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Slide 4
.1
An Auditor’s Services
Principles of Auditing: An Introduction to
International Standards on Auditing - Ch 4
Rick Stephan Hayes,

Roger Dassen, Arnold Schilder,
Philip Wallage
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.2
IAASB’s Engagement Standards

• Some engagement standards are based on
“International Framework for Assurance
Engagements” (assurance engagements), and
others result from the “Related Services
Framework” (related services engagements).
• Three sets of standards (ISAs, ISREs and
ISAEs) share the assurance engagement
framework and one standard set (ISRS) is based
on the related services framework.
• ISAs, ISREs, ISAEs and ISRSs are collectively
referred to as the IAASB’s Engagement
Standards.
Slide 4
.3
Illustration 4.1
Slide 4
.4
Reasonable and Limited Assurance

Engagements (not in text)
• “Reasonable assurance engagement” and “limited

assurance engagement” distinguish between the two
types of assurance engagement
• The objective of a reasonable assurance engagement is a
reduction in assurance engagement risk to an acceptably
low level as the basis for a positive form of expression of
the practitioner’s conclusion. E.g, “presents fairly in all
material respects”
• The objective of a limited assurance engagement is a
reduction in assurance engagement risk to a level that is
acceptable in the circumstances, as the basis for a
negative form of expression of the practitioner’s
conclusion. E.g., “nothing has come to our attention that
causes us to believe that financial statements do not
conform, in all material respects, with IFRS”.
Slide 4
.5
Besides the International Framework for Assurance

Engagements, ISAs, ISREs and ISAEs, practitioners who perform
assurance engagements are governed by (not in text)
• The IFAC Code of Ethics for Professional

Accountants
• International Standards on Quality Control
(ISQCs)
Slide 4
.6
Assurance Engagements for Audits and

Reviews for Historical Financial Information
(ISAs / ISREs)
• Historical Financial Standards are divided into those
governed by International Standards on Auditing
(ISAs) and International Standards on Review
Engagements (ISREs)
• Audit standards are described in ISA 200-799.
Special Purpose Engagement and other
examinations of historical financial information is ISA
800 – 899 (except reporting which is ISA 701).
• Review standards are ISREs 2000 – 2699
Slide 4
.7
Assurance Engagements on Subject Matters Other

than Historical Financial Information (ISAEs)
The ISAE standards are divided into two parts:

(1) ISAEs 3000 – 3399 which are topics that
apply to all assurance engagements
(2) ISAEs 3400 – 3699 which are subject
specific standards, for example standards
relating to examination of prospective financial
information,
Slide 4
.8
Not all engagements performed by practitioners are assurance

engagements
Frequently performed engagements that are not

covered by the Assurance Framework are:
Engagements covered by International
Standards for Related Services (ISRS), such
as agreed-upon procedures and compilations.
The preparation of tax returns where no
conclusion conveying assurance is expressed.
Consulting (or advisory) engagements, such
as management and tax consulting.
Slide 4
.9
Related Services Framework (ISRSs)
Standards under this framework,

International Standards on Related
Services (ISRSs), are applied
currently to two audit services:
• Agreed-upon procedures (ISRS
4400) Agreed-upon procedures
are assurance based on audit
procedures in a very limited
“agreed upon” area with a
proscribed set of users.
• Compilations (ISRS 4410 ).
Compilations offer no assurance
whatsoever.
Slide 4
.10
Assurance Engagements Defined
Assurance engagement means

an engagement in which a
practitioner (professional
accountant or auditor),
expresses a conclusion (in
report form) that is designed
to enhance the degree of
confidence users have about
the evaluation of a subject
matter against identified
criteria.
Slide 4
.11
five elements that all assurance

engagements exhibit
(1) a three party relationship involving a
practitioner; a responsible party; and the
intended users,
(2) a subject matter,
(3) suitable criteria,
(4) evidence
(5) an assurance
report.
Slide 4
.12
Illustration 4.2
Slide 4
.13
Three Party Relationship
 The practitioner (e.g., auditor, accountant, expert)

gathers evidence to provide a conclusion to the
intended users about whether a subject matter (e.g.,
financial statements) conforms, in all material
respects, with identified criteria.
 The responsible party (usually management or the
board of directors) is one who is responsible for the
subject matter and is not the intended user.
 The intended users are generally the addressee of
the assurance report.
Slide 4
.14
Illustration 4.3
Slide 4
.15
The assurance engagement evaluates

whether the subject matter conforms to
suitable criteria that will meet the
needs of an intended user.
A subject matter of an assurance is the Subject
topic about which the assurance is Matter
conducted.
– Subject matter could be information
such as financial statements, statistical
information, non-financial performance
indicators, capacity of a facility, etc.
– The subject matter could also be
systems and processes (e.g., internal
controls, IT systems) or behavior (e.g.,
corporate governance, compliance with
regulation, human resource practices).
Slide 4
.16
Suitable Criteria
Suitable criteria are the benchmarks (standards,

objectives or set of rules) used to evaluate
evidence or measure the subject matter of an
assurance engagement.
– International Financial Reporting Standards
– U.S. Generally Accepted Accounting Principles
– national standards
– Global Reporting Initiative
– PCAOB internal control report criteria
– Applicable law, regulation or contract
– An agreed level of performance
Slide 4
.17
Characteristics of Suitable
Criteria
(a) Relevance
(b) Completeness
(c) Reliability
(d) Neutrality
(e) Understandability
Slide 4
.18
Assurance Report
The practitioner provides a

written report containing a
conclusion that conveys the
assurance obtained as to
whether the subject matter
conforms, in all material
respects, with the identified
criteria. For instance, an
audit of financial statements
provides an opinion on
conformity with IFRS.
Slide 4
.19
Assurance Report Basic Elements
– A title
– An addressee:
– A description of the subject matter.
– A statement restricting the use of the assurance
report
– identification the responsible party
– Statement - performed in accordance with
ISAEs.
– A summary of the work undertaken
– Identification of the criteria
– The practitioner’s conclusion
– The assurance report date.
– The name and location of the firm or the
practitioner
Slide 4
.20
Engagements to Review Financial Statements (ISRE 2400)
Where reviews of financial

statements differ most from
a financial statement audit
is in the limited procedures
performed (limited in inquiry
of management and
analytical procedures) and
the review report. Reviews
are limited assurance
engagements.
Slide 4
.21
ISRE 2400 Objective of Review (not in text)
The objective of a review of financial statements

is to enable an auditor to state whether, on the
basis of procedures which do not provide all
the evidence that would be required in an
audit, anything has come to the auditor’s
attention that causes the auditor to believe
that the financial statements are not prepared,
in all material respects, in accordance with the
applicable financial reporting framework
(negative assurance).
Slide 4
.22
Engagements to Review Interim Financial Statements (ISRE 2410) Not in Text
• The objective of a review of interim financial

information differs significantly from that of an
audit in accordance with ISAs. A review of
interim financial information does not provide
a basis for expressing an opinion.
• A review may bring significant matters
affecting the interim financial information to
the auditor’s attention, but it does not provide
all of the evidence that would be required in
an audit.
Slide 4
.23
Review: Limited Audit Procedures
• Inquiry consists of seeking information of

knowledgeable persons inside or outside the
entity.
• Analytical procedures consist of the analysis of
significant ratios and trends including the
resulting investigation of fluctuations and
relationships that are inconsistent with other
relevant information or deviate from predictable
amounts.
• Inspection consists of examining records,
documents, or tangible assets, is carried out on a
limited basis.
Slide 4
.24
Review: Review of Financial Statements

Conclusion
The review report should contain a clear

written expression of negative
assurance. The auditor should assess
whether anything has come to the
auditor’s attention based on the review
that causes the auditor to believe the
financial statements do not give a true
and fair view (or ‘are not presented
fairly, in all material respects,’) in
accordance with the identified financial
reporting framework.
Slide 4
.25
SPECIAL PURPOSE ENGAGEMENTS

New terms from ISA 701 {replace} the old ISA 800 terms Not in text
The auditor refers to ISA 701 when expressing an opinion on:

(a) A complete set of financial statements prepared in accordance
with a financial reporting framework designed for a general
purpose, but not designed to achieve fair presentation;
(b) A complete set of financial statements prepared in accordance with
a financial reporting framework designed for a special purpose
{(1) Other comprehensive basis of accounting and (2) Reports on
compliance with contractual agreements} such as
 That used by an entity to prepare its income tax return.
 The cash receipts and disbursements basis of accounting.
 The financial reporting provisions of a government
regulatory agency
(c) A single financial statement, or statements, that would otherwise be
part of a complete set of financial statements and
(d) One or more specific elements, accounts or items of a financial
statement {component financial statements}.
Slide 4
.26
A complete set of financial statements prepared in accordance with

a financial reporting framework designed for a general purpose, but
not designed to achieve fair presentation
For example, for a balance sheet prepared to

establish the value of net assets of an entity at
the date of its sale, the seller and the
purchaser may have agreed that estimates of
allowances for uncollectible accounts
receivable are to be made. This may result in
preparing financial information that is not
neutral (as required in paragraph 36(d) of the
ISA 200 Framework), but it may nevertheless
be acceptable in the circumstances.
Slide 4
.27
A financial reporting framework designed for a special

purpose {Other Comprehensive Basis of Accounting (OCBA)
and Reports on compliance with contractual agreements}
• That used by an entity to
prepare its income tax return.
• The cash receipts and
disbursements basis of
accounting.
• The financial reporting
provisions of a government
regulatory agency.
• The financial reporting
provisions of a contract
Slide 4
.28
 One or more specific elements, accounts or items of a financial

statement {Reports on a Component of Financial Statements} 
 The auditor may be requested to express an

opinion on one or more components of financial
statements, for example, accounts receivable,
inventory, an employee’s bonus calculation or a
provision for income taxes.
 This type of engagement does not result in a
report on the financial statements taken as a
whole and, accordingly, the auditor would
express an opinion only as to whether that
specific component audited is prepared in
accordance with the accounting standards.
Slide 4
.29
Summarized Financial Statements
• ISA 701 does not discuss reports expressing

an opinion on summary historical financial
information which has been derived from
historical financial information. Standards and
guidance for auditors’ reports on summary
audited financial statements are contained in
proposed ISA 800, “The Independent Auditor’s
Report on Summary Audited Financial
Statements.”
Slide 4
.30
 Reports on Summarized Financial

Statements 
 Some financial statement users may only be
interested in the highlights of a company’s
financial position.
 The auditor expresses an opinion whether the
summary financial statements are an appropriate
summary of the financial statements from which
they have been derived in accordance with the
applied criteria.
 The report must caution the reader that
summarized financial statements should be read
in conjunction with the company’s most recent
audited financial statements.
Slide 4
.31
Assurance Engagements on Other than

Historical Financial Information
Subject specific standards fall into four subject
matter groups:
Prospective financial statements
Subject mater related to non-financial
information
Subject matter related to systems and
processes (e.g., corporate governance,
environmental systems, and internal control
(SOx SEC 404)
Subject matter about behavior.
Slide 4
.32
Examples of existing standards that may be considered in

systems and processes, non-financial information or behavior
assurance engagements are:
• Sarbanes Oxley Section 404 internal control audit

standard
• Global Reporting Initiative (GRI) Sustainability Reporting
Guidelines.
• SA8000 standards for social accountability towards
employees,
• International Labour Organization (ILO) conventions for
social accountability towards employees,
• World Business Council for Sustainable Development
(WBCSD) social and eco-efficiency indicators,
• European Union Eco-management and Audit scheme
(EMAS) standard for environmental management
systems, and
• ISO14001 standard for environmental management
systems.
Slide 4
.33
The Examination of Prospective

Financial Information (ISAE 3400)
 “Prospective financial information” means

financial information based on assumptions
about events that may occur in the future.
Prospective financial information can be in the
form of a forecast, a projection or a combination
of both.
 A “forecast” is prospective financial information prepared on
the basis of management’s assumptions as to future events
(best-estimate assumptions).
 A “projection” means prospective financial information
prepared on the basis of hypothetical assumptions about
future events and management actions which may or may
not take place, such as a possible merger of two companies.
Slide 4
.34
Internal Control Reporting and SOX 404

reporting
A company must issue an internal control

report containing these statements:
 Management's responsibility for
establishing and maintaining adequate
internal control
 The framework used by management to
evaluate the effectiveness of internal
control over financial reporting
 Management's assessment of the
effectiveness of the company's internal
control over financial reporting
 The report is reviewed by an external
auditor.
Slide 4
.35
Auditor Standards for Internal Control

Reports
Section 103 of the Sarbanes-Oxley require
that public accounting firms describe in the
audit report the scope of its testing of the
company's internal control structure and
procedures performed in its internal control
evaluation under SOx Section 404(b).
In the audit report, the registered public
accounting firm also must describe, at a
minimum, material weaknesses in company
internal controls and any material
noncompliance found.
Slide 4
.36
PCAOB Auditing Standard No. 4, Reporting on Whether a Previously

Reported Material Weakness Continues to Exist (not in text)
• Establishes requirements that apply when an

auditor is engaged to report on whether a
previously reported material weakness in
internal control over financial reporting
continues to exist
• Such an engagement is voluntary in nature at
the election of management, and may be
performed as of any reasonable date selected
by management.
Slide 4
.37
Sustainability Reporting “Triple

Bottom Line” Assurances
Economic Sustainability An organization’s impacts

on the economic circumstances of its
stakeholders and on economic systems at the
local, national and global levels.
Environmental Sustainability An organization’s
impacts on living and non-living natural systems,
including ecosystems, land, air and water.
Social Sustainability An organization’s impacts on the
social systems within which it operates.
Impacts on stakeholders at the local, national, and global
levels.
The organization’s intangible assets, such as its human
capital and reputation.
Slide 4
.38
The report under the GRI

Guidelines has 5 sections
1. Vision and Strategy – a description of the reporting
organization’s strategy with regard to sustainability,
including a statement from the CEO.
2. Profile – overview of the reporting organization’s
structure and operations and of the scope of the report.
3. Governance Structure and Management Systems –
description of organizational structure, policies, and
management systems, including stakeholder
engagement efforts.
4. GRI Content Index – a table supplied by the reporting
organization identifying where the information listed.
5. Performance Indicators – measures of the impact or
effect of the reporting organization divided into
integrated, economic, environmental, and social
performance indicators.
Slide 4
.39
Related Services International Standards on Related

Services (ISRS)
Engagements covered by
International Standards
for Related Services,
including:
• Agreed-upon
procedures.(ISRS
4400)
• Compilation of financial
or other information.
(ISRS 4410)
Slide 4
.40
Engagements to Perform Agreed-Upon Procedures Regarding

Financial Information (ISRS 4400)
An agreed-upon procedures engagement is an

engagement in which the party engaging
the professional accountant or the
intended user determines the procedures
to be performed and the professional
accountant provides a report of factual
findings as a result of undertaking those
procedures.
Slide 4
.41
Matters to be agreed between auditor and

management include the:
 nature of the engagement including the fact

that no assurance will be expressed on the
procedures performed;
 identification of the financial information to
which the agreed-upon procedures will be
applied;
 nature, timing, and extent of the specific
procedures to be applied.
Slide 4
.42
Audit Procedures Agreed
The auditor performs certain procedures

concerning individual items of financial
data (for example, accounts payable,
accounts receivable, purchases from
related parties and sales and profits of a
segment of an entity), a financial
statement (for example, a balance sheet)
or even a complete set of financial
statements.
Slide 4
.43
The objective of a compilation

engagement is for the Engagements to Compile
Financial Information
accountant to use (ISRS 4410)
accounting expertise, as
opposed to auditing
expertise, to collect,
classify and summarize
financial information. This
ordinarily entails reducing
detailed data to a
manageable and
understandable form
without a requirement to
test the assertions
underlying that information.
Slide 4
.44
The accountant is not ordinarily required to:
• Make any inquiries of management to assess

the reliability and completeness of the
information provided;
• Assess internal controls;
• Verify any matters; or
• Verify any explanations.
Slide 4
.45
Thank You for Your Attention
Any Questions?

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Slide 4

Rick Stephan Hayes,

IAASB’s Engagement Standards

Reasonable and Limited Assurance

• “Reasonable assurance engagement” and “limited

Besides the International Framework for Assurance

• The IFAC Code of Ethics for Professional

Assurance Engagements for Audits and

Assurance Engagements on Subject Matters Other

The ISAE standards are divided into two parts:

Not all engagements performed by practitioners are assurance

Frequently performed engagements that are not

Related Services Framework (ISRSs)

Standards under this framework,

Assurance Engagements Defined

Assurance engagement means

five elements that all assurance

Three Party Relationship

 The practitioner (e.g., auditor, accountant, expert)

The assurance engagement evaluates

Suitable criteria are the benchmarks (standards,

The practitioner provides a

Assurance Report Basic Elements

Engagements to Review Financial Statements (ISRE 2400)

Where reviews of financial

ISRE 2400 Objective of Review (not in text)

The objective of a review of financial statements

Engagements to Review Interim Financial Statements (ISRE 2410) Not in Text

• The objective of a review of interim financial

Review: Limited Audit Procedures

• Inquiry consists of seeking information of

Review: Review of Financial Statements

The review report should contain a clear

SPECIAL PURPOSE ENGAGEMENTS

The auditor refers to ISA 701 when expressing an opinion on:

A complete set of financial statements prepared in accordance with

For example, for a balance sheet prepared to

A financial reporting framework designed for a special

 One or more specific elements, accounts or items of a financial

 The auditor may be requested to express an

Summarized Financial Statements

• ISA 701 does not discuss reports expressing

 Reports on Summarized Financial

Assurance Engagements on Other than

Examples of existing standards that may be considered in

• Sarbanes Oxley Section 404 internal control audit

The Examination of Prospective

 “Prospective financial information” means

Internal Control Reporting and SOX 404

A company must issue an internal control

Auditor Standards for Internal Control

PCAOB Auditing Standard No. 4, Reporting on Whether a Previously

• Establishes requirements that apply when an

Sustainability Reporting “Triple

Economic Sustainability An organization’s impacts

The report under the GRI

Related Services International Standards on Related

Engagements to Perform Agreed-Upon Procedures Regarding

An agreed-upon procedures engagement is an

Matters to be agreed between auditor and

 nature of the engagement including the fact

Audit Procedures Agreed

The auditor performs certain procedures