Fundamentals of Assurance

Services
 Assurance
- refers to the auditor’s satisfaction as to the reliability of an
assertion being made by one party for use by another party.
 Assurance Engagements
- an engagement in which a practitioner expresses a conclusion
designed to enhance the degree of confidence that intended users can have
about the evaluation or measurement of a subject matter that is the
responsibility of a party, other than the intended users or the practitioner,
against criteria.
Objective of an Assurance Engagement

- To evaluate or measure a subject matter that is the responsibility of another

party against identified suitable criteria, and to express a conclusion that
provides the intended user with a level of assurance about that subject matter.
- To enhance the credibility of information about a subject matter by
evaluating whether the subject matter conforms all material respects with
suitable criteria, thereby improving the likelihood that the information will
meet the needs of an intended user.
Types of Assurance Engagements

1. Reasonable Assurance Engagement

- aims to reduce the assurance engagement risk to an
acceptably low level in the circumstance of the engagement
as the basis for a positive form of expression of the
practitioner’s conclusion.
Types of Assurance Engagements

2. Limited Assurance Engagement

- aims to reduce the assurance engagement risk to a level
that is acceptable in the circumstance of the engagement
but where that risk is greater than for a reasonable assurance
engagement as a basis for a negative form of expression of
the practitioner’s conclusion.
Assertion-Based Engagements vs. Direct Reporting
Engagements

Assertion-Based Engagement – evaluation of subject matter by the responsible party

and subject matter information in the form of an assertion by the responsible party is
made available to the intended users.

Direct Reporting Engagement – engagements where the practitioner either directly

performs the evaluation 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.
Elements of an Assurance Engagements
(a) A three party relationship involving
(i) a practitioner
(ii) a responsible party
(iii) intended users
(b) An appropriate subject matter;
(c) Suitable criteria;
(d) Sufficient appropriate evidence;
(e) A written assurance report in the form appropriate to a reasonable assurance
engagement or a limited assurance engagement.
Elements of an Assurance Engagements
(a) A three party relationship;
(i) a practitioner - person who provides the assurance to the intended users about
a subject matter that is responsibility of another party
(ii) a responsible party – responsible for the subject matter; subject matter
information; or both
(iii) intended users – for whom the practitioner prepares the report

(b) An appropriate subject matter;

- Financial performance or conditions
- Non-financial performance or conditions
- Physical characteristics
- Systems and processes
- Behavior
Elements of an Assurance Engagements
Subject matter have different characteristics which affect the:
1. Precision with which the subject matter can be evaluated or measured against
criteria; and
2. The persuasiveness of available evidence.

An appropriate subject matter is:

(a) Identifiable, and capable of consistent evaluation or measurement against the
identified criteria; and
(b) Such that information about it can be subjected to procedures for gathering
sufficient appropriate evidence to support a reasonable assurance or limited assurance
conclusion, as appropriate.
Elements of an Assurance Engagements

(c) Suitable criteria;

- Relevance
- Completeness
- Reliability
- Neutrality
- Understandability
Criteria are made available to the intend users in one or more of the following
ways:
a. Publicly
b. Through inclusion in a clear manner in the presentation of the subject matter
information.
c. Through inclusion in a clear manner in the assurance report.
d. By general understanding, for example the criteria for measuring time in hours
and minutes
Elements of an Assurance Engagements
(d) Sufficient appropriate evidence;
(i) Professional Skepticism
(ii) Sufficiency and Appropriateness of Evidence
- Evidence is more reliable when it is obtained from independent sources
outside the entity
- Evidence that is generated internally is more reliable when the related controls
are effective.
- Evidence is obtained directly by the practitioner is more reliable that evidence
obtained indirectly or by inference.
- Evidence is more reliable when it exists in documentary form, whether paper,
electronic, or other media.
- Evidence provided by original documents is more reliable than evidence
provided by photocopies of facsimiles.
Elements of an Assurance Engagements

(iii) Materiality
(iv) Assurance Engagement Risk
- Inherent Risk
- Control Risk
- Detection Risk

(e) Assurance Report

Assurance Services

Independent Financial Statements Audit (External Audit)

- an assurance engagement to provide a high level of assurance that the
financial statements are free of material misstatement.

Absolute assurance in auditing is not attainable.

Assurance Services

Review of Financial Statements – PSREs 24000 to 2410

- involves limited investigation of much narrower scope than audit and
undertaken for the purpose of providing limited (negative) assurance that the
statements are presented in accordance with identified Financial Reporting
Standards.
- The financial statements may be historical or prospective.

Other Review Engagements

Other Assurance Services (PSAE 3000 Revised)

1. Assurance Services on Information Technology

2. CPA Web Trust Service
3. Information System Reliability Service
Assurance Services on Other Types of Information

(a) Business Performance Measurement

(b) Health Care Performance Measurement
(c) Risk Assessments
(d) Eldercare Plus
Non-Assurance Services

(a) Agreed-upon Procedure Service

(b) Compilation of Financial or Other Information
(c) Tax Services
(d) Management Consulting/Advisory Services
(e) Accounting and Data Processing or Information Technology System
Services