sako mayrick 1 assurance engagements and prospective financial information part i compiled by sako...
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INTERNATIONAL FRAMEWORK FOR ASSURANCE ENGAGEMENT
Sako Mayrick1ASSURANCE ENGAGEMENTS AND PROSPECTIVE FINANCIAL INFORMATION Part ICompiled by Sako MayrickCOMPLEMENTARY READINGSako Mayrick2Handbook of International Quality Control, Auditing Review, Other Assurance, and Related Services Pronouncements, 2012 Edition Volume IIIESBA Ethical RequirementsInternational Financial Reporting StandardsCOSO/ CoCo Control Framework
wIntroduction to Assurance EngagementsSako Mayrick3AICPA defines assurance engagements as Independent Professional Services that improve information quality or its context'. Assurance services reduce the information risk; risk that the information provided is incorrect, on more than just financial data. The major purpose of assurance services is to provide independent and professional opinions that improve the quality of information to management as well as other decision makers within a given firm.
Audit and Assurance EngagementsSako Mayrick4Audits actually can be considered a type of assurance service. However, audits are only designed to test the validity of the financial statements and that only. Under an assurance engagement CPA's can provide a variety of services ranging from information systems security reviews to customer satisfaction surveys. Unlike audit and attestation services that are often highly structured, assurance services tend to be customized and implemented when performed for a smaller group of decision makers within the firm. Often managers must make decisions on things they have incomplete or inaccurate data for, and decisions made on such data may be incorrect and increase the overall business riskAssurance Services and ConsultancySako Mayrick5Assurance services can test financial and non-financial information; due to this assurance services can be classified as consulting services. However, assurance services are not considered consulting because in consulting services generally, a practitioner (Certified Public Accountant) uses his professional knowledge to make recommendations for a future event or a procedure, such as the design of an information system or accounting control system. In contrast, assurance services are designed to test the validity of past data of the business cycles. Although there is no boundary to what a practitioner can test in assurance services, a practitioner will not likely accept an assurance engagement in which his firm or previous experiences does not provide them with enough expertise to make a professional opinion on the given data.
Examples of Assurance ServicesSako Mayrick6Assurance ServicesNon Assurance Services Business risk assessmentBookkeeping and AccountingInformation System Security ReviewTax ServicesCustomer Satisfaction surveyCertain Management ConsultancyInternal Audit outsourcingOther Management ConsultancyAccounts Receivable ReviewCategories of AssuranceSako Mayrick7Risk assessment assurance that an entitys profile of business risks is comprehensive and evaluation of whether the entity has appropriate systems in place to effectively manage those risks.Business performance measurement assurance that an entity performance measurement system contain relevant and reliable measures for assessing the degree to which the entitys goals and objectives are achieved or how its performance compares to competitors.Information system reliability assurance that an entitys internal information system provide information for operating and financial decisions.Electronic commerce assurance that systems an tools used in electronic commerce provide appropriate data integrity, security, privacy and reliability.Health care (any other discipline) performance measurement assurance about the effectiveness of the subject matter provided by particular practitioners.Other areas for assurance services are corporate policy compliance, outsourced internal auditing, trading partner accountability, mergers and acquisition, ISO 9000 certification, investment managers compliance and World Wide Web assertions.
7INTERNATIONAL FRAMEWORK FOR ASSURANCE ENGAGEMENT (AE)Sako Mayrick8Aim at defining, describing the elements and objectives of an assurance engagementIt identified engagements to which ISA, ISRE and ISAE applyIt provides frame of reference forCPA PPOthers involved with assurance engagements including intended users of report and other partiesIt is used by IAASB in its development of ISA, ISAEs and ISREs8INTERNATIONAL FRAMEWORK FOR ASSURANCE ENGAGEMENTSako Mayrick9Framework is not a standard neither it provides procedural requirementPrinciples are contained in ISAs, ISREs and ISAEsPrinciples, essential procedures and related guidance consistent with the frameworkIt contains six major parts; introduction, definition and objective of assurance engagement, scope of the framework, engagement acceptance, elements of assurance engagement and inappropriate use of the practitioners name.INTERNATIONAL FRAMEWORK FOR ASSURANCE ENGAGEMENTSako Mayrick10Practitioners in assurance engagement are governed byISAs, ISAEs, ISREsFrameworkCode of Ethics for Professional AccountantsInternational Standards on Quality controlMeaning of assurance engagementSako Mayrick11Is an engagement in which a practitioner expresses conclusion designed to enhance the degree of confidence of intended users other than responsible party about the outcome of evaluation or measurement of subject matter against criteria.Express conclusionEnhance degree of confidence of users ( not party) on outcomeEvaluation of subject matter against criteria
Examples of Evaluation Sako Mayrick12Recognition, measurement, presentation and disclosure represented in the financial statements (outcome) from applying IFRS (Criteria) to the entitys financial position, financial performance and cash flows (subject matter)An assertion about effectiveness of IC (Outome) results from applying framework for evaluating effectiveness on IC such as (COSO) or (CoCo) (Criteria) to internal control process (subject matter)Subject matter information is also used to mean the outcome of the evaluation or measurement of a subject matter.Assertion based or direct reporting engagementsSako Mayrick13In assertion based, evaluation of subject matter is performed by responsible party, the subject matter information is in form of an assertion by the responsible party that is made available to the intended usersIn direct reporting engagement, the practitioner either directly performs the evaluation or measurement of the subject matter, or obtains a representation from the responsible party that has performed the evaluation or measurement that is not available to the intended users. The subject matter information is provided to the intended users in the assurance report.In direct reporting engagement, the responsible party is responsible for the subject matter BUT in assertion based engagement a responsible party is responsible for subject matter information (the assertion), and may be responsible for subject matter.A responsible party may or may not be a party who engages the practitioner (the engaging party) In some cases, intended users (for example, bankers and regulators) impose arequirement on, or request the responsible party (or the engaging party ifdifferent) to arrange for, an assurance engagement to be performed for aspecific purpose. When engagements are designed for specified intended usersor a specific purpose, the practitioner considers including a restriction in theassurance report that limits its use to those users or that purpose.13Reasonable assurance and limited assuranceSako Mayrick14Reasonable assurance is the reduction in assurance engagement risk to an acceptably low level in circumstances of engagement as a basis of a positive form of expression of practitioners conclusionLimited assurance is the reduction of assurance engagement risks to a level that is acceptable in the circumstances of the engagement, but where that risk is greater than for a reasonable assurance engagement, as a basis of a negative form of expression of practitioners conclusion.Circumstances of engagementSako Mayrick15Terms of engagement e.g. reasonable or limitedCharacteristics of the subject matterThe criteria to be usedNeeds of the intended users, Relevant characteristics of the responsible party and its environmentOther matters e.g events, transactions, conditions and practices that may have effect on the engagementScope of the AE as per FrameworkSako Mayrick16Not all AE are covered unless it meets the definition, examples not covered;Engagements covered by ISREs e.g. agreed upon procedures engagement and compilation of financial and other informationPreparation of tax returnsConsulting (or advisory)engagements e.g. management and tax consultingAn AE may be part of a larger engagement e.g. business acquisition with a portion of AEConsulting engagements employ a professional accountants technical skills, education, observations,experiences, and knowledge of the consulting process. The consulting process is an analytical processthat typically involves some combination of activities relating to: objective-setting, fact-finding,definition of problems or opportunities, evaluation of alternatives, development of recommendationsincluding actions, communication of results, and sometimes implementation and follow-up. Reports (ifissued) are generally written in a narrative (or long form) style. Generally the work performed is onlyfor the use and benefit of the client. The nature and scope of work is determined by agreement betweenthe professional accountant and the client. Any service that meets the definition of an assuranceengagement is not a consulting engagement but an assurance engagement.16Other Non- AE though meets definitionSako Mayrick17Legal testimony in accounting, auditing, taxation or other mattersProfessional opinion, views or wordingIn non assurance engagement, practitioners should avoid