Class Synopsis -01
Prepared by: Abdullah-Al-Mamun, ACA
Manager (Audit & Consultancy)
Concept & Need for Assurance
An assurance engagement is 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.
The key elements of an assurance engagement are as follows:
• Three people or group of people involved
➢ The practitioner (accountant i.e. auditor)
➢ The intended users (stakeholders)
➢ The responsible party (the person(s) who prepared the subject matter i.e. the management) • A subject matter:
As we shall see below, the subject matter of an assurance engagement may vary considerably. However, it is likely to fall into one of three categories: ➢ Data (for example, financial statements or business projections) ➢ Systems or processes (for example, internal control systems or computer systems) ➢ Behavior (for example, social and environmental performance or corporate governance) • Suitable Criteria:
The person providing the assurance must have something by which to judge whether the information is reliable and can be trusted. So for example, in an assurance engagement relating to financial statements, the criteria might be accounting standards (e.g. BAS). The practitioner will be able to test whether the financial statements have been put together in accordance with accounting standards and if they have, then the practitioner can conclude that there is a degree of assurance that they are reliable.
• Sufficient appropriate evidence to support the assurance opinion The practitioner must substantiate the opinion that he draws in order that the user can have confidence that it is reliable. The practitioner must obtain evidence as to whether the criteria have been met. • A written report in appropriate form
Lastly, it is required that assurance reports are provided to the intended users in a written form and contain certain specified information. This adds to the assurance that the user is being given, as it ensures that key information is being given and that the assurance given is clear and unequivocal (i.e. unambiguous).
Levels of Assurance
To provide assurance, the auditor (practitioner) assesses the evidence collected as a result of procedures conducted and expresses a conclusion. The degree of satisfaction achieved and, therefore, the level of assurance which may be provided is determined by the procedures performed and their results.
There are two types of assurance engagement:
• Reasonable Assurance Engagement
• Limited Assurance Engagement
The reason that there are two types of assurance engagement is that the level of assurance that can be given depends on the evidence that can be obtained by the practitioner. The key point about evidence is that in all assurance engagements, sufficient, appropriate evidence must be obtained. What determines whether evidence is sufficient and appropriate is the level of assurance that the practitioner is trying to give, so it is tied in with the type of opinion being given. The opinion given in an assurance engagement therefore depends on what type of engagement it is.
Reasonable Assurance Engagement
A high, but not absolute level of assurance is given. In audit engagement, the auditor (practitioner) provides a high, but not absolute, level of assurance that the information subject to audit is free of material misstatement. This is expressed positively in the audit report as reasonable assurance.
Limited Assurance Engagement
In a review engagement, the auditor (practitioner) provides a moderate level of assurance that the information subject to review is free of material misstatement. This is expressed in the...