Definition and Objective of An Assurance Engagement

Definition and Objective of an Assurance Engagement
7. “Assurance engagement” means 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.
8. The outcome of the evaluation or measurement of a subject matter is the
information that results from applying the criteria to the subject matter. For
example:
• The recognition, measurement, presentation and disclosure represented in the
financial statements (outcome) result from applying a financial reporting
framework for recognition, measurement, presentation and disclosure, such as
PSQC 1 had not been issued when this Framework was approved, but is expected to be issued before
the effective date of PSAE
3000, “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information.”
Additional standards and
guidance on quality control procedures for specific types of assurance engagement are set out in PSAs,
PSREs and PSAEs. Formatted: Font: Times New
Roman, 8 pt, Italic
- 4 - Framework
Philippine Financial Reporting Standards, (criteria) to an entity’s financial
position, financial performance and cash flows (subject matter).
• An assertion about the effectiveness of internal control (outcome) results from
applying a framework for evaluating the effectiveness of internal control, such
as COSO4
or CoCo5
(criteria) to internal control, a process (subject matter). In
the remainder of this Framework, the term “subject matter information” will
be used to mean the outcome of the evaluation or measurement of a subject

matter. It is the subject matter information about which the practitioner
gathers sufficient appropriate evidence to provide a reasonable basis for
expressing a conclusion in an assurance report.
9. Subject matter information can fail to be properly expressed in the context of the
subject matter and the criteria, and can therefore be misstated, potentially to a
material extent. This occurs when the subject matter information does not
properly reflect the application of the criteria to the subject matter, for example,
when an entity’s financial statements do not present fairly, in all material respects
its financial position, financial performance and cash flows in accordance with
Philippine Financial Reporting Standards, or when an entity’s assertion that its
internal control is effective is not fairly stated, in all material respects, based on
COSO or CoCo.
10. In some assurance engagements, 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. These engagements are called “assertion-based engagements.” In
other assurance engagements, the practitioner either directly performs the
evaluation or measurement 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. The subject matter information is provided to the
intended users in the assurance report. These engagements are called “direct
reporting engagements.”
11. Under this Framework, there are two types of assurance engagement a practitioner
is permitted to perform: a reasonable assurance engagement and a limited
assurance engagement. The objective of a reasonable assurance engagement is a
reduction in assurance engagement risk to an acceptably low level in the
circumstances of the engagement6
as the basis for a positive form of expression of
the practitioner’s conclusion. The objective of a limited assurance engagement is

4
“Internal Control – Integrated Framework” The Committee of Sponsoring Organizations of the Treadway
Commission.
“Guidance on Assessing Control – The CoCo Principles” Criteria of Control Board, The Canadian Institute
of Chartered
Accountants.
Engagement circumstances include the terms of the engagement, including whether it is a reasonable
assurance engagement or a
limited assurance engagement, the characteristics of the subject matter, the criteria to be used, the
needs of the intended users, relevant
characteristics of the responsible party and its environment, and other matters, for example events,
transactions, conditions and
practices, that may have a significant effect on the engagement.
- 5 - Framework
a reduction in assurance engagement risk to a level that is acceptable in the
circumstances of the engagement, but where that risk is greater than for a
reasonable assurance engagement, as the basis for a negative form of expression
of the practitioner’s conclusion.

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Definition and Objective of an Assurance Engagement

7. “Assurance engagement” means an engagement in which a practitioner expresses

a conclusion designed to enhance the degree of confidence of the intended users

measurement of a subject matter against criteria.

8. The outcome of the evaluation or measurement of a subject matter is the

• The recognition, measurement, presentation and disclosure represented in the

financial statements (outcome) result from applying a financial reporting

framework for recognition, measurement, presentation and disclosure, such as

Roman, 8 pt, Italic

Philippine Financial Reporting Standards, (criteria) to an entity’s financial

position, financial performance and cash flows (subject matter).

• An assertion about the effectiveness of internal control (outcome) results from

applying a framework for evaluating the effectiveness of internal control, such

(criteria) to internal control, a process (subject matter). In

be used to mean the outcome of the evaluation or measurement of a subject

gathers sufficient appropriate evidence to provide a reasonable basis for

expressing a conclusion in an assurance report.

Philippine Financial Reporting Standards, or when an entity’s assertion that its

10. In some assurance engagements, the evaluation or measurement of the subject

intended users. These engagements are called “assertion-based engagements.” In

other assurance engagements, the practitioner either directly performs the

evaluation or measurement of the subject matter, or obtains a representation from

is permitted to perform: a reasonable assurance engagement and a limited

assurance engagement. The objective of a reasonable assurance engagement is a

reduction in assurance engagement risk to an acceptably low level in the

circumstances of the engagement6

as the basis for a positive form of expression of

the practitioner’s conclusion. The objective of a limited assurance engagement is

practices, that may have a significant effect on the engagement.

a reduction in assurance engagement risk to a level that is acceptable in the

reasonable assurance engagement, as the basis for a negative form of expression

of the practitioner’s conclusion.

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