University of Santo Tomas

AMV College of Accountancy

IAC 12 - Integrated Review in Assurance Principles, Professional Ethics and Good Governance

FUNDAMENTALS OF ASSURANCE SERVICES

 Relevance and Reliability of Information – critical for making the best decision.
 Assurance – auditor’s satisfaction as to the reliability of an assertion being made by one party
for use by another party.
 Assurance Services (or Assurance Engagements)
- Assurers report on the quality of information.
- Intended to enhance information credibility.
 Elements of Assurance Engagements
1. Three-party Relationship
A. Practitioner
- Responsible for determining the nature, timing and extent of procedures.
- Broader than the word “auditor”.
- Experts – persons from other professional disciplines.
B. Responsible Party
- Responsible for the subject matter or subject matter information (assertion).
- May or may not be the engaging party.
- Provides the practitioner with a written representation that evaluates the subject
matter against the identified criteria.
C. Intended Users
- Can be the responsible party, but not the only one.
- May be limited to major stockholders with significant and common interests.
2. Appropriate Subject Matter
 Forms:
a. Financial performance or conditions;
b. Non-financial performance or conditions;
c. Physical characteristics;
d. Systems and processes; and
e. Behavior.
 Identifiable
 Capable of consistent evaluation against the identified criteria.
 Capable of being subjected to evidence-gathering procedures.
3. Suitable Criteria
 Criteria
- Benchmark used to evaluate the subject matter.
- Need to be available to the intended users through inclusion in the presentation of
the subject matter information, through inclusion in the assurance report, publicly or
by general understanding.
- Can be formal or less formal (e.g. internally developed code of conduct).
- Context-sensitive (relevant to engagement circumstances).
 Assurance Engagement and its Applicable Criteria
a. Audit of Financial Statements: PFRS
b. Audit of Internal Control: Established internal control framework (e.g. COSO) or
specifically designed internal control objectives
c. Compliance Audits: Applicable laws, regulation or contract
  The evaluation of a subject matter merely on the basis of the practitioner’s own
expectations, judgments and individual experience would not constitute suitable criteria.
 Characteristics of a Suitable Criteria: Relevance, Completeness, Reliability, Neutrality and
Understandability
 Established and Specifically Developed Criteria
1. Established Criteria – laws and regulations, those issued by recognized body of
experts.
2. Specifically Developed Criteria – designed for the engagement.
4. Sufficient Appropriate Evidence
 Professional Skepticism – critical assessment with a questioning mind.
 An assurance engagement rarely involves the authentication of documentation, nor is
the practitioner expected to be an expert in such documentation.
 Sufficiency - quantity of evidence (affected by the risk of subject matter information and
the quality of such evidence).
 Appropriateness – quality of evidence
 Reliability of evidence is influenced by its source and its nature.
 Generalizations about the reliability of evidence. The following are more reliable:
1. Obtained from independent external sources.
2. Generated internally when related controls are effective.
3. Obtained directly by practitioner.
4. In documentary form
5. Original document
 Cost-benefit considerations
 Conclusions provided on processes ordinarily are limited to the period covered by the
engagement.
 Materiality
 Assurance Engagement Risk – risk of expressing an inappropriate conclusion.
5. Written Assurance Report