AUDITING AND ASSURANCE PRINCIPLES

ACTIVITY #1

Case 1 – Assurance Services

Nicolai, CPA, is engaged to provide assurance on the schedule of customer satisfaction regarding
the products of Lorelei Company for the past 24 months. Lorelei’s management has indicated
that the criteria it intends to use to evaluate customer satisfaction are a combination of increase
in peso sales and the retention rate.

Requirements:
1. Describe the factors to be considered by Nicolai in determining whether the criteria are
suitable.
To be considered as suitable criteria, it must be reliable where relevant, presentation
and disclosure are measured accurately. It must be understandable wherein it can
provide a clear, comprehensive conclusions that are not subject to different
interpretations. It must be neutral or free from bias, must be complete wherein relevant
factors that might affect the conclusion will not be omitted. And last, it must be
relevant, which must contribute to conclusions that may assist in decision making of the
intended users.

2. If the engagement is an assertion – based engagement, identify the different structures

that the engagement may take. Use the example presented in page 16 of this book as a
guide.

Months Customer Satisfaction (1-4)

1st 2

2nd 2

3rd 1

4th 1

5th 1

6th 4
 7th 5

8th 5

9th 2

10th 1

11th 4

12th 2

13th 1

14th 2

15th 5

16th 5

17th 4

18th 2

19th 1

20th 2

21st 5

22ND 4

23rd 4

24th 5

1- Very dissatisfied
2- Dissatisfied
3- Satisfied
4- Very Satisfied

Assertion Based Engagements

 Each month measures satisfaction and provides an assertion to the firm and to
intended users.
 3.If the engagement is a direct reporting engagement, identify the example
presented in page 16 of this book as a guide.
Direct Reporting Engagements

 Each month measures the customer’s satisfaction and provides the firm with a
written representation that measures satisfaction against the criteria for
measuring satisfaction. The representation is not available to the intended users.
 The firm directly measure satisfaction on the past 24 months.

Case 2 – Assurance Vs Consulting Services

You are Isagani, CPA and auditor of Country Service Cleaning Company. The company president,
Mr. Linis, is asking for a consulting engagement, yet keep mentioning the phrase “provide us
with assurance…” You decided to give Mr. Linis a rundown of the difference between assurance
services and consulting services.

Requirement: Differentiate assurance services from consulting services, based on the following
factors:
1. Parties involved.
Assurance services involves three party contracts (including external users) while
consulting services include two-party contract.
2. Primary purpose
The primary purpose of assurance services is to improve or enhance the credibility of the
subject matter. While consulting services only provides comments and suggestions on
how to properly use the information.
3. Focus
Assurance Services includes providing a conclusion on a subject matter and significantly
seeks reasonable assurance while non-assurance services (consulting services) only
provides consultations and reviews. which only designed to limited assurance.
4. Output’s objective
Assurance services aims to have assurance in the form of an opinion while in consulting
services aims to have recommendation on how to use the information.