Sure, let's break down the classification of
assurance engagements according to the
level of assurance in simpler terms with
examples:
1. **Reasonable Assurance Engagement**:
- **What it means:** This type of
engagement aims to greatly reduce the risk
involved in the assurance process to a very
low level, considering the specific
circumstances. The practitioner provides a
positive statement about their conclusion.
- **Example scenario:** Imagine a scenario
where a company hires an external auditor to
conduct an audit of its financial statements.
The auditor thoroughly examines the
company's financial records, transactions,
and internal controls. After extensive testing
and analysis, the auditor concludes that the
financial statements present a true and fair
view of the company's financial position and
performance. This conclusion provides
reasonable assurance to stakeholders like
investors and creditors that the financial
statements are reliable.
2. **Limited Assurance Engagement**:
- **What it means:** This type of
engagement aims to reduce the assurance
risk to a level that's acceptable for the specific
circumstances, but it's not as rigorous as the
reasonable assurance engagement. The
practitioner provides a more cautious,
negative statement about their conclusion.
- **Example scenario:** Consider a
scenario where a company wants to assure
its stakeholders about the accuracy of its
financial statements but doesn't require the
full extent of an audit. In this case, the
company hires a firm to conduct a review of
its financial statements. The review involves
some analytical procedures and inquiries but
doesn't delve as deeply into the company's
records and internal controls as an audit
would. After the review, the practitioner
provides a conclusion that states they found
no significant discrepancies, but they cannot
provide the same level of assurance as with
an audit. This limited assurance still gives
stakeholders some confidence in the
reliability of the financial statements but not
as much as a reasonable assurance
engagement would.
Let's simplify the two types of assurance
engagements according to structure:
1. **Attestation Engagement**:
- **What it means:** In an attestation
engagement, someone other than the
practitioner (like a measurer or evaluator)
evaluates a certain subject matter against
specific criteria. The result of this evaluation
is the subject matter information. The
practitioner's role here is to gather enough
evidence to determine if the subject matter
information provided by the measurer or
evaluator is accurate and free from significant
errors.
- **Example scenario:** Let's say a
company hires an independent auditor to
assess its compliance with environmental
regulations. The auditor doesn't directly
evaluate the company's environmental
practices themselves but relies on data
provided by environmental experts hired by
the company. The auditor's job is to examine
the experts' findings and determine if they
accurately represent the company's
environmental compliance. The auditor's
conclusion will state whether the subject
matter information (the environmental
compliance report) provided by the experts is
reliable.
2. **Direct Engagement**:
- **What it means:** In a direct
engagement, the practitioner directly
measures or evaluates the subject matter
against certain criteria. The resulting
information is then presented in the
assurance report. The practitioner's
conclusion addresses the outcome of this
measurement or evaluation directly.
 - **Example scenario:** Let's consider a
scenario where a company wants to assess
the effectiveness of its internal control
procedures. The company hires an external
auditor to directly evaluate its internal controls
against established control criteria. The
auditor conducts tests and assessments of
the controls in place and then presents their
findings in an assurance report. The
conclusion of the auditor directly addresses
whether the internal controls meet the
specified criteria, providing assurance to
stakeholders about the effectiveness of the
company's control procedures.
Exhibit 1-1 presents a comprehensive
example involving both attestation and direct
engagements in the context of assessing the
total proven oil reserves of 10 independent
companies. Here's a simplified breakdown:
1. **Attestation Engagement**:
- **Option 1:** Each company
independently measures its own oil reserves
and then provides a statement (assertion)
about those reserves to the assurance firm
and other stakeholders.
- **Option 2:** Alternatively, instead of the
companies themselves, another entity
measures the reserves of each company and
provides a statement about those reserves to
the assurance firm and other stakeholders.
2. **Direct Engagements**:
- **Option 1:** In this scenario, each
company individually measures its oil
reserves according to certain established
criteria for proven reserves. They then give a
written confirmation to the assurance firm that
their reserves have been measured against
these criteria. However, this written
confirmation is not directly available to other
stakeholders.
- **Option 2:** Here, the assurance firm
directly conducts measurements of the
reserves for some of the companies, without
relying on the measurements provided by the
companies themselves.
**Simplified Explanation:**
- **Attestation Engagement:** Either the
companies themselves or another entity
provide statements about the oil reserves,
which the assurance firm verifies.
- **Direct Engagements:** Either the
companies directly confirm their reserve
measurements to the assurance firm, or the
firm independently measures reserves for
some companies.
In essence, these options illustrate different
ways in which the assurance process can be
structured, depending on who measures the
reserves and how the information is conveyed
to the assurance firm and other stakeholders.
Let's break down each condition of an
attestation engagement into simpler terms
and provide an example scenario for each:
1. **Written Assertion**:
- **Simple Explanation:** In an attestation
engagement, one party makes a statement or
claim in writing, and another party is
interested in knowing if that statement is
reliable.
- **Example Scenario:** A company's
management writes a statement asserting
that their financial statements are prepared
according to Generally Accepted Accounting
Principles (GAAP). Shareholders of the
company want assurance that this assertion
is true and accurate.
2. **Agreed-upon and Objective Criteria**:
- **Simple Explanation:** There must be
clear and objective standards that everyone
agrees upon to assess the accuracy of the
written assertion. These standards should
allow for consistent evaluation by different
individuals.
- **Example Scenario:** An organization
claims that its products meet certain quality
standards. The agreed-upon criteria for
assessing this assertion could be industry-
specific quality control measures that ensure
products meet specific benchmarks for
performance and reliability.
3. **Verifiability by an Independent Party**:
- **Simple Explanation:** The accountant
conducting the attestation must be able to
gather enough evidence independently to
confirm or disprove the validity of the written
assertion.
- **Example Scenario:** A nonprofit
organization states in its annual report that
90% of its funds go directly to charitable
programs. An independent auditor is engaged
to verify this claim by examining financial
records and conducting interviews with staff
and beneficiaries to ensure that the funds are
indeed being used as stated.
4. **Written Conclusion**:
- **Simple Explanation:** After conducting
the assessment, the accountant must provide
a written conclusion regarding the reliability of
the assertion. This conclusion should clearly
state whether the assertion is deemed
trustworthy or not.
- **Example Scenario:** After reviewing the
procedures and evidence gathered during an
attestation engagement, an auditor writes a
report stating that, based on their
assessment, the company's assertion about
its compliance with environmental regulations
is reliable and accurate.
In summary, an attestation engagement
involves evaluating a written assertion using
agreed-upon criteria, gathering evidence
independently, and providing a written
conclusion about the reliability of the
assertion.
Let's simplify each type of attestation
engagement and provide an example
scenario for each:
1. **Audit Engagement**:
- **Simple Explanation:** An independent
audit engagement involves a thorough
examination of financial statements to provide
a reasonable level of assurance that they are
free from significant errors or misstatements.
- **Example Scenario:** A large corporation
hires an external auditing firm to conduct an
audit of its annual financial statements. The
auditors meticulously review the company's
financial records, transactions, and internal
controls. They perform detailed testing and
analysis to ensure the accuracy and reliability
of the financial statements. After completing
the audit, the auditors issue a report providing
reasonable assurance to stakeholders, such
as investors and creditors, that the financial
statements present a true and fair view of the
company's financial position and
performance.
2. **Review Engagement**:
- **Simple Explanation:** A review
engagement involves a less comprehensive
investigation compared to an audit. It consists
of making inquiries and performing analytical
procedures to provide a limited level of
assurance that the subject matter, usually
financial statements, is presented in
accordance with established criteria.
- **Example Scenario:** A small business
engages a CPA firm to perform a review of its
quarterly financial statements. The CPAs
perform analytical procedures such as
comparing current financial data to previous
periods and industry benchmarks. They also
make inquiries to management about
significant changes or discrepancies. Based
on their review, the CPAs issue a report
providing limited assurance to stakeholders
that the financial statements are presented
fairly in accordance with applicable
accounting standards, but with less certainty
compared to an audit.
In summary, audit engagements involve a
comprehensive examination to provide a
reasonable level of assurance, while review
engagements involve a less rigorous
assessment to provide limited assurance.
Audits offer a higher level of assurance
compared to reviews due to the greater
scrutiny and testing involved.
Let's simplify and provide examples for each
of the assurance services mentioned:
1. **Business Performance Measurement**:
- **Simple Explanation:** This service
assures that the financial and non-financial
information used to measure a company's
performance (e.g., through tools like the
balanced scorecard) is reliable and accurately
guides the company toward its strategic
goals.
- **Example Scenario:** A manufacturing
company wants assurance that its
performance metrics, including financial data
and customer satisfaction scores, accurately
reflect its progress toward its strategic goal of
increasing market share. An assurance
provider assesses the reliability of the data
and confirms whether the company's
performance measures align with its strategic
objectives.
2. **Health Care Performance
Measurement**:
- **Simple Explanation:** This service
evaluates the quality of healthcare services,
focusing on the healthcare delivery system,
medical services provided, and associated
quality attributes.
- **Example Scenario:** A hospital seeks
assurance about the quality of care it
provides to patients. An assurance provider
assesses various aspects such as patient
outcomes, adherence to medical protocols,
and patient satisfaction surveys to ensure that
the hospital's healthcare services meet
established quality standards.
3. **Elder Care Plus**:
- **Simple Explanation:** This evaluation
provides assurance to elderly individuals and
their families regarding the quality of care
provided by caregivers by comparing the
intended care objectives with the actual
services delivered.
- **Example Scenario:** A family
considering different nursing homes for their
elderly relative wants assurance that the
chosen facility will provide high-quality care.
Elder Care Plus compares the facility's stated
care objectives (such as providing a safe and
supportive environment) with observed
practices to ensure they align.
4. **Risk Assessment Services**:
- **Simple Explanation:** This service
identifies risks affecting an organization and
assesses their impact on the organization's
goals and strategies. It also develops
measures to address these risks effectively.
- **Example Scenario:** A financial
institution wants assurance that it has
identified and addressed potential risks to its
operations and financial stability. An
assurance provider conducts a
comprehensive risk assessment, identifying
risks such as market fluctuations or
cybersecurity threats and recommending
strategies to mitigate them.
5. **CPA WebTrust**:
- **Simple Explanation:** WebTrust is a
seal of assurance for online businesses,
ensuring that they meet high standards of
business practice set by accounting institutes.
It provides confidence to consumers and
businesses when purchasing goods or
services online.
- **Example Scenario:** An e-commerce
website wants to reassure its customers
about the security and reliability of its online
transactions. By obtaining the WebTrust seal,
the website demonstrates compliance with
industry-recognized standards for data
security and business integrity.
6. **Information Systems Reliability**:
- **Simple Explanation:** This service
evaluates whether an organization's
information systems provide reliable data for
decision-making.
- **Example Scenario:** A company relies
on its computerized inventory management
system to make timely and accurate
decisions about restocking products. An
assurance provider assesses the system's
reliability by reviewing data accuracy, system
security measures, and backup procedures to
ensure the system provides trustworthy
information.
Exhibit 1-2 is a CPA WebTrust report for
Entrust Limited, prepared by Deloitte, an
independent auditor. Here's a simplified
explanation of the report:
1. **Introduction**:
- The report outlines the scope of the audit
conducted by Deloitte to assess Entrust's
assertion regarding its Certification Authority
(CA) services provided on its website from
March 1, 2007, to February 29, 2008.
2. **Assurance Provided**:
- Deloitte conducted an audit to provide
reasonable assurance that Entrust's
assertions regarding its CA services are not
materially misstated.
- They evaluated Entrust's key and
certificate life cycle management practices,
information privacy practices, and controls
over various aspects of CA operations.
3. **Audit Process**:
- Deloitte's audit included understanding
Entrust's practices and controls, testing
transactions, evaluating control effectiveness,
and performing necessary procedures.
- They believe their audit provides a
reasonable basis for their opinion.
4. **Opinion**:
- Deloitte's opinion states that Entrust's
management's assertion about its CA
services for the stated period is fairly stated in
all material respects, in accordance with the
AICPA/CICA WebTrust criteria.
5. **Limitations**:
- The report highlights inherent limitations in
controls, acknowledging the possibility of
errors or fraud not being detected.
- It also notes that projecting conclusions to
future periods is subject to risks such as
changes in systems or controls.
6. **WebTrust Seal**:
- The WebTrust seal on Entrust's website
symbolizes the contents of the report but
does not update it or provide additional
assurance.
- It emphasizes that the effectiveness of
controls may vary based on individual
subscriber and relying party locations.
7. **Additional Notes**:
- The report does not make representations
about the quality of Entrust's services beyond
what is covered by WebTrust criteria.
 - It concludes with the details of Deloitte &
Touche LLP, the auditors, including their
location and the date of the report.
In simple terms, this report confirms that
Entrust's assertion about its CA services
aligns with industry standards and practices,
as assessed by an independent auditor,
Deloitte. However, it also acknowledges the
inherent limitations in controls and
emphasizes the need for ongoing vigilance to
maintain compliance and effectiveness.
Certainly, let's break down each limitation of
assurance engagements into simpler terms
and provide an example scenario for each:
1. **Selective Testing**:
- **Simple Explanation:** Assurance
engagements often involve testing a sample
of data rather than examining every single
item. This means there's a chance that errors
or issues may exist in items not included in
the sample.
- **Example Scenario:** An auditor is
tasked with reviewing a company's financial
transactions. Due to time and resource
constraints, the auditor selects a sample of
transactions to review rather than examining
every single transaction. As a result, there's a
possibility that errors or fraudulent activities in
untested transactions may go undetected.
2. **Inherent Limitations of Internal Control**:
- **Simple Explanation:** No matter how
strong a company's internal controls are, they
cannot completely eliminate the risk of errors
or fraud. Internal controls may be
circumvented, overridden, or may simply not
be effective in preventing all risks.
- **Example Scenario:** A company
implements strict internal controls over its
cash handling procedures, including requiring
dual authorization for large transactions.
Despite these controls, an employee
manages to bypass the system and embezzle
funds by colluding with another employee.
3. **Persuasive Evidence vs. Conclusive
Evidence**:
- **Simple Explanation:** The evidence
gathered during assurance engagements is
often persuasive rather than conclusive. This
means it provides strong indications but
doesn't completely eliminate uncertainty.
- **Example Scenario:** An auditor reviews
documents provided by a company's
management as evidence of compliance with
regulatory requirements. While the
documents appear legitimate and support the
company's assertions, there's still a small
chance that they could be inaccurate or
misleading.
4. **Use of Judgment**:
- **Simple Explanation:** Assurance
engagements involve the exercise of
professional judgment by practitioners in
gathering and evaluating evidence. Different
practitioners may interpret evidence
differently, leading to subjective conclusions.
- **Example Scenario:** Two auditors
review the same set of financial statements
but come to slightly different conclusions
about the company's financial health. One
auditor may be more conservative in their
assessments, while the other may be more
optimistic, leading to variations in their
opinions.
5. **Characteristics of the Subject Matter**:
- **Simple Explanation:** The subject
matter being assessed in assurance
engagements may have inherent complexities
or uncertainties that limit the level of
assurance that can be provided.
- **Example Scenario:** An auditor is
engaged to assess the effectiveness of a
company's cybersecurity measures. Due to
the rapidly evolving nature of cyber threats
and the complexity of IT systems, it's
challenging to provide absolute assurance
that the company is completely protected
against all possible cyber attacks.
Let's simplify the concepts of non-assurance
services with examples:
1. **Agreed-Upon Procedures**:
- **Simple Explanation:** In this type of
engagement, an auditor performs specific
procedures, similar to an audit, that have
been agreed upon by the auditor, the entity,
and possibly other parties. The auditor then
reports the factual findings of these
procedures. The recipients of the report must
interpret the results themselves because the
report is restricted to those who agreed to the
procedures.
- **Example Scenario:** A company hires
an auditor to perform agreed-upon
procedures on its inventory management
system. The procedures may include verifying
inventory counts, confirming pricing accuracy,
and assessing internal controls related to
inventory. The auditor then provides a report
detailing the findings of these specific
procedures, which the company's
management uses to improve inventory
management practices.
2. **Compilation of Financial or Other
Information**:
- **Simple Explanation:** In a compilation
engagement, an accountant uses their
accounting expertise to organize and
summarize financial information provided by a
client. The accountant does not perform
auditing procedures to verify the accuracy of
the information. Instead, they focus on
presenting the information in a clear and
understandable format. While the accountant
doesn't provide assurance on the financial
information, users of the compiled data
benefit from the accountant's professional
skills and care.
- **Example Scenario:** A small business
owner hires an accountant to compile their
financial statements based on the records
maintained by the company. The accountant
organizes the income statement, balance
sheet, and cash flow statement, ensuring they
adhere to accounting standards. However,
the accountant doesn't verify the accuracy of
the financial data; instead, they rely on the
client's representations. The compiled
financial statements are then used by the
business owner for internal decision-making
and to provide to potential investors or
lenders.
Let's simplify the concepts of tax services and
management consulting with examples:
1. **Tax Services**:
- **Simple Explanation:** CPAs provide tax
services to individuals and businesses,
including preparing tax returns, developing
tax strategies to minimize tax liability within
the bounds of the law, and representing
clients before tax authorities.
- **Example Scenario:** A small business
owner hires a CPA to prepare their annual tax
return. The CPA carefully reviews the
company's financial records, applies relevant
tax laws and regulations, and completes and
submits the tax return on behalf of the
business. Additionally, the CPA advises the
business owner on tax-saving strategies,
such as taking advantage of available
deductions and credits, to minimize the
amount of tax owed.
2. **Management Consulting and Advisory
Services**:
- **Simple Explanation:** CPAs offer
management consulting and advisory
services to help organizations improve their
performance and address various business
challenges. This can include providing advice
on small business management, cash
management, growth planning, and more.
 - **Example Scenario:** A manufacturing
company seeks advice from a CPA regarding
its cash management practices. The CPA
conducts a thorough analysis of the
company's cash flow, accounts receivable,
and accounts payable processes. Based on
this analysis, the CPA develops a cash
management plan that includes strategies for
optimizing cash flow, reducing outstanding
debts, and maximizing interest income. The
company implements the plan and sees
improvements in its overall financial health
and liquidity.
Let's simplify the information provided in
Table 1-9:
1. **Agreed-upon Procedures**:
- **Explanation:** In agreed-upon
procedures, the practitioner performs specific
procedures agreed upon with the client, but
they don't provide a conclusion or opinion on
the findings.
- **Example:** An auditor conducts agreed-
upon procedures to verify the accuracy of
inventory records for a company but doesn't
give an opinion on whether the inventory is
accurately reported.
2. **Compilations**:
- **Explanation:** In compilation
engagements, the practitioner organizes and
presents financial information provided by the
client without expressing any conclusion or
opinion on the data.
- **Example:** An accountant compiles
financial statements for a small business
based on the information provided by the
business owner but doesn't provide any
assurance on the accuracy or completeness
of the data.
3. **Some Tax Services**:
- **Explanation:** Tax services that involve
preparing tax returns without expressing a
conclusion are considered non-assurance.
Tax consulting services, where the CPA
advises on tax strategies, are typically two-
party contracts and don't involve expressing
conclusions.
- **Example:** A CPA prepares an
individual's tax return based on the
information provided by the client but doesn't
provide any assurance on the accuracy of the
return. Alternatively, the CPA advises a
business owner on tax-saving strategies,
such as utilizing tax deductions, without
providing any formal conclusion or opinion.
4. **Management Consulting and Other
Advisory Services**:
- **Explanation:** These services involve
providing recommendations or advice to
clients based on analysis and expertise. They
typically don't include expressing conclusions
or opinions.
- **Example:** A CPA provides
management consulting services to a small
business by analyzing its financial
performance and recommending strategies
for growth and efficiency improvements. The
CPA's recommendations guide the client's
decision-making process but don't include a
formal conclusion or opinion.
Let's break down the information provided in
the text into simpler terms:
**Introduction:**
- Reliable information is crucial for making
decisions in various aspects of life, especially
economic decisions. People rely on
information provided by others to make
choices like investing in stocks, approving
loans, deciding on job opportunities, and
ensuring compliance with legal requirements.
**Auditing Defined:**
- Auditing is a systematic process conducted
by Certified Accountants (CAs) to objectively
gather and evaluate evidence about
economic actions and events. The goal is to
determine if the information provided matches
established criteria and to communicate the
results to interested users.
- Auditing involves two main processes:
investigation and reporting.
- Investigation: This involves gathering and
evaluating evidence to determine if the
financial statements' assertions made by
responsible individuals align with established
criteria, like Generally Accepted Accounting
Principles (GAAP).
- Reporting: After the investigation, auditors
communicate their evaluation or opinion in an
audit report to interested users.
**Simplified Explanation:**
- Imagine you're a detective trying to solve a
case. In auditing, Certified Accountants (CAs)
play the role of detectives. They carefully
gather evidence to ensure that the financial
information provided by companies is
accurate and trustworthy.
- The auditing process involves two main
steps:
1. **Investigation:** CAs collect and analyze
evidence to see if the financial statements
accurately reflect the company's financial
position, following established rules like
GAAP.
2. **Reporting:** Once the investigation is
done, CAs summarize their findings in an
audit report. This report tells interested
parties (like investors, regulators, or lenders)
whether they can trust the company's
financial information.
In essence, auditing ensures that the financial
information used for decision-making is
reliable and gives a clear picture of what's
really happening within a company.
Let's simplify Table 2-1 by breaking down
each key phrase and providing examples:
1. **A systematic process**:
- **Simple Explanation:** An audit follows a
structured and logical sequence of steps or
procedures.
- **Example Scenario:** Imagine you're
organizing your room. You follow a
systematic process by first clearing the
clutter, then dusting, and finally arranging
things neatly. Similarly, in an audit, auditors
follow a systematic process by conducting
procedures step by step to ensure nothing is
missed.
2. **Objectively obtaining and evaluating
evidence**:
- **Simple Explanation:** Auditors gather
and assess evidence in a fair and unbiased
manner, ensuring they remain impartial and
free from conflicts of interest.
- **Example Scenario:** In a court case, a
judge reviews evidence presented by both
sides to make an impartial decision. Similarly,
auditors gather evidence like financial
records, invoices, and interviews with
employees to evaluate the accuracy of
financial statements without any bias.
3. **Assertions about economic actions and
events**:
- **Simple Explanation:** Assertions are
statements made by management about
financial transactions and events recorded in
financial statements.
- **Example Scenario:** A company asserts
that its inventory is valued accurately based
on its purchase and sales records. The
auditor's job is to verify this assertion by
examining inventory records and ensuring
they correspond with actual physical
inventory counts.
4. **Degree of correspondence between
these assertions and established criteria**:
- **Simple Explanation:** Auditors compare
management's assertions with established
standards or benchmarks, such as Generally
Accepted Accounting Principles (GAAP), to
assess their accuracy.
- **Example Scenario:** A company asserts
that its revenue recognition practices comply
with GAAP. The auditor examines revenue
transactions and compares them against
GAAP guidelines to determine if they're
reported correctly.
5. **Communicating the results to interested
users**:
- **Simple Explanation:** After completing
the audit, auditors prepare a report containing
their opinion or findings, which they
communicate to stakeholders or interested
parties.
- **Example Scenario:** An auditor issues a
report stating that a company's financial
statements present a fair and accurate view
of its financial position. This report is then
shared with investors, lenders, and
regulators, providing them with assurance
about the company's financial health.
Let's simplify the distinction between auditing
and accounting:
**Accounting**:
- **Simple Explanation:** Accounting is the
process of recording, organizing, and
summarizing financial transactions to create
financial statements. It involves capturing
economic events in a structured manner to
provide quantitative financial information for
decision-making.
- **Example:** Imagine you're keeping track
of your monthly expenses in a budget
spreadsheet. You record your income,
categorize your expenses (like groceries,
rent, utilities), and summarize them into a
clear overview of your financial situation.
**Auditing**:
- **Simple Explanation:** Auditing is the
examination and evaluation of financial
information to determine if it accurately
reflects the economic events that occurred
during a specific period. Auditors ensure that
the accounting information provided is reliable
and trustworthy.
- **Example:** Think of auditing as double-
checking your budget spreadsheet. An
auditor would review your recorded
expenses, verify receipts and invoices, and
ensure that your budget accurately reflects
your spending habits. They'd also check if
your budget follows any financial rules or
guidelines.
**Key Differences:**
- **Accounting:** Focuses on recording and
organizing financial data to create financial
statements for decision-making.
- **Auditing:** Involves examining and
evaluating financial information to ensure its
accuracy and reliability.
**Distinguishing Factor:**
- Auditors possess expertise in evaluating
audit evidence to determine if accounting
information is accurate. This skill sets
auditors apart from accountants, who
primarily focus on recording and organizing
financial data.
**In Simple Terms:**
- Accounting is like keeping track of your
finances, while auditing is like having
someone double-check your records to make
sure they're accurate.
ensure your health information is accurate
and reliable.
**Key Differences:**
- **Assurance Services:** Provide assurance
about various subjects beyond financial
statements, such as internal controls or
performance measures.
- **Audit Services:** Specifically focused on
providing assurance about the accuracy and
reliability of financial statements.

Let's simplify the distinction between

assurance services and audit services: **Value Added:**

- **Audit Engagements:** Add reliability and

**Assurance Services:**
- **Simple Explanation:** Assurance services
involve a professional accountant evaluating
a subject matter that's the responsibility of
another party against certain criteria. The
accountant then expresses an opinion to
provide users with a level of assurance about
that subject matter.
credibility to financial information.
- **Assertion-based Engagements
(Attestations):** Also add reliability and
credibility to information, similar to audits.
- **Assurance Engagements:** In addition to
reliability and credibility, they also add
relevance and timeliness to the information.

- **Example:** Imagine you're buying a used

**In Simple Terms:**
car. Before making a decision, you ask a
mechanic to inspect the car to ensure it's in - Assurance services provide assurance
good condition. The mechanic's evaluation about a broader range of subjects, while audit
provides you with assurance about the car's services specifically focus on financial
reliability. statements. Both types of services aim to
ensure that information users rely on is
reliable and credible, but assurance services
**Audit Services:** offer additional benefits like relevance and
timeliness.
- **Simple Explanation:** Audit services are a
type of assurance service focused on
financial statements. They involve examining
and evaluating financial information to ensure
its reliability and credibility. Audits provide
assurance to stakeholders, like investors and
lenders, about the accuracy of financial
statements.

- **Example:** Think of an audit like a

thorough check-up at the doctor's office. The
doctor examines your health records,
performs tests, and checks for any issues to