Before we proceed on the definition of Assurance Engagement, let’s discuss first the concept of

Audit and Assurance. As you see in your screen, AUDIT is the PROCESS and the
ASSURANCE is the product.
So, Auditors they go through the PROCESS of testing client’s financial reports which is the
AUDIT, in order to give the client, the confidence that their report is what it seems to be which is
the ASSURANCE.
The traditional audit of FS gives assurance to readers of financial statements that the information
is credible, reliable and free from material misstatements. If you remember in Enron, most of the
analyst or stockholders like CS First Boton and Kynikos Association engage in Enron business
since they rely and trusted on the company’s integrity with FS representatives. They did not
know it was manipulated.
But audit is just one example of assurance engagement and recently, investors and others have
found need for many other types of assurance.
Now, let’s define the assurance engagement, so assurance engagement means an engagement in
which a practitioner or professional accountant expresses a conclusion designed to enhance the
degree of confidence of the intended users other than the responsible party about the outcome
of the evaluation or measurement of a subject matter against criteria.
As you see, familiar na kayo from our topic since na exam na natin to for prelims. To elaborate
the assurance services, this is an independent examination of a company’s processes and control.
Ano ba yung ini-aim ni assurance? That is to reduce information risk. So yung mga accounting
professionals they are normally qualified practitioners na magperform ng gantong services. The
reason why kung bakit nirereduce ang risks is to allow the intended users to refrain from making
impaired decisions. Therefore, assurance improves decision- making for users, such as investors
and analyst.
Next is the example of assurance engagement, this is not an example actually it is the subject
matter that includes:
This is a situational example naman of assurance engagements where it shows na assurance
engagement is not just in entities or business nangyayari din sya in our daily
First example is parents need assurance na yung school na iniaattendan natin is suitable in
educating their children
Next, if we go to fast food or restaurant as diners we want the assurance that the food they serve
is safe to eat
Another example is shareholders need assurance that the published financial statements of the
entity is reliable, valid, and free from misstatements.
Last, is the directors need assurance that the systems inside the company they run are working.
As you see the objective and definition of assurance engagement is almost the same. The
objective of assurance engagement is to enhance the credibility of information in order to
improve the likelihood na yung information will meet the needs of an intended user.
So here the I will give you a brief description with the terms na maididiscuss din later on.
The practitioner sya yung qualified person or persons carrying out the assurance. He/ she would
verifies the completeness and validity nung information na ipepresent sa kanya.
So sino yung magprepresent ng information kay practitioner? That is the responsible party,
he/she is the preparer of the information presented to the practitioner.
And the intended users naman is the one who rely on and make informed decisions in the
outcome of the assurance.
Next is the level of assurance it can be reasonable level of assurance and limited assurance.
In reasonable assurance, there’s a lot of detailed checking is done so if there’s a lot of detailed
checking it means that the assurance provider will be able to conclude their job properly, or has
not. This is also known as the positive assurance.
While ang limited assurance naman smaller amount of checking is done, then the assurance
provider may only be able to report that no errors or problems were found pero they might not be
able to confirm na walang errors since they have not checked enough to be sure. This is also
known as the negative assurance.

So is it not possible to give an absolute level of assurance?

Yes, the reason why auditor cannot provide an absolute level of assurance engagement is that
auditor is required to obtain reasonable assurance whether FS give true and fair view according
to ISA (international standards on auditing) so sa madaling salita auditor must be reasonably
sure na yung FS is free from material misstatements.
Again, let’s emphasize that the auditor needs to be reasonably sure and NOT absolutely sure.
May malaking pagkakaiba between absolute sure and reasonably sure.
Absolute assurance means that there is ABSOLUTELY NO MISSTATEMENT in FS, as in
walang mali and thus FS are ABSOLUTELY RELIABLE and RELEVANT for the users. While
ang Reasonable assurance is also a high level of assurance but it means that auditor has
conducted the engagement in a way that he is reasonably the best possible extent provided the
situation circumstances he is reasonable sure that FS are free from materials misstatements BUT
there might be some misstatements that go undetected.
So, bakit hindi kayang iobtain ng auditor ang absolute assurance? The reason why is hindi dahil
hindi sila nagconduct ng audit engagements with enough care but rather merong LIMITATIONS
and yung mga LIMITATIONS na yon ang nagrerestricts sa auditor to obtain only reasonable
assurance and even with such limitations and restrictions auditor tries his best to provide some
level of assurance to the users to reinforce their confidence in the FS.
Additional pala, for assurance engagement regarding the historical financial information,
reasonable assurance engagements are called AUDIT and limited assurance are called
REVIEWS.
So to the next topic which is ASSERTION-BASED and DIRECT REPORTING
ENGAGEMENT.

To sum this all up and to understand it more consider the following example.
Management (responsible party) of company A fulfilled its responsibility by publishing financial
statements (subject matter) in accordance with International Financial Reporting Standards
(criteria) and the assets, liabilities etc are recognized, measured, presented and disclosed (subject
matter information) as per the requirements of IFRSs.
Practitioner (auditor) is appointed by the shareholders (users) to express his opinion (assurance)
in the form of a report over the recognition, measurement, presentation and disclosures (subject
matter information) made by the management (responsible party) in the financial statements
(subject matter) are actually in accordance with IFRSs (criteria)

If we are clear about the concept of assurance engagement itself, now we can understand what
are attestation engagements and direct reporting engagements.
If the measurement of subject matter is given by the responsible party, it takes the form of
assertions if it is disclosed to the intended users and then practitioner is asked to affirm such
assertions of the responsible party. Such assurance engagement is attestation engagement.
Another name for attestation engagement is assertion-based engagement as practitioner express
his opinion about assertions fairness.
However, if the practitioner performs the measurement of subject matter himself OR obtains the
representation from the responsible party who has conducted the measurement of subject matter
where such evaluation was not disclosed to intended users by the responsible party then
measurement of subject matter will be provided by the practitioner in his assurance report to
intended users. Such engagements are called direct reporting engagements.