ASSURANCE ENGAGEMENT

Historical or Recognition,
- Degree of SATISFACTION (NOT a guarantee or
prospective measurement,
a certification) Financial
financial presentation
performance
position, and disclosure
- According to PFAE (Philippine Framework or condition
performance, represented in
Assurance Engagement):
cash flows the FS
• practitioner expresses a conclusion
• designed to enhance the degree of Key indicators
confidence Non-financial
Performance or efficiency
• of the intended users other than the performance
of an entity and
responsible party or conditions
effectiveness
• about the outcome of the evaluation or
measurement Physical Capacity of a Specifications
• of a subject matter against criteria characteristics facility document

3PARTY RELATIONSHIP (P.R.I) An entity’s

Practitioner – broader than auditor An assertion
• Systems and internal
Responsible Party – may be part of about
• processes control or IT
intended user but not the only one effectiveness
systems
• Intended User
Corporate A statement
*2 parties - consultancy governance, of compliance
Behavior compliance or a statement
APPROPRIATE SUBJECT MATTER (T.I.M.) w/ regulation, of
• Testable HR practices effectiveness
• Identifiable
• Measurable against criteria *It is possible that the responsible party is different
(except on FS)
Subject Subject
Matter Matter
SUITABLE CRITERIA (R.U.N.C.R.)
Information

Nature of the Outcome of • Relevance – OBJECTIVE

assertion the evaluation • Understandability
/measurement • Neutrality
Meaning
of the SM • Completeness
• Reliability – SOURCE
SUBSTANCE FORM

Responsible - Formal (standard, law) and Less formal (KPI…)

Management Management
Party - Established and specifically developed
Financial
position, cash
Example TOR, FS
flow
management
How communicated? (P.A.G.S) WRITTEN CONCLUSION
• Publicly
• Assurance Report RAE LAE
• General Understanding REASONABLE/ LIMITED/
Level
HIGH MODERATE
• SMI
Form POSITIVE NEGATIVE
SUFFICIENT AND APPROPRIATE EVIDENCE
REVIEW
• Quantity (sufficiency) and (inquiry and
Quality (appropriateness – relevance & reliability) analytical
Example AUDIT
*Quality affects evidence procedure)
(High Risk = more evidence;
*high risk
Good Quality = less evidence)
*Positive even if it is not fairly presented
• Materiality (subjective) *Review “nothing has come to my attention…”
*affects evidence (Lower = Stricter)

• AER = RMM x DR
2 TYPES OF ASSURANCE ENGAGEMENT
*Acceptable level of DR (High = Chill)

ASSURANCE
• Cost Benefit – consider cost but importance
of procedure is more important ENGAGEMENT
*broadest

• Professional Skepticism – alert to the ASSERTION

BASED DIRECT
possibility of information risk
(attestation) REPORTING
*practitioners evaluate evidence, not
authenticate
AUDIT
*independence
HIERARCHY OF RELIABILITY:
*the bold texts are more reliable but sometimes not
• External vs. Internal
• Effective internal control Attestation – CAN release SMI even if there is no
(Strong vs. Weak) practitioner
• Direct vs. Indirect
• Written vs. Oral Direct Reporting – CAN’T release SMI w/o
• Original vs. Reproduced practitioner

*Assurance Engagement Risk is the risk that the

PRACTITIONER expresses an INAPPROPRIATE
CONCLUSION when the SMI is MATERIALLY
MISSTATED
 NON-ASSURANCE ENGAGEMENT Auditors
*at least 1 element did not meet in assurance who External Government Internal
generally auditors auditors auditors
Agreed - no freedom to decide perform
Upon - reader will decide
Procedures - factual findings
*PFRS accounting standards – FS audit
- accounting expertise *PSA auditing standards – Audit process
Compilation
- disaggregated to aggregated
FS AUDIT OBJECTIVE:
Tax Return - prepare only To obtain reasonable assurance about whether
Preparation - no evidence the FS as a whole are free from material
Consultancy - recommendation misstatement, thereby enabling the auditor to
express an opinion

*Opinion is always backed w/ evidence

AUDITING
A systematic process of objectively obtaining *We gather evidence because we want to compare
and evaluating evidence regarding assertions what management is saying and what the
about economic transactions and events to standards are saying
ascertain the degree of correspondence between
these assertions and established criteria and
DEMAND FOR FS AUDIT (C.E.R.F.I.C)
communicating the results thereof.
• Conflict of interest between
management and users of FS
Financial Compliance Operational
• Expertise
Audit Audit Audit
• Remoteness
Organization
Organization’s
• Financial consequences
has • Information risk
Assertions FS are activities are
complied w/
made by fairly conducted • Cost of capital
laws,
auditee presented efficiently &
regulations
effectively
or contracts THEORETICAL FRAMEWORK (D.A.N.A.E.)
• Data are verifiable
Financial • Auditor is independent
reporting
Laws, • No long term conflicts
standards Objectives set
Established regulations, • Audit benefits the public
or other by the board
criteria and
financial of directors • Effective internal control system
contracts
reporting
framework
INHERENT LIMITATIONS (S.E.R.I.N)
Opinion • Sampling risk
whether FS • Non-sampling risk (Error in application
are fairly Degree or of judgement)
presented compliance Reco or • Inherent limitations of internal control
Content of in w/ suggestions
auditor’s conformity applicable on how to
• Nature of evidence
report w/ an laws, improve • Nature of assertions (Reliance on
identified regulations operations management’s representation)
financial & contracts
reporting
framework