AT 02 - FUNDAMENTALSOFAUDITING&ASSURANCESERVICES

• Assurance engagement


  One 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
• Types of Assurance Engagement

  • Reasonable assurance engagement
  • Limited assurance engagement
• The scope of the framework excludes engagements covered by Philippine Standards for Related Services, preparation of tax returns where no conclusion conveying assurance is expressed and consulting (or advisory) engagements
• Engagement acceptance


  • Relevant ethical requirements will be satisfied
  • The elements of assurance engagements are present
  • The preconditions to audit exist
• A practitioner may not change that engagement to a non-assurance engagement, or from a reasonable assurance engagement to a limited assurance engagement without reasonable justification
• Elements of an assurance engagement

  • A three party relationship
  • An appropriate subject matter
  • Suitable criteria
  • Sufficient appropriate evidence
  • A written assurance report
• Suitable criteria


  • Complete
  • Relevant
  • Reliable
  • Neutral
  • Understandable
• Assurance Engagement Risk


  The risk that the practitioner expresses an inappropriate conclusion
• Assurance Engagement Risk


  • Risk of material misstatements
  • Detection Risk
• Professional Skepticism


  The practitioner plans and performs an assurance engagement with an attitude of professional skepticism (make a critical assessment, with a questioning mind)
• Sufficiency


  The measure of the quantity of evidence
• Appropriateness


  The measure of the quality (relevance & reliability) of evidence
• Generalizations about audit evidence

  • Evidence is more reliable when it is obtained from independent sources outside the entity
  • Evidence generated internally is more reliable when the related controls are effective
  • Evidence obtained directly by the practitioner is more reliable than evidence obtained indirectly or by inference
  • Evidence is more reliable when it exists in documentary form, whether paper, electronic, or other media
  • Evidence provided by original documents is more reliable than evidence provided by photocopies or facsimiles
• Reasonable assurance engagement


  • Infinite variations in evidence gathering procedures are possible
• Limited Assurance engagement


  • Evidence obtained primarily through analytical procedures and inquiries
• Nature of Service


  • Audit
  • Review
  • Agreed Upon Procedures
  • Compilation
• Level of Assurance


  • High assurance (but not absolute)
  • Moderate Assurance
  • No assurance
• Report Provided


  • Positive assurance on assertion(s)
  • Negative assurance on assertion(s)
  • Factual findings of procedures (Restricted)
  • Identification of information compiled
• Evidence-gathering procedures


  • Theoretical unlimited
  • ARPS, inquiry
  • As agreed upon (by the parties to the engagement)
  • -
• Criteria need to be available to the intended users
• Assurance engagement


  Engagement where the 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
• Audit engagement


  Assurance engagement where the practitioner expresses a conclusion about the reliability of financial statements
• Attestation engagement


  Assurance engagement where the practitioner expresses a conclusion about the reliability of subject matter information, which is the outcome of the measurement or evaluation of an underlying subject matter against criteria
• Management consulting engagement


  Non-assurance engagement where the practitioner provides advice and recommendations based on their expertise, without expressing a conclusion
• The preparation of tax returns where no conclusion conveying assurance is expressed is non-assurance services
• Consulting engagements are non-assurance services
• Elements of an assurance engagement


  • Sufficient and appropriate evidence
  • Professional fees
• Parties in an assurance engagement

  • Management of an audit client (responsible party)
  • Auditor (practitioner)
• Potential subject matters in an assurance engagement

  • Cash flows of an entity (financial)
  • Effectiveness of an online payment system (systems and processes)
• Statements


  • Zero customer complaints and product recall (subject matter information)
  • Performance of an entity (subject matter)
• Statements


  • Adherence to SEC regulations (subject matter)
  • Report on an entity's observance of the SEC regulations (subject matter information)
• Evidential matters are benchmarks used to evaluate or measure the subject matter including, where relevant, benchmarks for presentation and disclosure
• Criteria refer to the information obtained by the practitioner in arriving at the conclusions on which the conclusion is based
• Relevant criteria


  • Contributes to conclusions that assist decision-making by the intended users
  • Is sufficiently complete when relevant factors that could affect the conclusions in the context of the engagement circumstances are not omitted
  • Allows reasonably consistent evaluation or measurement of the subject matter including, where relevant, presentation and disclosure, when used in similar circumstances by similarly qualified practitioners
  • Contributes to conclusions that are clear, comprehensive, and not subject to significantly different interpretations
• Absolute assurance is not possible
• Reasonable assurance is possible
• Limited assurance is possible
• The use of selective testing and much of the evidence available to the practitioner being conclusive rather than persuasive are reasons why a perfect level of assurance is not possible
• Levels of assurance


  • Reasonable assurance (The aim 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)
  • Limited assurance (The aim 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)
• Forms of conclusion related to assurance given

  • Positive (In our opinion internal control is effective, in all material respects, based on XYZ criteria)
  • Negative (Based on our work described in this report, nothing has come to our attention that causes us to believe that internal control is not effective, in all material respects, based on XYZ criteria)