Assurance Engagements: Nature, Objective, Elements, and Types, Assignments of Auditing

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1.0 Fundamentals of Auditing And Assurance Services What is Assurance? Assurance is an affirmation and commitment PLAY i MORE INFO

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1.1 Introduction to Assurance Engagement What is Assurance Engagement? “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. PLAY i MORE INFO

1.1 A. Nature, objective and elements Objective of Assurance Engagements The primary objective of assurance engagements is the professional accountant’s expression of a conclusion that will provide intended users with a level of assurance on the degree of confidence to place on the reliability and credibility of the subject matter.

1.1 A. Nature, objective and elements The following elements of an assurance engagement are discussed in this section: a. A three party relationship b. An appropriate subject matter; c. Suitable criteria; d. Sufficient appropriate evidence; and e. A written assurance report in the form appropriate to a reasonable assurance engagement or a limited assurance engagement. PERCS

1.1 A. Nature, objective and elements An appropriate subject matter  Subject matter

• (^) Refers to the information to be evaluated or measured against the criteria.
• (^) Identifiable and capable of measurement
• (^) Financial performance/conditions, Non-financial performance/conditions, Physical characteristics, Systems and process, and Behavior  (^) Subject Matter Information (assertion)
• (^) Evaluation or measurement of subject matter
• (^) Can be subjected to procedures to form a conclusion

1.1 A. Nature, objective and elements Suitable criteria

• (^) Criteria - benchmark used to evaluate the subject matter and are available to intended users a. Established Criteria *PFRS , COSO’s Internal Control-Integrated Framework, or Laws and Regulations b. Specifically Developed Criteria *Internally developed code, rules and regulations, and policies

1.1 A. Nature, objective and elements Sufficient appropriate evidence

• (^) Professional Skepticism - questioning mind & critical assessment
• (^) Evidence - which the conclusion is based
• (^) Sufficiency - quantity of evidence
• (^) Appropriateness - quality of evidence (relevance & reliability)

1.1 A. Nature, objective and elements Sufficient appropriate evidence

• (^) Practitioner is not trained or expected to be an expert authentication
• (^) More reliable if: a. Independent source b. Controls are effective c. Directly obtained d. In documentary form e. Original Documents

1.1 B. Types of Assurance Engagements (Audits, Reviews, Other Assurance Engagements)
Assurance Engagement Risk: Assurance engagement risk is the risk that the practitioner expresses an inappropriate conclusion when the subject matter information is materially misstated.

1.1 B. Types of Assurance Engagements (Audits, Reviews, Other Assurance Engagements)
Components of assurance engagement risk :

• (^) Risk of material misstatement the risk that the subject matter is materially misstated a. Inherent risk – the susceptibility of the subject matter information to a material misstatement, assuming that there are no related controls b. Control risk – the risk that a material misstatement that could occur will not be prevented, or detected and corrected, on a timely basis by related internal controls
• (^) Detection risk the risk that the practitioner will not detect a material misstatement that exists

1.1 B. Types of Assurance Engagements (Audits, Reviews, Other Assurance Engagements) Note: · Reasonable assurance is achieved if assurance engagement risk is reduced to an acceptably low level (close to zero). · For assurance engagements regarding historical financial information in particular, reasonable assurance engagements are called audit engagements. An audit engagement is an assurance engagement to provide a high level of assurance that the financial statements are free of material misstatement. This high level of assurance is expressed positively in the audit report as “reasonable assurance”. · Absolute assurance is not attainable: In assurance engagements, absolute assurance is generally not attainable because of such factors as:  Use of judgment  Use of testing  Inherent limitations of internal control  Most evidence available to the practitioner is persuasive rather than conclusive  In some cases, the characteristics of the subject matter

1.1 B. Types of Assurance Engagements (Audits, Reviews, Other Assurance Engagements)\

2. Limited assurance engagements Engagements that provide only a “moderate” or “limited” level of assurance · (^) The objective of a limited assurance engagement is a reduction in assurance engagement risk to an acceptable level as the basis for a negative form of expression of the practitioner’s conclusion. Thus, the risk in limited assurance engagement is greater than for a reasonable assurance engagement. Note: · Moderate assurance is achieved if assurance engagement risk is reduced to an acceptable level. · For assurance engagements regarding historical financial information in particular, limited assurance engagements are called review engagements