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CONCEPT OF ASSURANCE SERVICES

@drizjang Kuya Aud, Auditing Theory na po kasi namin ngayon. Please explain the concept
of assurance in simpler way.

@kuyaaud Annyeong! Ganto kase yan, Simulan natin sa tanong na baket kumukuha tayo ng
assurance? Hindi kasi lahat ng information fairly stated. Diyan
papasok si Assurance na kung saan si CPA ay magbibigay ng credibility sa
information provided by the management. Bilang users (investors, creditors, government,
customers, and employees) we need relevant and reliable information for us to make
decisions. Pero hindi lahat ng users ay may expertise to verify technical information.

PHILIPPINE FRAMEWORK FOR

Objectives of
assurance
engagement
1. To provide assurance from
an independent source
that the subject matter
agrees with set criteria
ASSURANCE ENGAGEMENT states that
“Assurance Engagement” means an
engagement in which a practitioner
expresses a conclusion designed to
enhance he 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

CPA  Evaluates  Assertions with the criteria  Report

Now let’s tackle naman the 5 elements of assurance engagements
» What are the Elements of Assurance Engagement?
Ans.:
T - Three-party relationship
A - Appropriate Subject Matter
A - A written report
S - Suitable Criteria
S - Sufficient Appropriate Evidence

Every assurance engagement needs 3 parties, certain subject matter, judged against
particular criteria by collecting evidence to then be reported on.

Three-party relationship
Meaning may practitioner which is the independent CPA, responsible party which is the
management, and intended users.

Practitioner – (which must be independent from the responsible

party) that gives assurance regarding assertions provided by the » What is
management by reviewing the subject matter. Assertion?
Ans.: It is made by
Responsible party – provides assertions or subject matter it is the and responsible of
client or entity management. the auditee
(management). Ex.
Intended users – The party who wants the reports they are the Financial Statements
benefactors of the verified financial information

Appropriate subject matter

The material provided by the responsible party which needs
assurance on it is also the information the users needed to be verified

An appropriate subject matter is

1. Identifiable and capable of consistent evaluation or measurement against the
identified criteria
2. Capable of being subjected to procedures for gathering sufficient appropriate
evidence to support a reasonable assurance or limited assurance conclusion
as appropriate

Example of Subject Matter

1. Financial performance and conditions

2. Non- Financial performance or conditions
3. Physical Characteristics
 4. System and processes
5. Behavior

Suitable criteria Characteristic of Suitable Criteria

–it is the criteria to judge the reliability and accuracy (e.g. 1. Relevance- must be
PFRS) directly related to the
It is the standards used as the basis in attesting assertions
the appropriate subject matter 2. Completeness- must
Suitable criteria are required for reasonably consistent contain all the necessary
evaluation or measure of a subject matter within the 3. Reliability- must be
context of professional judgment trustworthy and accurate
4. Neutrality- must be free
from bias
5. Understandability- must
Sufficient appropriate evidence be clear and
comprehensive
- the evidences gathered are necessary to support
assertions made by the responsible party necessary
to express fair appropriate opinion.

Sufficiency- measures the quantity of evidence being gathered.

The quantity of evidence needed is affected by:
1. Risk of misstatement- the greater the risk, the more the evidence to be gathered
2. Quality of the evidence- the higher the quality, the less may be required

Appropriateness- measures the quality of evidence being gathered

To be appropriate, the evidence gathered must be both relevant and reliable.

RELEVANCE
- It means that the evidence gathered is directly related to the assertion.

RELIABILITY
- It means that the evidence gathered is free from error and bias and faithfully
represents what it needs to represent, thus, useful to support the opinion.

Written assurance report

It is the conclusion obtained about the subject matter information
o Forms of Conclusion
 Positive form – reasonable assurance “In our opinion, the
entity has complied in all material respects.”
 Negative form – limited assurance “Nothing has come to our
attention that causes us to be believe that the entity has not
complied in all material respects.”
Note: Hindi matatawag na assurance engagement kung hindi kumpleto ang limang elements
na ‘to.

TYPES OF ASSURANCE ENGAGEMENT

 According to level
o Reasonable Assurance Engagement- It gives high level of assurance. It
is a positive assurance the objective is to reduce assurance
engagement risk at a acceptably low level (ex. audits)

o Limited Assurance Engagement- It gives a moderate level of

assurance. It is negative assurance which means that in their
opinions there is nothing to suggest that the subject has not been
prepared in line with relevant criteria ( less evidence) (ex. Review
engagement).

ABSOLUTE ASSURANCE WILL NEVER BE PROVIDED BY AN

ASSURANCE ENGAGEMENT WHETHER AUDIT OR REVIEW

Remember! A review engagement gives negative assurance

An audit report gives positive assurance

 According to structure
o Attestation engagement- the practitioner attests the correspondence
of the assertions with the criteria provided by the responsible party.
o Direct engagement- the practitioner prepares and attests the
correspondence of the assertions with the criteria.

TYPES OF NON-ASSURANCE ENGAEMENT

 Agreed-upon procedures
 Compilation of financial or other informations
 Preparation of tax returns (no conclusion expressed) and tax consulting
 Management consulting and other advisory services