Lecture Auditing and assurance services (Second international edition) Chapter 20 Assurance, related services and internal auditing

Chapter Twenty

Assurance,
Related
Services and
Internal
Auditing

© The McGraw-Hill Companies 2010


Elliott Committee: Assurance Services
Assurance services
are independent
professional services
that improve the
quality of information,
or its context, for
decision-makers.
© The McGraw-Hill Companies 2010


Decision-Making and the Role of
Information

© The McGraw-Hill Companies 2010


Assurance Services and IAASB Engagement
Standards

© The McGraw-Hill Companies 2010


IAASB: Assurance Engagements
An engagement in which
a practitioner 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.
© The McGraw-Hill Companies 2010


IAASB: Assurance Engagements
• Subject matter and
subject matter
information.
• Criteria.
• Practitioner.
• Intended user.
• Responsible party.

• Assertion-based engagements.
• Direct reporting engagements.

© The McGraw-Hill Companies 2010


IAASB: Assurance Engagements
•
•
•
•
•

Ethical requirements.
Appropriate subject matter.
Suitable criteria.
Sufficient appropriate evidence.
Practitioner’s conclusion in a written report.
• Reasonable or limited assurance.
• Conclusion in positive or negative
form.
• Rational purpose.
Assurance engagement risk is the risk that the
practitioner expresses an inappropriate
conclusion when the subject matter
information is materially misstated.
© The McGraw-Hill Companies 2010


IAASB Assurance Standards and
Assurance Level
• Reasonable assurance means that the

engagement assurance risk is reduced to an
acceptably low level in the circumstances of
the engagement.
• In a limited assurance engagement the risk is
greater than for a reasonable assurance
engagement, but still acceptable in the
circumstances of the engagement.
The nature, timing and extent of procedures for
gathering sufficient appropriate evidence in a
limited assurance engagement are deliberately
limited relative to a reasonable assurance
engagement.
© The McGraw-Hill Companies 2010


IAASB Assurance Standards and
Assurance Level

© The McGraw-Hill Companies 2010


Review of Historical Financial Information
• Review as an alternative to an audit.
• Review performed by the auditor of the entity, for
example review of interim financial information.
• Historical financial information.
• Inquiries and analytical procedures.
• Limited assurance.
• Negative form of expression of the conclusion.

Negative form of expression of the conclusion
The review provides a basis to express a conclusion
whether anything has come to the practitioner’s attention that
causes the practitioner to believe that the financial
information is not in accordance with the applicable financial
reporting framework.
© The McGraw-Hill Companies 2010


Review Report – Unmodified Conclusion

© The McGraw-Hill Companies 2010


Review Report – Qualified Conclusion

© The McGraw-Hill Companies 2010


Assurance Engagements Other Than Audits
and Reviews of Historical Financial Information

Basic elements

ISAE 3000
Establish procedural requirements for assurance
engagements not covered by ISAs or ISREs.
•
•
•

•
•
•
•
•
•
•
•

Ethical requirements.
Quality control.
Engagement acceptance and continuance.
Agreeing on the terms of the engagement.
Planning and performing the engagement.
Using the work of an expert.
Obtaining evidence.
Considering subsequent events.
Documentation.
Preparing the assurance report.
Other reporting responsibilities.

© The McGraw-Hill Companies 2010


Assurance Report
Compliance with the Kimberley Process

© The McGraw-Hill Companies 2010

Assurance Report
Compliance with the Kimberley Process

© The McGraw-Hill Companies 2010


Assurance Report
Compliance with the Kimberley Process

© The McGraw-Hill Companies 2010


Assurance Report on Internal Control

© The McGraw-Hill Companies 2010


IAASB Assurance Projects
Sustainability

Pro Forma Financial
Information

Internal Control

Greenhouse
Gas

© The McGraw-Hill Companies 2010

Overview of Global Reporting Initiative (GRI)
G3 Guidelines

© The McGraw-Hill Companies 2010


Assurance on Sustainability Reporting
What type of
information does
sustainability reporting
typically include?

Why is third-party
assurance of sustainability
reporting demanded?

Why do companies
report on
sustainability?

What is relevant guidance
for assurance on
sustainability reporting?

What are relevant
criteria for reporting on
sustainability?

What is the role of

practitioners as assurers of
sustainability reporting?

© The McGraw-Hill Companies 2010


Assurance on Prospective Financial
Information
Financial forecasts
are prospective
financial information
based on
expectations of
future events and
actions.

General use
© The McGraw-Hill Companies 2010

Financial projections are
prospective financial
information based on
hypothetical assumptions
about future events and
actions.

Limited use


Assurance on Prospective Financial

Information
(1) Evaluating the
preparation.

(3) Evaluating the
presentation.

(2) Evaluating the
support of the
underlying
assumptions.

(4) Issuing an
assurance report.

© The McGraw-Hill Companies 2010


Related Services
Related
Services
ISRS
4400

Provide
No
Assurance

Agreed-Upon
Procedures

Compilati
on
© The McGraw-Hill Companies 2010

ISRS
4410


Agreed-Upon Procedures Report

© The McGraw-Hill Companies 2010


Agreed-Upon Procedures Report (cont.)

© The McGraw-Hill Companies 2010