CHAPTER 12

Assurance and Related Services

- There are four types of services that are normally performed in connection
with the entity’s financial statements
o Audit
o Review
o Compilation
o Agreed-upon procedures

Audit of Financial Statements

- Conducted primarily to enable the auditor to express opinion on the entity’s
financial statements and to provide the users with a high level of assurance
(reasonable assurance) that the financial statements are free from material
misstatements.

Review of Financial Statements

- To enable an auditor to state whether, on the basis of procedures which do
not provide all the evidence that would be required in an audit
o Level of Assurance – can only provide moderate level of assurance
that the information subject to review is free of material misstatements.
o Procedures to be performed – while a review involves the application
of audit skills and techniques in gathering evidence, it does not
ordinarily involve as assessment of accounting and internal control
systems, test of records and of responses to inquiries by obtaining
corroborating evidence through inspection, observation, confirmation
and computation.
o Reporting Responsibility – the review report should contain a clear
written expression of negative assurance. The auditor should review
and assess the conclusion draw from the evidence obtained as the
basis for the expression of negative assurance.
 The Unmodified Review Report – report is issued when the
auditor believes, based on the evidence obtained, that there are
no material modifications that should be made to the financial
statements in order for these financial statements to be in
conformity with PFRS.
o Modification of the Review Report
 Material Misstatements
 Express a qualification of the negative assurance
  When the effect of the matter is material and pervasive to
the financial statements that the auditor concludes that a
qualification is not adequate to disclose the misleading or
incomplete nature of the financial statements, give and
adverse statements that the financial statements are not
presented fairly, in all material respects, in accordance
with PFRS.
 Scope Limitation
 Express qualification of the negative assurance
 When the possible effect of the limitation is material and
pervasive that the auditor concludes that no level of
assurance can be provided, the auditor should not
provide any assurance

Compilation of financial statements

- Level of Assurance
o Not designed and do not enable the accountant to express any
assurance on the financial information
- Procedures to be performed
o The accountant should read the compiled information and consider
whether it appears to be appropriate in form and free from obvious
material misstatements.
o The accountant is not ordinarily required to:
 Make any inquiries of management to assess the reliability and
competence of the information provided
 Assess internal control
 Verify any matters
 Verify any explanations
- Reporting responsibility
o The accountant’s compilation report should identify the financial
statements compiled and should clearly indicate that no assurance is
provided on the financial statements.
- Modification of Compilation Report
o Material Misstatements
 If there are material misstatements in the financial statements,
the accountant should disclose the nature of the misstatements
in a separate paragraph of the report although their effects do
not have to be quantified
o Scope of Limitation
  Normally cause the accountant to withdraw from the
engagements

Agreed-upon Procedures Engagements

- Level of Assurance
o As the auditor simply provides a report of the factual findings of agreed
upon procedures, no assurance is expressed.
- Restrictions on the distribution of report
o The report is restricted to those parties that have agreed to the
procedures to be performed since others, unaware of the reasons for
the procedures, may misinterpret the results
- Terms of Engagement
o There is a clear understanding regarding the agreed upon procedures
and the conditions of the engagements
- Procedures and Evidence
o Inquiry and analysis
o Recomputation, comparison and other clerical accuracy checks
o Observation
o Inspection
o Obtaining confirmations
- Reporting Responsibility
o The report on an agree upon procedures engagement needs to
describe the purpose and the agreed-upon procedures of the
engagement in sufficient detail

Assurance engagements
- PSAE 3000 states that assurance engagements are intended to enhance the
credibility of information about a subject matter by evaluating whether the
subject matter conforms in all material respects with suitable criteria.
o Three party relationship
 An independent and competent professional accountant
 The party responsible for the subject matter of the assurance
engagement
 The intended users to whom, the professional accountant
usually addresses the report.
o Subject Matter
 Data
 Systems and processes
 Behaviour
 Physical characteristics
o Criteria
 The standards of benchmark used to evaluate or measure the
subject matter of an assurance engagement.
o Evidence
 The practitioner should plan and perform the engagement to
obtain sufficient appropriate evidence to determine whether the
assertions are free of material misstatements
o Assurance report
 Provides either high or moderate level of assurance about the
subject matter