Assurance Engagements
The practitioner examines the subject matter made available by the responsible party, matches it to
the suitable criteria using evidence and reports to the intended users.
Elements of an assurance engagement
1. An assurance engagement will require a three-party relationship comprising of:
a) The intended user who is the person who requires the assurance report.
b) The responsible party, which is the organisation responsible for preparing the subject matter to
be reviewed.
c) The practitioner (i.e. an accountant) who is the professional who will review the subject matter
and provide the assurance.
2. A second element which is required for an assurance engagement is suitable subject matter. The
subject matter is the data which the responsible party has prepared and which requires verification.
3. Thirdly this subject matter is then evaluated or assessed against suitable criteria in order for it to be
assessed and an opinion provided.
4. Fourth, the practitioner must ensure that they have gathered sufficient appropriate evidence in
order to give the required level of assurance.
5. Last, an assurance report provides the opinion which is given by the practitioner to the intended
user
Types of assurance assignments
Reasonable assurance Limited assurance
An Assurance engagement in which the An assurance engagement in which the
practitioner reduces engagement risk to practitioner reduces engagement risk to a
an acceptably low level in the level that is acceptable in the circumstances of
circumstances of the engagement as the the engagement but where that risk is greater
basis for the practitioner’s conclusion. than for a reasonable assurance engagement
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, Example: External Audit Example: Review of financial statements
High level of assurance but NOT absolute or Moderate level of assurance
100%
The practitioner gathers sufficient evidence to be
A high but not absolute level of assurance is satisfied that the subject matter is plausible; in this
provided, this is known as reasonable case negative assurance is given whereby the
assurance. practitioner confirms that nothing has come to
their attention which indicates that the subject
matter contains material misstatements.
Sufficient appropriate evidence is obtained as Lesser testing-focus on obvious errors only
part of a systematic engagement process that (Analytical testing and Enquiry)
includes:
Obtaining an understanding of the No going concern reviews
engagement circumstances
Assessing risks The procedures undertaken are not nearly as
Responding to assessed risks comprehensive as those in an audit, with
Performing further procedures using a procedures such as analytical review and enquiry
combination of inspection, observation, used extensively. In addition, the practitioner does
external confirmation, re-calculation, re- not need to comply with ISAs as these only relate
performance, analytical procedures and to external audits.
inquiry.
Positive conclusion- Wording: Negative conclusion-Wording:
‘In our opinion the financial statements give “Nothing has come to light to suggest errors or
(or do not give) a true and fair view of the problems exist’'
state of the company’s affairs’.
The assurance is therefore given on the absence of
The phrases used to express the auditor’s any indication to the contrary.
opinion are ‘give a true and fair view’ or
‘present fairly, in all material respects’ which
are equivalent terms
Review engagements are often undertaken as an
alternative to an audit, and involve a practitioner
reviewing financial data, such as six-monthly
figures. This would involve the practitioner
undertaking procedures to state whether anything
has come to their attention which causes the
practitioner to believe that the financial data is not
in accordance with the financial reporting
framework.
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The practitioner examines the subject matter made available by the responsible party, matches it to
the suitable criteria using evidence and reports to the intended users.
Elements of an assurance engagement
1. An assurance engagement will require a three-party relationship comprising of:
a) The intended user who is the person who requires the assurance report.
b) The responsible party, which is the organisation responsible for preparing the subject matter to
be reviewed.
c) The practitioner (i.e. an accountant) who is the professional who will review the subject matter
and provide the assurance.
2. A second element which is required for an assurance engagement is suitable subject matter. The
subject matter is the data which the responsible party has prepared and which requires verification.
3. Thirdly this subject matter is then evaluated or assessed against suitable criteria in order for it to be
assessed and an opinion provided.
4. Fourth, the practitioner must ensure that they have gathered sufficient appropriate evidence in
order to give the required level of assurance.
5. Last, an assurance report provides the opinion which is given by the practitioner to the intended
user
Types of assurance assignments
Reasonable assurance Limited assurance
An Assurance engagement in which the An assurance engagement in which the
practitioner reduces engagement risk to practitioner reduces engagement risk to a
an acceptably low level in the level that is acceptable in the circumstances of
circumstances of the engagement as the the engagement but where that risk is greater
basis for the practitioner’s conclusion. than for a reasonable assurance engagement
Page | 6
, Example: External Audit Example: Review of financial statements
High level of assurance but NOT absolute or Moderate level of assurance
100%
The practitioner gathers sufficient evidence to be
A high but not absolute level of assurance is satisfied that the subject matter is plausible; in this
provided, this is known as reasonable case negative assurance is given whereby the
assurance. practitioner confirms that nothing has come to
their attention which indicates that the subject
matter contains material misstatements.
Sufficient appropriate evidence is obtained as Lesser testing-focus on obvious errors only
part of a systematic engagement process that (Analytical testing and Enquiry)
includes:
Obtaining an understanding of the No going concern reviews
engagement circumstances
Assessing risks The procedures undertaken are not nearly as
Responding to assessed risks comprehensive as those in an audit, with
Performing further procedures using a procedures such as analytical review and enquiry
combination of inspection, observation, used extensively. In addition, the practitioner does
external confirmation, re-calculation, re- not need to comply with ISAs as these only relate
performance, analytical procedures and to external audits.
inquiry.
Positive conclusion- Wording: Negative conclusion-Wording:
‘In our opinion the financial statements give “Nothing has come to light to suggest errors or
(or do not give) a true and fair view of the problems exist’'
state of the company’s affairs’.
The assurance is therefore given on the absence of
The phrases used to express the auditor’s any indication to the contrary.
opinion are ‘give a true and fair view’ or
‘present fairly, in all material respects’ which
are equivalent terms
Review engagements are often undertaken as an
alternative to an audit, and involve a practitioner
reviewing financial data, such as six-monthly
figures. This would involve the practitioner
undertaking procedures to state whether anything
has come to their attention which causes the
practitioner to believe that the financial data is not
in accordance with the financial reporting
framework.
Page | 7
