assessment of materiality is a matter of professional

judgment.

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 Factors affecting the practitioner’s performance of an
assurance engagement

Assurance Engagement Risk

Assurance Engagement Risk represents the risk that practitioners
provide an inappropriate conclusion when the subject matter
information is materially misstated. Three components:

Inherent risk – the susceptibility of the information to a materially

misstatement
Control risk – the risk a material misstatement will not be prevented or
detected on a timely basis by internal controls.
Detection risk – the risk that the practitioners will not detect a material
misstatement that exists.

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 Factors affecting the practitioner’s performance of an
assurance engagement

Professional Skepticism
An attitude of professional skepticism means the
practitioner makes a 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
responsible party.

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 Factors affecting the practitioner’s performance of an
assurance engagement

Extent of work performed (sufficiency of evidence)

Reasonable assurance engagements – the practitioners
would do all they need to do to support a positive opinion.

Limited assurance engagements – deliberately limited in

comparison to reasonable assurance engagement.

Ultimately, the extent of work performed is affected by the

risk of the specific engagement and quality of evidence.

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 Factors affecting the practitioner’s performance of an
assurance engagement

Sufficiency and Appropriateness of Audit Evidence

Sufficiency involves considerations of the quantity of evidence

Appropriateness considers the quality of the evidence in terms of

relevance and reliability

Quality and quantity of evidence is dependent upon the level of

assurance required and the risk of the subject matter information
being materially misstated or misrepresented.

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Other Assurance
Engagements

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 Other assurance engagements

Examples of other assurance engagements

Corporate Sustainability Reporting
Trust Services
CPA Performance View
CPA Risk Advisory Services
CPA ElderCare/Prime Plus
Health Care Performance Measurement

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 Other assurance engagements

Corporate Sustainability Reporting

It involves reporting non-financial and financial information to a
broader set of stakeholders than just shareholders.

The reports inform stakeholder groups of the reporting

organization’s ability to manage key risks as against company’s
economic, operational, social, philanthropic and environmental
objectives.

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 Other assurance engagements

Trust Services
Set of services designed to provide information system business assurance
and advisory services that instill confidence in an organization, system, or other
entity by improving the quality or context of information for decision makers.

Management prepares and communicates a system description that can be

included on the company’s Website, attached to the practitioners’ report, or
communicated to users in some other manner.

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 Other assurance engagements

Trust Services
WebTrust provides assurance on electronic commerce (including Web sites). The CPA
is engaged to examine both that a client complied with the Trust Services criteria (e.g.
the company uses procedures in accordance with its defined policies) and that is
maintained effective controls over the system based on Trust Services criteria (e.g. the
company’s procedures are effective).

SysTrust provides assurance on any defined electronic system. The system

components include its infrastructure, software, personnel, procedures and data. In a
SysTrust engagement the CPA is engaged to examine only that a client maintained
effective controls over the system based on the Trust Services Principles and Criteria.
The practitioner then performs tests to determine whether those controls were
operating as effectively during the specified period.

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 Other assurance engagements

CPA Performance View

It identifies and measures key activities that are critical to the entity.
Rather than relying strictly on historical financial information, CPA
Performance View uses non-financial information such as customer
satisfaction, employee training and satisfaction, and product quality
to identify critical success factors that can lead to organizational
change, better performance, and increased revenue for an
organization.

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 Other assurance engagements

CPA Risk Advisory Services

This service is intended to help organizations manage risk. The
overall approach may be viewed as one of (1) identifying and
analyzing risks; (2) designing and implementing strategies related to
risks; and (3) measuring, monitoring, and reporting on solutions.

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 Other assurance engagements

CPA ElderCare/Prime Plus

It is designed to provide assurance individuals that their elderly
family members’ needs are being met by various institutions and
professionals by comparing its specific objectives in providing care
with actual services rendered. These services may include financial
services such as goal setting, funding analysis, cost management,
and needs assessment or non-financial services such as
interpersonal and relationship management.

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 Other assurance engagements

Health Care Performance Measurement

Health care recipients and their employers are increasingly
concerned about the quality and availability of health care services.
This services provides assurance about the effectiveness of health
services provides by health maintenance organizations, hospitals,
doctors and other health care providers.

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Non-assurance
Engagement

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 Non-assurance engagements

Expressly excluded from PFAE

Examples:
• Agreed-upon procedures engagements and compilations of
financial or other information
• The preparation of tax returns where no conclusion conveying
assurance is expressed
• Consulting or advisory engagements such as management and
tax consulting, where no opinion on the subject matter is
expressed.
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 Non-assurance engagements

Reports on non-assurance engagements

A practitioner reporting on a non-assurance engagement within the scope of
the Framework clearly distinguishes that report from an assurance report.
So as not to confuse users, a report that is not an assurance report avoids
the following:
• Implying compliance with this Framework, PSAs, PSREs or PSAEs;
• Inappropriately using the words “assurance”, “audit”, or “review”
• Including a statement that could reasonably be mistaken for a
conclusion designed to enhance the degree of confidence of intended
users about the outcome of the evaluation or measurement of a subject
matter against criteria.

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 Practice A
Application Standards
Statements s
s
Audit of historical financial information PSAs PAPSs u
r
Review of historical financial information PSREs PREPSs a
Assurance engagements dealing with n
c
subject matters other than historical PSAEs PAEPSs
e
financial information
compilation engagements Non-
engagements to apply agreed upon Assu-
procedures to information PSRSs PRSPSs
other related services engagements as
rance
specified by the AASC

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 Summary of assurance and non-assurance engagements

Level of Assurance
Nature of Service Report Provided
Provided
Audit of historical financial High, but not absolute Positive assurance on
information assertion(s) (Audit
Report)
Review of historical financial Moderate Negative assurance on
information assertion(s) (Review
Report)
Compilation Engagement No assurance Identification of
information compiled
(Compilation Report)
No assurance Report of Factual
engagements to apply agreed upon Findings
procedures to information

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Questions

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