● Fundamentals of Assurance Types of Assurance engagements

Overview ● As to level of Assurance

Reasonable - The objective of a reasonable
Assurance - practitioner's satisfaction or assurance engagement is a reduction in assurance
confidence as to the reliability of an assertion. engagement risk to an acceptably low level in the
circumstances of the engagement as the basis for a
Assurance Engagements - Engagement in which positive form of expression of the practitioner's
a practitioner (CPA) expresses a conclusion conclusion.
designed to enhance the degree of confidence of
the intended users other than the responsible party Limited - The objective of a limited assurance
about the outcome of the evaluation or engagement is a reduction in assurance
measurement of a subject matter against criteria. engagement risk to a level that is acceptable in
circumstances of the engagement, but where that
Assurance vs Non-Assurance risk is greater than for a reasonable assurance
engagement, as the basis for a negative form of
expression Conclusion. of the practitioner's

● As to Structure
Attestation/Assertion - 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 is engaged to issue a
written report based on written assertions.

Direct Reporting - Those where the practitioner

either directly performs the evaluation or
Objective of Assurance Engagements measurement of the subject matter or obtains a
The objective of an assurance engagement is for a representation from the responsible party that has
professional accountant to evaluate or measure a performed the evaluation or measurement that is
subject matter that is the responsibility of not available to the intended users. The subject
another party against identified suitable criteria, matter is provided to the intended users in the
and to express a conclusion that provides the written report but no written assertion included.
intended user with a level of assurance about that
subject matter.
Elements of Assurance Engagement
1. Three Party Relationship
a. Practitioner - 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.
They are responsible for determining
the nature, timing and extent of
procedures.
b. Responsible Party - Person or
3. Suitable Criteria
persons who are responsible for the
Criteria - benchmarks/guide used to
subject matter in a direct reporting
evaluate or measure the subject matter
engagement or the subject matter
including, where relevant, benchmarks for
information and may be the subject
presentation and disclosure.
matter in an assertion based
Communication of criteria to intended
engagement.
users is required
c. Intended Users - Are the person,
a. Established - Embodied in laws or
persons or class of persons for whom
regulations (i.e., Philippine Financial
the practitioner prepares the assurance
Reporting Standards)
report.
b. Specifically Developed - Designed
for specific purpose
2. Appropriate Subject Matter
Characteristics of Suitable criteria
a. Subject Matter - Information to be
● Relevance - relevant criteria
evaluated or measured against the
contribute to conclusions that assist
criteria. This was the "claim" of the
decision-making by the intended
responsible party.
users.
b. Subject Matter Information - For
● Completeness - criteria are
which the practitioner gathers
sufficiently complete when
sufficient appropriate evidence;Result
relevant factors that could affect
of claim
the conclusions in the context of
c. To be considered appropriate
the engagement circumstances are
i. Identifiable
not omitted. Complete criteria
ii. Capable of consistent
include, where relevant,
evaluation/measurement against
benchmarks for presentation and
identified criteria
disclosure.
iii. Can be subjected to evidence
gathering procedures
 ● Reliability - reliable criteria allow b. Professional Skepticism -
reasonably consistent evaluation or Practitioner makes a critical
measurement of the subject matter assessment, with a questioning mind,
including, where relevant, of the validity of evidence obtained
presentation and disclosure, when and is alert to evidence that
used in similar circumstances by contradicts or brings into question the
similarly qualified practitioners. reliability of documents or
● Neutrality - contribute to representations by the responsible
conclusions that are free from bias. party.
● Understandability - contribute to c. Materiality - Magnitude or nature of
conclusions that are clear, an omission or misstatement that
comprehensive, and not subject to could influence the economic
significantly different decisions of a reasonable person
interpretations. relying on the financial statements.

4. Sufficient and Appropriate Evidence Lower materiality level leads to

Evidence - pertains to all information obtaining more audit evidence
gathered by the practitioner in evaluating d. Assurance Engagement Risk - Risk
the subject matter against criteria, on that the practitioner expresses an
which the conclusion is based inappropriate conclusion when the
Sufficiency - is the measure of the subject matter information is
quantity of evidence materially misstated
Appropriateness - is the measure of the
quality of evidence; that is, its relevance Lower acceptable audit risk, more
and its reliability. evidence must be obtained.
Considerations when Planning and Components of Assurance
Performing the Engagement Engagement Risks

a. Sufficiency and Appropriateness ● Risk of Material Misstatement

The higher the quality, the less evidence i. Inherent Risk - the
may be required susceptibility of the subject
Obtaining more evidence, however, may matter information to a
not compensate for its poor quality material misstatement,
Sufficiency and appropriateness shall be assuming that there are no
determined by the practitioner using related controls
his/her Professional Skepticism
 ii. Control Risk - the risk that a TYPE COMMON PHRASE USED
material misstatement that
could occur will not be 1. Unmodified/ Present fairly, in all material respect
Unqualified
prevented, or detected and
corrected, on a timely basis by 2. Qualified Except for
related internal controls
3. Adverse Do not present fairly, in all material
● Risk of non-detection/detection respect
risk - the susceptibility of the
4. Disclaimer of opinion We do not express a conclusion
subject matter information to a
material misstatement, assuming
that there are no related controls
e. Cost benefit Consideration - The
practitioner considers the relationship
between cost of obtaining evidence
and the usefulness of the information
obtained

Benefits that will be derived from

obtaining the evidence should exceed
the cost of obtaining it
Generalization about Reliability of
Evidence Introduction to Auditing
External source > Internal source Audit - comes from latin word "AUDIRE"
Effective Internal Control > Ineffective meaning to hear"
Internal Control
Directly obtained > Indirectly/by Key concepts from American Accounting
interference Association
Written/Documentary > Verbal/Oral ➔ Systematic Process
Original Documents > Reproduced ➔ Involves objectively obtaining and
Copies evaluating evidence about assertions
5. Written Assurance Report/ Conclusion/ ➔ Ascertains the degree of correspondence
Opinion - The practitioner provides a between assertions and established criteria
written report containing a ➔ communication of the results to interested
conclusion/opinion that conveys the users
assurance obtained about the subject
matter information

a. Types of opinion Types of Audit

1. Financial statementAudit
 2. Operational Audit 3. Government Auditor
3. Compliance Audit

Types of Auditor
1. External Auditor
2. Internal Auditor