ACCO 30043 Assignment Number 2

Answer the following questions briefly and concisely.

1. What is the objective of an assurance engagement?

 Assurance engagements, as defined by the Philippine Framework for Assurance

Engagements, is 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. assurance engagement differs. For a reasonable
assurance engagement, its main objective is to reduce assurance engagement
risk to an acceptable low level in the circumstances of the engagement
circumstances as the basis for a positive form of expression of the practitioner’s
conclusion. On the other hand, a limited assurance engagement’s objective is to
reduce assurance engagement risk to a level a reduction in assurance
engagement risk 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 the basis for a negative form of expression of the practitioner’s
conclusion. In conclusion, assurance engagements are performed to express an
opinion or conclusion, provide assurance, enhance the confidence of the
intended users, or reduce engagement risk.
2. Enumerate the five elements of assurance engagements. For each element,
provide a brief explanation.

 The five elements of assurance engagements are:

(1) A three-party relationship involving a practitioner, a responsible party, and
intended users;
(2) An appropriate subject matter;
(3) Suitable Criteria;
(4) Sufficient appropriate evidence; and
(5) A written assurance report in the form appropriate to a reasonable
assurance engagement or a limited assurance engagement.

 Three-party relationship
 An assurance engagement must involve a practitioner, a responsible party,
and the intended users. A practitioner is the one who is performing the
assurance engagements service. On the other hand, the responsible party is
the one who is responsible for the subject matter, or the subject matter
information (or assertion). Lastly, the intended users are the person, persons,
or class of persons for whom the practitioner prepares the assurance report.

 Subject matter
 The financial and non-financial information for which the practitioner gathers
sufficient appropriate evidence to be evaluated or measured against suitable
criteria as a reasonable basis for expressing a conclusion or reporting
findings in the assurance engagement report is referred to as subject matter,
or subject matter information. A subject matter should be identifiable, capable
of consistent evaluation or measurement of an identified criteria, and any
information about it can be subjected to procedures for gathering sufficient
appropriate evidence.
 Suitable Criteria
 The benchmarks used to evaluate or measure the subject matter, including,
where applicable, presentation and disclosure benchmarks, are referred to as
criteria. Suitable criteria must be relevant, complete, reliable, neutral, and
understandable to ensure an effective and efficient assurance engagement.

 Sufficient Appropriate Evidence

 The practitioner must have professional skepticism in gathering evidences
that is sufficient and appropriate to verify that the subject matter information
satisfies the criteria, or is free of material misstatements. Sufficiency refers to
the quality of the evidence, while appropriateness considers the quality of an
evidence in terms of relevance and reliability.

 Written Assurance Report

 The practitioner writes a report with a conclusion that expresses the level of
confidence he or she has in the subject matter material.

3. Is absolute assurance possible? Explain.

 Absolute assurance engagement is not possible for there are many factors
that constraint the practitioner to render a 100% guarantee that there is no
assurance risk at all. Besides, that risks cannot be eliminated but only
mitigated or minimized, the very nature of performing assurance
engagements has its limitations. First is the use of selecting testing or
sampling techniques in conducting assurance engagements. Practitioners
only apply the engagement procedures only to a small portion of the whole
population instead of checking each and every element of the population
because applying it to the whole population requires a lot of work and
resources. There are also inherent limitations in the internal controls of an
entity such as human error and the possibility of committing fraud.
Moreover, the responsible party provides pieces of evidence that are
persuasive rather than conclusive and the practitioner uses judgment in
 gathering and evaluating such evidence. The characteristics of the subject
matter is another factor, for example in financial statements, the book
value of property, plant and equipment is merely based on estimates and
the judgment of the entity. 

4. Differentiate assurance, attestation and audit. Are all audits attestations? Are all
attestations audits? Explain.
 An assurance is one in which a practitioner (e.g., an auditor, a reviewer,
etc.) undertakes an engagement and, at the end of it, provides an opinion
on the subject matter's evaluation. This viewpoint ultimately boosts the
confidence of intended users (other than the responsible party) in the
subject matter evaluation. On the other hand, an attestation is a process
that takes all of the data and information gathered and verifies its validity
using agreed-upon procedure engagements. An organization can also
request attestation for compliance procedures, internal control function
assessments, and financial forecasting, projections, or pro forma data
reporting. Meanwhile, audits are investigations and evaluations of a
certain aspect of your business. It is performed to discover data, risks, or
compliance issues that may not have been known before the audit took
place. Assurance, attestation, and audits are all interrelated accounting
processes that require specific professional guidance. Attestation and
assurance are based on audit work. The reliability of the attestation and
level of assurance sought for an engagement is determined by the
accountant's or auditor's ethics and competency in carrying out the
engagement in line with professional recommendations.

5. Identify at least three non-assurance engagements. Describe each one briefly.

 In a non-assurance engagement, a practitioner issue reports that do not
express an opinion or conclusion on the subject matter. One example of
this is the performance of an agreed-upon procedures engagement where
 the practitioner is engaged by a client to issue a report of findings based
on specific procedures performed on a subject matter such as verifying
cash balances and reviewing accounts receivable processes. Another
example of a non-assurance engagement is providing assistance in the
preparation of a tax return to help an entity pay its correct taxes Lastly,
consultation or advisory engagements are other types of non-assurance
engagements where a practitioner provides pieces of advice or strategies
to help businesses to be more successful and profitable. 

6. Explain, in your own words, the following key phrases in the definition auditing:
a. a systematic process
b. objectively obtaining and evaluating evidence
c. assertions about economic actions and events
d. degree of correspondence between these assertions and established
criteria
e. communicating the results to interested users
 A systematic process
 Auditing, as a systematic process is a logical, purposeful structured
approach to decision-making. It follows a series of logical and organized
series of procedures and it is never unplanned, unstructured and
haphazard.

 Objectively obtaining and evaluating evidence

 Auditing involves the collection of evidence which will affect the auditor’s
decision process and judgment. The process of collecting and evaluating
evidence should be objective which means the auditor should not be bias
and act without prejudice either for or against the individual or entity
making the assertions.
 Assertions about economic actions and events
 Assertions involve claims, which are implicitly or explicitly stated by a
firm’s management about the subject matter of the audit. It includes
assertions about the information contained in the financial statements,
management internal operating reports, tax returns, and others.

 Degree of correspondence between these assertions and established criteria

 Correspondence means the comparison of the assertions of the auditee to
the established criteria. Established criteria are the standards which the
assertions are judged such as the Philippine Financial Reporting
Standards (in case of a financial statements audit). The expression of the
correspondence may be quantified (e.g., amount of shortage in cash), or
qualitative (e.g., the fairness of financial statements).

 Communicating the results to intended users

 Communication of the auditor’s findings to intended users are made
through a written report called the audit report, which contains the degree
of correspondence between the assertions and established criteria. The
audit report either enhances or weakens the credibility of the
representations of the responsible party.
7. What is the criteria being used for a financial statement audit?
 An independent auditor examines an entity's financial statements and
supporting disclosures in a financial statement audit. It involves obtaining
and evaluating evidence about an entity’s presentation of its financial
position, results of operations, and cash flows so that the auditor can
express an opinion as to whether the financial statements are presented
fairly. Commonly, the auditor based the criteria in checking the financial
statement of an entity to different accounting standards, specially the
Philippine Financial Reporting Standards (PFRS), and Philippine
Accounting Standards (PAS). Auditors also use international accepted
accounting standards such as the International Financial Reporting
Standards and any other authoritative and comprehensive financial
reporting framework.

8. What is the objective of a financial statement audit?

 According to the Philippine Standards on Auditing 120, an audit of
financial statements is done for the auditor to be able to express an
opinion whether the financial statements are prepared, in all material
aspects, in accordance with the generally accepted accounting principles
or other financial reporting frameworks. In addition, the Philippine
Standards on Auditing 200 provides additional objectives of the auditor in
conducting financial statement audits. The first is to obtain reasonable
assurance that the financial statements as a whole are free of material
misstatement, whether due to fraud or error, allowing the auditor to
express an opinion on whether the financial statements have been
prepared in all material respects under an applicable financial reporting
framework. The second is to communicate the results of the financial
statement audit, based on the auditor’s findings. 
9. What is information risk? How is information risk reduced?
 According to the Philippine Standards on Auditing 120, an audit of
financial statements is done for the auditor to be able to express an
opinion whether the financial statements are prepared, in all material
aspects, in accordance with the generally accepted accounting principles
or other financial reporting frameworks. In addition, the Philippine
Standards on Auditing 200 provides additional objectives of the auditor in
conducting financial statement audits. The first is to obtain reasonable
assurance that the financial statements as a whole are free of material
misstatement, whether due to fraud or error, allowing the auditor to
express an opinion on whether the financial statements have been
prepared in all material respects under an applicable financial reporting
framework. The second is to communicate the results of the financial
statement audit, based on the auditor’s findings.
 
10. Describe the limitations of an audit. Give examples to support your answer.
 Different limitations of an audit are one of the reasons why a practitioner
cannot render an absolute assurance. One constraint is that the auditors
work within fairly restrictive economic limits. Resources are limited such as
time and money. A limitation on the cost and time of an audit results in the
use of selective testing or sampling of the accounting records and other
data. Moreover, having a relatively short time in conducting an audit limits
an auditor to resolve uncertainties existing at the statement date. Another
limitation is that the internal control of an entity also has a limitation that
also influences the conduct of an audit. An audit also involves the use of
judgment in the identification of audit risks, selection of appropriate
auditing procedures, and the interpretation of audit evidence. In
conclusion, the different limitations of audit all contribute to the possibility
of the auditor committing an audit risk, which is the risk that the auditor
gives an inappropriate audit opinion.