ASSURANCE AND NON-ASSURANCE ENGAGEMENTS

SERVICES CPAs CAN PROVIDE:

A. ASSURANCE ENGAGEMENTS (services) – 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.
➢ Direct Reporting Engagement – a practitioner either directly performs the evaluation or measurement
or obtains representation from responsible party that performed the evaluation that is not available to
the intended users. (Example: voting audits in PBB and audit of pageant results)
➢ Attestation Engagements (Assertion-Based Engagements) – an assurance engagement that 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.
o Audit (PSAs)
o Review (PSREs)
o Others (PSAEs) – examples: business performance measurements, risk assessment services

B. NON-ASSURANCE ENGAGEMENTS (services) – assurance engagement in which a practitioner does not convey
any assurance to intended users as to the reliability of the subject matter.
➢ Related Services
o Agreed upon procedures (PSRS 4400)
o Compilation (PSRS 4410)
➢ Other Non-Assurance Engagements – examples: Tax services and Managements advisory services

SUMMARY OF DIFFERENCE BETWEEN ASSURANCE AND NON-ASSURANCE ENGAGEMENTS

ASSURANCE ENGAGEMENT NON-ASSURANCE ENGAGEMENT

✓ Designed to improve the quality or enhance ✓ Designed to provide comments, suggestions, or
credibility of the subject matter recommendations on how to use the information
✓ Independence is required ✓ Independence not required
✓ Common examples include. ✓ Common examples include.
a. Audit a. Agreed-upon procedures;
b. Review, and b. Compilations;
c. Examination of prospective Financial c. Preparation of tax returns
information d. Management advisory services
✓ Three party contract ✓ Two party contract
✓ Output: Assurance in the form of a written ✓ Output: recommendations on how to use the
opinion information

SUMMARY OF SERVICES PERFORMED BY PRACTITIONERS

Assurance Engagements Non-Assurance Engagements

Audit Review Agreed-upon Compilation
Procedure
References PSAs PSREs PSRSs PSRSs
Objectives Express an opinion Express and opinion Performs procedures Use accounting
whether the FS are whether material as agreed-upon with expertise to collect,
prepared in modifications are to the clients and third classify and
accordance with be made to the FS to parties and reports summarize FS
PRFS conform with PFRS on factual findings
 Ethical Requirements Independence plus Independence plus fundamental ethical fundamental ethical
fundamental ethical fundamental ethical principles principles
principles principles
Level of Assurance High (reasonable) Moderate (Limited) No assurance No assurance
Procedures are Exclusively by auditor Exclusively by auditor Agreed-upon by May or may not be
determined by parties agreed by parties
Report Provided Independent Review report Report on Factual compilation report
Auditor’s Report (negative form) Findings of which identifies the
(positive form) procedures information compiled
Availability of Report To all users To all users For limited use only To all users
Evidence gathering RAP, TOC, Substantive Limited to Inquiry As agreed Reading of FS for
testing and analytical obvious
procedure misstatements
Skills used Audit Audit Audit Accounting

ELEMENTS OF ASSURANCE ENGAGEMENT (CREST)

1. Three party relationship 4. Sufficient and Appropriate Evidence

2. Appropriate Subject Matter 5. Written Assurance Report

3. Suitable Criteria

THREE PARTY RELATIONSHIP

A. The Practitioner – the one who performs the engagement.

- Must be independent to both the responsible party and the intended user.
- Is governed by ethical requirements (i.e. professional competence) regarding the conduct of
the engagement.
- May use the work of persons from other professional disciplines, referred to as experts for
engagements requiring specialized skills and knowledge beyond those ordinarily possessed by
an individual practitioner.
- Responsible for determining the Nature, Timing and Extent of procedures required by the
engagement.
B. The Responsible Party – is the person/s responsible for the subject matter
- May or may not be the engaging party to the practitioner.
- May or may not be from the same organization with the intended users.
- May be one of the intended users, but should not be the only one.
C. The Intended User – are the person/s for whom the practitioner prepares the assurance report.

APPROPRIATE SUBJECT MATTER

Subject matter refers to the information to be evaluated or measured against criteria while Subject matter Information
refers to the outcome of the evaluation or measurement of a subject matter.

May take in many forms such as Data, system and processes, behavior and physical characteristics.

To be appropriate, subject matter must be:

a. Identifiable and capable of consistent measurement or evaluation against identified criteria and
b. In a form that can be subjected to procedures for obtaining sufficient appropriate evidence.
SUITABLE CRITERIA

Criteria refers to the standard or benchmark used to evaluate or measure the subject matter of an assurance
engagement. Without a frame of reference provided by suitable criteria, any conclusion is open to individual
interpretation and misunderstanding.

Types of Criteria:

▪ Established Criteria (formal) – those embodied in laws or regulations or issued by authorized or recognized
bodies of experts that follows a transparent due process. (i.e. PFRS)
▪ Specifically Developed Criteria (less formal) – those specifically designed for the purpose of the engagements.
(i.e. entity’s by-laws)

Characteristics of a Suitable Criteria (RUN CR)

1. Relevance – relevant criteria contribute to conclusions that assist decision making by the intended users.
2. Completeness – when relevant factors that could affect the conclusion in the context of the engagement
circumstances are not omitted.
3. Reliability – allow reasonable consistent evaluation or measurement of the subject matter when used in similar
circumstances by similarly qualified practitioner.
4. Neutrality – conclusions that are free from bias.
5. Understandability – contributes to conclusions that are clear, comprehensive and not subject to significantly
different interpretations.

Availability of Criteria to intended users:

Criteria need to be made available to the intended users in one or more of the following ways:

1. Publicly
2. Through inclusion in a clear manner in the presentation of the subject matter information
3. Through inclusion in a clear manner in the assurance report.
4. By general understanding, for example, the criterion for measuring time in hours and minutes.

SUFFICIENT APPROPRIATE EVIDENCE

Evidence pertains to all information gathered by the practitioner in evaluating the subject matter against criteria, on
which the conclusion is based.

Considerations for evidence gathering

➢ Sufficiency is the measure of quantity of evidence.

➢ Appropriateness is the measure of the quality of evidence, that is its reliability and its relevance.
➢ The quantity of evidence needed is affected by:
o The risk of subject matter being materially misstated. (the greater the risk, the more evidence is likely to
be required)
o The quality of such evidence. (the higher the quality, the less may be required)
➢ The reliability of evidence is influenced by its source and by its nature and is dependent on the individual
circumstances under which it is obtained.
o The following generalizations about reliability of evidence may be useful:
▪ Evidence is more reliable when obtained from independent sources outside the entity.
▪ Evidence that is generated internally is more reliable when the related controls are effective.
▪ Evidence obtained directly by the practitioner is more reliable than obtained indirectly or by
inference.
▪ Evidence is more reliable when it exists in documentary form than oral representation.
 ▪ Evidence provided by original document is more reliable than evidence provided by photocopies
or facsimiles.
➢ What is sufficient and appropriate shall be determined by the practitioner using his/her professional judgment
and by exercising professional skepticism.
➢ Materiality is relevant when practitioner determines the nature, timing and extent of evidence gathering
procedure and when assessing whether the subject matter information is free of misstatement.
➢ In performing evidence gathering procedures, the practitioner is expected to observe const-benefit
consideration. The benefit that will be derived from obtaining the evidence should exceed the cost of obtaining
it.

WRITTEN ASSURANCE REPORT

➢ Written assurance report should be in a form appropriate to a reasonable assurance engagement or a limited
assurance engagement.
➢ Written report containing a clear expression of the assurance conclusion about the subject matter information.
➢ Reasonable assurance engagement is expressed in positive form (audit)
➢ Limited assurance engagement is expressed in negative form (review)

Factors that contribute to rarity of absolute assurance. (INHERENT LIMITATIONS)

1. Use of selective testing

2. Limitations of internal control (human errors, management override, collusion among employees)
3. Most of audit evidence is persuasive rather than conclusive.
4. Use of judgment.
5. Nature/characteristics of assertions/subject matter.