AUDIT T12  Reporting Responsibility
- review report should contain a clear written
Assurance Engagements And Related Services
(4) Four Types Of Services That Are Normally Performed
In Connection With The Entity's Financial Statements.
1. AUDIT OF FINANCIAL STATEMENTS
- conducted primarily to enable the auditor to express an
opinion on the entity's FS
- auditor provides users with (reasonable) high level of
assurance that FS are free from material misstatements
- auditor should determine the specific audit procedures
- audit procedures should enable the auditor to gather
sufficient appropriate audit evidence to express an
opinion (positive assurance) about the fair presentation
of the FS.
2. REVIEW OF FINANCIAL STATEMENTS
- The cost of the audit may not justify the benefits that
other entities may derive from it.
 Objective
- Obtain limited assurance; primarily by performing
inquiry and analytical procedures , about whether the
FS are free from material misstatement.
- enabling the CPA practitioner to express a conclusion
on whether anything caught his attention and causes
him to believe the FS are not prepare accordingly.
 Level of Assurance
- due to limited procedures performed when reviewing
FS, the auditor does not provide the same level of
assurance as provided on audit engagements.
- A review engagement can only provide moderate level
of assurance that the information subject to review is
free of material misstatements.
- This moderate assurance is expressed in form of
Negative Assurance by using the negative words such
as 'Nothing came to my attention.." or “I am not aware
of any material modifications..."
 Understanding The Entity And Its Environment
- a basis for designing procedures to address areas
where misstatement in FS are likely to arise
- practitioner should obtain understanding of the entity
and its environment and applicable standards
 Procedures To Be Performed
- A review of financial statements consists principally
of inquiry and analytical procedures.
- it does not ordinarily involve an assessment of
accounting and internal control systems, tests of
records and of responses to inquiries by obtaining
corroborating evidence through inspection,
observation, confirmation and computation.
In particular, PSRE requires the CPA practitioner to make
appropriate inquiries and apply analytical procedures on:
All material items in the FS
Areas of high risk of material misstatement
Related party relationships and transactions
Fraud and non-compliance with laws/reg
Entity’s ability to continue as a going concern
If there’s reason to believe that the information
subject to review may be materially misstated, auditor
should carry out additional or more extensive procedures
as are necessary to be able to express negative assurance or
to confirm that a modified report is required.
expression of negative assurance.
- auditor should review and assess the conclusion
drawn from the evidence obtained as the basis for
the expression of negative assurance.
Unmodified Review Report
- issued when the auditor believes, that there are no
material modifications that should be made to the FS
for them to be in conformity with PFRS.
 Modification of the Review Report
- Material Misstatements
If it indicates the FS contain material misstatements,
the report should describe those matters that impair a
fair presentation of the FS, including, unless
impracticable, a quantification of the possible effect
on the FS, and either:
 express a qualification of the negative assurance;
 give an adverse statement that the financial
statements are not presented fairly, in all,
material respects, in accordance with PFRS.
( pervasive to FS/qualification isn’t adequate)
- Scope Limitation
If there has been a material scope limitation, the
report should describe the limitation and either:
 express a qualification of the negative
assurance regarding the possible adjustments to
the FS that might have been determined to be
necessary had the limitation not existed; or
 when the possible effect is material and
pervasive that auditor concludes that no level of
assurance can be provided, the auditor should
not provide any assurance.
3. COMPILATION OF FINANCIAL STATEMENTS
Compilation Engagement
- entities who cant employ full time accountants turn to
professionals to assist them in preparation and
presentation of their FS.
 Objective
- is for the accountant to use accounting expertise, as
opposed to auditing expertise to collect, classify and
summarize financial information. (reducing detailed data
to a manageable/ understandable. without requirement to
test assertions )
- include the preparation of FS (may/not be a complete set)
but may also include the collection classification and
summarization, of other financial information.
 Level of Assurance
- procedures in a compilation engagement are not
designed and do not enable the accountant to express
any assurance on the financial information.
- users derive some benefit because the service has been
performed with professional competence and due care.
 Understanding the Entity
- CPA should obtain an understanding to ff, to perform a
compilation engagement.
 Entity’s business and operations, accounting system
and accounting records
 Applicable Financial Reporting Framework and
application to the entity’s industry
This is an ongoing process throughout , it establishes a
frame of reference which the CPA exercises professional
judgement in compiling the financial information.
 Procedures To Be Performed
- CPA should assemble the information based on the
records, documents, explanations and other information,
significant judgments provided by management.
- a compilation engagement is not an assurance
engagement, does not require CPA to verify
completeness and accuracy
- prior to completion CPA should read the compiled
information in light of his understanding of the entity’s
business and operations.
- if he becomes aware information provided are
incomplete, inaccurate or unsatisfactory, he should
bring that to the attention of management and request
additional / corrected information.
The accountant is not ordinarily required to:
a. make inquiries of management to assess reliability and
completeness of the information provided;
b. assess internal controls;
c. verify any matters; or
d. verify any explanations
 Terms of the Engagement
- The auditor should ensure with representatives of the
entity and, other specified parties who will receive
copies of the report of factual findings, that there is a
clear understanding regarding the agreed
procedures and the conditions of the engagement.
 Procedures and Evidence
The auditor should carry out the procedures
agreed upon and use the evidence obtained as the basis
for the report of factual findings. These are also audit
procedures but usually applied only to specific accounts
or elements of a financial statement.
These procedures may include: 
 Inquiry and analysis 
 Recomputation, comparison and other clerical accuracy
checks. 
 Observation. 
 Inspection. 
 Obtaining confirmations.

 Reporting Responsibility The above procedures are also procedures perform

- accountant's compilation report should identify the FS
compiled and indicate that no assurance is provided
 Modification of the compilation report
Material Misstatements
- if CPA becomes aware that the compiled information
are materially misstated/misleading, he should propose
the appropriate amendments to management
- if management declines/ does not permit to make the
proposed amendments, he should withdraw from the
engagement and inform management and those charged
with governance of the reasons for withdrawing
Scope Limitation
- if CPA is unable to complete the engagement because
management failed to provide sufficient information, he
should withdraw and inform management and those
charged with governance of the reasons
by auditor when auditing FS, the main difference is in
Agreed - Upon Procedures Engagement, client is
responsible for determining the nature , timing and extent of
procedures t be perform, not the auditor.
 Reporting Responsibility
- needs to describe the purpose and the agreed-upon
procedures of the engagement in sufficient detail to
enable the reader to understand the nature and the extent
of the work performed
 Purpose of the engagement
 Procedures performed
 Auditor’s factual findings

4. AGREED-UPON PROCEDURES ENGAGEMENT

An auditor may be engaged to apply agreed-upon procedures
on specific account or element of a financial statement.

This type of engagement may be accepted provided: 

1. Client takes full responsibility for the adequacy of the
procedures to be performed;
2. Distribution of the report is limited only to those parties
who have agreed about the procedures to be performed.
(An engagement to perform this involves the application of
certain procedures concerning individual items of financial
data (AR,AP,purchases from related parties )

 Objective
- for auditor to carry out procedures of audit nature which
the auditor and entity and any appropriate third parties
have agreed and to report on factual findings.

 Level of Assurance
- auditor simply provides a report of the factual findings of
agreed-upon procedures, no assurance is expressed.
- users of the report assess the procedures and findings
reported by the auditor and draw their own conclusions

 Restrictions On The Distribution Of Report

- report is restricted to parties that agreed to the procedures
to be performed. (others, unaware of the reasons for the
procedures, may misinterpret the results.)
ASSURANCE ENGAGEMENTS
As a response to growing demands in the financial
community, the accounting profession has widened the scope
of auditing. Auditors nowadays do not only provide
assurance about the reliability of financial information but
they also perform services to improve the quality of the
information for decision makers. PSAE 3000 states that
assurance engagements are 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.
 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. In theory, it is possible to provide an
infinite range of assurance from a very low level to an
absolute level. But under the present standards, there are two
levels of assurance engagement a practitioner may perform: a
reasonable assurance engagement (like audit engagement)
and a limited assurance engagement (like review of financial
statements).
Whether a particular engagement is an assurance engagement
will depend upon whether it exhibits all the following
elements:
 A three party relationship  An appropriate subject
matter;  Suitable criteria;  Sufficient appropriate
evidence; and  A written assurance report.
 Three Party Relationship Assurance engagements involve
three separate parties:  An independent and competent
professional accountant who adheres to the fundamental
principles required by the Code of Ethics  The party
responsible for the subject matter of the assurance
engagement.  The intended users to whom the professional
accountant usually addresses the report
The responsible party and the intended user will often be
from separate organizations but need not be. A responsible
party and an intended user may both be within the same
organization. For example, a governing body may seek
assurance about information provided by a component of that
organization. The relationship between the responsible party
and the intended user needs to be viewed within the context
of a specific engagement.
 Subject Matter The subject matter of an assurance
engagement may take many forms such as:  Data (for
example, financial and non-financial information)  information based on assumptions about events that may
Systems and processes (for example, internal controls) 
Behavior (for example, entity's compliance with laws and
regulations)  Physical characteristics (for example, capacity
of a plant facility)
To be considered appropriate, the subject matter of an
assurance engagement must be identifiable, capable of
consistent evaluation and measurement against suitable
criteria, and in the form that can be subjected to procedures
for gathering evidence to support that evaluation or
measurement.
In some assurance engagements, the evaluation or
measurement of the subject matter is performed by the
responsible party and the outcome of such evaluation or
measurement is in the form of an assertion by the responsible
party that is made available to the intended users. It is the
assertion about which the practitioner gathers sufficient
appropriate evidence to provide a reasonable basis for
expressing a conclusion on the assurance report. These
engagements are called "assertions-based engagements"
In other assurance engagements, the practitioner either
directly performs the evaluation or measurement of the
subject matter, or obtains a representation from the
responsible party that has performed the evaluation or
measurement that is not available to the intended users. The
subject matter information is made available to users in the
assurance report. These engagements are called <direct
reporting engagements=.
 Criteria Criteria are the standards or benchmark used to
evaluate or measure the subject matter of an assurance
engagement. Without the frame of reference provided by
these criteria, any conclusion is open to individual
interpretation and misunderstanding. In an assurance
engagement, criteria must be suitable to enable reasonably
consistent evaluation or measurement of the subject matter
within the context of professional judgment.
 Evidence The practitioner should plan and perform the
engagement to obtain sufficient appropriate evidence to
determine whether the assertions are free of material
misstatements.
 Assurance Report The professional accountant expresses
a conclusion that provides a level of assurance as to whether
the subject matter conforms in all material respects with
identifiable suitable criteria. The professional accountant's
conclusion provides either high or moderate level of
assurance about the subject matter.
Not all engagements performed by professional accountants
are assurance engagements. Other engagements frequently
performed by professional accountants that are not assurance
engagements include:  Agreed-upon procedures; 
Compilation of financial or other information;  Preparation
of tax returns when no conclusion is expressed, and tax
consulting;  Management consulting; and  Other
advisory services
 Reports on Prospective Financial Information Although
majority of the services performed by auditors involves audit
of historical financial statements, auditors may also be
associated with future oriented financial statements. Auditors
may be asked to examine and report on prospective financial
information to enhance its credibility whether it is intended
for use by third parties or for internal purposes.
Prospective financial information means financial
occur in the future and possible actions of the entity. There
are two general types of prospective financial information:
forecasts and projections.
A forecast is a prospective financial information prepared the
basis of the assumptions as to future events which
management expects to take as of the date the information is
prepared (best estimate assumptions). A projection, the other
hand, is a prospective financial information prepare on the
basis of hypothetical assumptions or a mixture of best-
estimate and hypothetical assumptions.
 Auditor's responsibility The auditor should evaluate the
completeness and reasonableness of the underlying
assumptions as disclosed in the prospective financial
information. This requires the auditor to obtain sufficient
knowledge of the client's business as well as the entity's
process for preparing financial information.
When examining prospective financial information according
to PSAE 3400, the auditor should obtain sufficient
appropriate evidence that:
 Management's best-estimate assumptions are reasonable
and, in the case of hypothetical assumptions, such
assumptions are consistent with the purpose of the
information;  The prospective financial information is
properly prepared on the basis of the assumptions;  The
prospective financial information is properly presented and
all material assumptions are adequately disclosed; and 
The prospective financial information is prepared on a
consistent basis with historical financial statements.
While evidence may be available to support the assumptions
on which the financial information is based, such evidence is
itself generally future oriented and speculative in nature. The
auditor is, therefore, not in a position to express an opinion as
to whether the results shown in the prospective financial
information will be achieved.
Further, given the types of evidence available in assessing
the assumptions on which the prospective financial
information is based, it may be difficult for the auditor to
obtain a level of satisfaction sufficient to express an opinion
that the assumptions are free of material misstatement.
Consequently, when reporting on the reasonableness of
management's assumptions, the auditor normally provides
only a moderate level of assurance.

The following is an example of an unmodified report on a

forecast:
We have examined the forecast in accordance with
Philippine Standards on Assurance Engagements applicable
to the examination of prospective financial information.
Management is responsible for the forecast including the
assumptions set out in Note 1 to the financial statements.
Based on our examination of evidence supporting the
assumptions, nothing has come to our attention which causes
us to believe that these assumptions do not provide a
reasonable basis for the forecast. Further in our opinion, the
forecast is properly prepared on the basis of the assumptions
and is presented in accordance with generally accepted
accounting principles in the Philippines.
Actual results are likely to be different from the forecast
since anticipated events frequently do not occur as expected
and the variation may be material.