Types of Assurance Engagement
Elements of an Assurance Engagement
Assurance Engagement has five elements, which need to be fulfilled to meet the criteria of Assurance Engagement
Five 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 (Share Holders, Lenders, etc, etc)
b) The responsible party, which is the organization responsible for preparing the subject matter to be reviewed (Board of Directors)
c) The practitioner who is the professional who will review the subject matter and provide assurance. (i.e. an accountant)
2. The second element is required for an assurance engagement is a suitable subject matter. The subject matter is the data that the responsible party has prepared and which requires verification (e.g Financial statements).
3. The subject matter is then evaluated or assessed against suitable criteria in order for it to be assessed and an opinion provided (e.g IAS & IFRS)
4. The practitioner must ensure that they have gathered sufficient appropriate audit evidence in order to give the required level of assurance engagement.
5. In the last one, an assurance report provides the opinion which is given by the practitioner to the intended user(ShareHolders).
Types of assurance assignments
Types of Assurance Engagement
|An Assurance engagement in which the Practioner(Auditor) reduces engagement risk to an |
acceptably lower level in the circumstances of the engagement as the basis for the
|Example: External Audit|
|High level of assurance but NOT absolute or 100% |
A high level of assurance but not the absolute level of assurance is provided, this is known as reasonable assurance.
|More testing (Analytical procedures, a test of controls and substantive testing) |
Going concern review also carried out
|Positive conclusion- Wording: |
‘in our opinion, the financial statements give (or do not give) a true and fair view of the state of the
2- Limited Assurance
An assurance engagement in which the practitioner(Auditor) reduces engagement risk to a
acceptable level in the circumstances of the engagement but where that risk is greater than for a reasonable assurance engagement
Example: Review of financial statements
Moderate level of assurance
The practitioner gathers sufficient appropriate audit evidence to be satisfied that the subject matter is credible, in this case, negative assurance is given whereby the practitioner confirms
that nothing has come to auditor’s attention which indicates that the subject matter contains
material misstatements in financial statements.
Lesser testing-focus on obvious errors only
(Analytical testing and Enquiry)
Going concern review will not be performed
The procedures undertaken are not nearly as comprehensive in assurance engagement,
with procedures such as analytical review and inquiry used extensively. Also, the practitioner does not need to comply with ISAs And IFRSs as these only relate to external audits.
“Nothing has come to light to suggest errors or problems exist’’
However, the assurance is given in the absence of any indication to the contrary.
Review engagements are often take up as an alternative to an audit and involve a
practitioner reviewing financial data, such as six-monthly figures.
This would involve the
the practitioner takes up procedures to state whether anything has come to their attention which is the reason the practitioner to believe that the financial data is not in accordance with the financial reporting framework.
3-Assignments were no Assurance is given
1. Agreed-upon procedures: A report on factual findings is given but assurance will not be given. Users must judge for themselves and draw their own conclusions
2. Compilation engagement: Users of the compiled information gain benefit from the accountant’s involvement but no assurance is expressed. It is used to collect, classify and summarise financial information. It means to present data in a manageable and understandable form.
See also: Ratio Analysis