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Module 1 Fundamentals of Auditing and Assurance Services

1. An assurance engagement involves a practitioner expressing a conclusion to intended users other than the responsible party about the evaluation or measurement of a subject matter against criteria. 2. The objective is for the practitioner to evaluate or measure a subject matter against identified criteria and express a conclusion providing a level of assurance to intended users. 3. The key elements are a three party relationship between the practitioner, responsible party, and intended users, an appropriate subject matter, suitable criteria, sufficient appropriate evidence, and a written assurance report.

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Mary Grace Dela Cruz
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939 views28 pages

Module 1 Fundamentals of Auditing and Assurance Services

1. An assurance engagement involves a practitioner expressing a conclusion to intended users other than the responsible party about the evaluation or measurement of a subject matter against criteria. 2. The objective is for the practitioner to evaluate or measure a subject matter against identified criteria and express a conclusion providing a level of assurance to intended users. 3. The key elements are a three party relationship between the practitioner, responsible party, and intended users, an appropriate subject matter, suitable criteria, sufficient appropriate evidence, and a written assurance report.

Uploaded by

Mary Grace Dela Cruz
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Module 1 : FUNDAMENTALS

OF AUDITING AND
ASSURANCE SERVICES
Prof. Mary Grace Dela Cruz, CPA
1. Introduction to assurance engagements

DEFINITION
 “Assurance engagement” means an engagement in
which a practitioner (CPA) 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.
1. Introduction to assurance engagements

NATURE
Assurance refers to the auditor’s satisfaction as to
the reliability of an assertion being made by one
party for use by another party.
1. Introduction to assurance engagements

OBJECTIVE
The objective of an assurance engagement is for
a professional accountant 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.
1. Introduction to assurance engagements

ELEMENTS
1. Three Party Relationship involves a
practitioner, a responsible party, and
intended users;
2. An appropriate subject matter
3. Suitable criteria
4. Sufficiency and Appropriateness of Evidence
5. Written Assurance Report
Elements

1. Three Party Relationship involves a practitioner,


a responsible party, and intended users;
 Practitioner –
The term “practitioner” as used in this Framework
is broader than the term “auditor”
 the person who provides the assurance to
intended users about a subject matter that is the
responsibility of another party. This is the CPA in
public practice that performs the assurance
engagement.
Elements

1. Three Party Relationship involves a practitioner,


a responsible party, and intended users;
 Responsible party –
the person or persons who are responsible for
the subject matter in a direct reporting
engagement or the subject matter information
and may be the subject matter in an assertion-
based engagement.
Elements

1. Three Party Relationship involves a


practitioner, a responsible party, and
intended users;
 Intended Users–
are the person, persons or class of persons for
whom the practitioner prepares the assurance
report.
Elements

2. An appropriate subject matter


 The subject matter refers to the information to be
evaluated or measured against the criteria.
Elements

3. Suitable criteria
 Criteria are the benchmarks used to evaluate or
measure the subject matter including, where
relevant, benchmarks for presentation and
disclosure.
 Criteria can be formal as in the case of Philippine
Financial Reporting Standards or less formal as in an
internally developed code of conduct. Criteria can
also be established or specifically developed
Elements

3. Suitable criteria Characteristics


Elements

4. Sufficiency and Appropriateness of Evidence


 Sufficiency is the measure of the quantity of
evidence
 Appropriateness is the measure of the quality of
evidence; that is, its relevance and its reliability.
 The practitioner plans and performs an assurance
engagement with an attitude of professional
skepticism to obtain sufficient appropriate
evidence about whether the subject matter
information is free of material misstatement
Elements

Professional Skepticism
 An attitude of professional skepticism means the
practitioner makes a critical assessment, with a
questioning mind, of the validity of evidence
obtained and is alert to evidence that contradicts
or brings into question the reliability of
documents or representations by the
responsible party
Elements

Cost Benefit Consideration


 The practitioner considers the relationship
between cost of obtaining evidence and the
usefulness of the information obtained.
Elements
Assurance Engagement Risk
 The risk that the practitioner expresses an
inappropriate conclusion when the subject
matter information is materially misstated.
Generalizations about reliability 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 obtained directly by the practitioner (for example,
observation of the application of a control) is more reliable than
evidence obtained indirectly or by inference (for example,
inquiry about the application of a control).
● Evidence is more reliable when it exists in documentary form,
whether paper, electronic, or other media (for example, a
contemporaneously written record of a meeting is more reliable
than a subsequent oral representation of what was discussed).
● Evidence provided by original documents is more reliable
than evidence provided by photocopies or facsimiles.
Elements

5. Written Assurance Report


 The practitioner provides a written report
containing a conclusion/opinion that conveys
the assurance obtained about the subject
matter information
Elements

5. Written Assurance Report


 Types of Opinion
1. Introduction to assurance engagements

ELEMENTS
1. Three Party Relationship involves a
practitioner, a responsible party, and
intended users;
2. An appropriate subject matter
3. Suitable criteria
4. Sufficiency and Appropriateness of Evidence
5. Written Assurance Report
1. Introduction to assurance engagements
Types of Assurance Engagements
As to Level of assurance provided
 Reasonable 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 engagement as the basis for a positive form of expression of the
practitioner’s conclusion. “reasonable assurance”
 Limited Assurance Engagement
- The objective of a limited assurance engagement is 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. “Limited assurance”
Types of Assurance Engagements
As to Structure (Attestation Engagements)
 Assertion-based engagements – those that involve the evaluation
or measurement of the subject matter by the responsible
party and the subject matter information in the form of an
assertion by the responsible party is made available to the
intended users. The practitioner’s conclusion can be worded in
terms of the responsible party’s assertion. These are also
known as attestation engagements.
 Direct reporting engagements – those where 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 is
provided to the intended users in the assurance report.
Auditing, Attestation and Assurance Services
 Though the services encompass the same decision process,
the three services differ in the scope of their service.
 Assurance services are broader in scope and in
concept than either auditing or attestation. Attestation
and audit services are subsets of assurance services.
 Attestation services, on the other hand, are broader than
audit services. Audit, particularly a financial statement audit,
involves the examination of a historical financial statement in
accordance with GAAP. Attestation goes beyond historical
financial statements. They cover even non-GAAP financial
statements
Types of Assurance Engagements

Standards Governing Professional


Services by CPAs
Standards Governing Professional Services by CPAs
Summary of Services Performed by Practitioners
Q&A
Prof. Mary Grace Dela Cruz, CPA
Thank You
Prof. Mary Grace Dela Cruz, CPA

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