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8

ASSURANCE-RELATED
SERVICES
Learning Outcomes

At the end of this chapter, you should be able to:


 Explain and describe the level of work involved in
assurance-related assignments.

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Introduction

 Assurance services
– An independent professional service 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.
(IFAC)

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Introduction (cont.)

– Related to decision making.


– Provided by independent professionals.
– Help to capture information, improve its quality
and enhance its usefulness for decision-makers.
– Covers a broad category of services which
include financial and non-financial information,
systems and processes, behavioural and human
resource practices.

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Introduction (cont.)

– Types:
(i) Risk assessment
(ii) Information system reliability
(iii) Business performance measurement
(iv) Electronic commerce

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Introduction (cont.)

 The International Framework for Assurance


Engagements or also termed as the
‘Framework’ was issued by the IAASB in 2004.
 To provide a frame of reference for professional
accountants providing assurance services.
 Applicable to all engagements, including audits
and reviews of financial statement and other
assurance engagements.

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Introduction (cont.)

 In Malaysia, specific ISAs have identified four


levels of engagements and their related forms
of conclusions:
(a) The Examination of Prospective Financial
Information (ISAE 3400)
(b) Engagements to Review Financial Statements
(ISRE 2400)
(c) Engagements to Perform Agreed-upon (ISRS 4400)
(d) Engagements to Compile Financial Information
(ISRS 4410).

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Introduction (cont.)

 Review
– The practitioner provides a conclusion in the form
of negative assurance.
– The report states whether any information came
to the practitioners’ attention to indicate that the
assertions are not presented in all material
respects in conformity with the applicable criteria.
– Unrestricted in its distribution.

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Introduction (cont.)

 Examination
– results in a conclusion (positive form);
– In the report, the practitioner makes a direct
statement as to whether the presentation of the
assertions conforms to the applicable criteria.
– The report is unrestricted as to distribution by the
client after it is issued (client can provide the
information being examined and the related
report to anyone).

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Introduction (cont.)

 Agreed-upon procedures engagement;


– The procedures to be performed are agreed upon
by the practitioner.
– The degree of assurance conveyed varies with
specific procedures agreed to and performed.
– Limited in their distribution to only the involved
parties.
– Report include a statement of what procedures
management and auditor agreed.

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Special Purpose Audit

 Types of engagements:
– Audits of FS prepared on an Other
Comprehensive Basis of Accounting (OCBOA);
– Audits of specified elements,
– Accounts or items;
– Compliance with contractual agreements; and
– Summarized FS

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Special Purpose Audit (cont.)

 General considerations:
(a) The auditor should ensure there is an agreement with
the client as to the exact nature of the engagement
and form or content of the report to be issued;
(b) In planning audit work, the auditor should have a clear
understanding of the purpose and the users of the
information being reported.
(c) When the auditor is requested to report in a prescribed
format, the auditor should make appropriate changes
to conform with the requirement of the auditing
standards.
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Special Purpose Audit (cont.)

(d) When reporting on information which is based on


provisions of an agreement, the auditor should consider
whether any significant interpretations of the agreement
are clearly disclosed in the financial information.

The auditor’s report must contain a clear written


expression of opinion (except for the report on
summarised FS); should include all the basic
elements usually included in an audit report.

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Assurance Level For Related
Services

 The level of assurance provided by the professional


accountants’ conclusion shall convey the degree of
confidence that the intended user may place in the
credibility of the subject matter.
 IAASB identifies two levels of assurance that can
be provided: (i) reasonable assurance and (ii)
limited assurance.

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Assurance Level For Related
Services (cont.)

 Reasonable assurance engagements


– expresses a conclusion designed to enhance the
degree of confidence of the intended users
– less than absolute assurance but more than
limited assurance.
– the objective is to reduce engagement risk to an
acceptably low level.
– the conclusion must be expressed in a positive
form.

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Assurance Level For Related
Services (cont.)

 Limited assurance engagement


– Objective: to provide less assurance by doing
less work that may be appropriately understood
by all involved parties.
– conclusion should be in the negative form.
– A limited assurance engagement related to
financial statements is referred to as a review.

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Due Diligence Review

 Work commissioned by a client, involving agreed


inquiries into aspects of the accounts, organization
or activities of another organization, usually
involving organizations or parties which the client is
interested to acquire or invest in.
 Common with takeovers and mergers and can be
carried out not only by accountants but also by
actuaries, surveyors, lawyers and other
professionals.

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Review Engagement

 Partnership or sole proprietorship may have their


FS reviewed or complied by an auditor, instead of
having them audited.
 Management may believe that an audit is
unnecessary because of the active involvement of
owners, and the company itself may not have
significant amounts of debt or other regulatory
requirements.
 A review provides limited assurance on the FS,
whereas compilation provides no expressed
assurance.
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Review Engagement (cont.)

 As a result, less evidence is required for these


services and it can be provided at a lower fee than
an audit.
 The amount of evidence and assurance for this
type of engagement is not well-defined by the
profession and depends on the auditor’s
professional judgement.
 Must establish an understanding with the client,
preferably in a written engagement letter about the
services to be performed.
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Review Engagement (cont.)

 International Standards on Review


Engagements (ISRE) 2400
– Previously known as ISA 910.
– A review of FS is to enable the reporting accountant
to provide a statement of negative assurance (which
states whether anything has come to the auditor’s
attention that can cause the auditor to believe that the
FS are not prepared in all material respects in
accordance with approved accounting standards).

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Review Engagement (cont.)

 Designed to allow auditors to express limited assurance


that the FS are in accordance with approved accounting
standards.
 Must be independent of the client.
 Procedures suggested:
• Obtain knowledge of the accounting principles and
practices of the client's business environment.
• Obtain information of the client.
• Make inquiries of management.
• Perform analytical procedures.
• Obtain letter of representation.

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Review Engagement (cont.)

– Does not specifically require the auditor to obtain an


understanding of the client’s internal control, examine
accounting records or corroborate inquiries as in audit.
– If however, the auditor becomes aware that information
is incorrect, incomplete or unsatisfactory, additional
procedures should be performed before the auditor can
express a standard review services report.
– Review report- conclusion stated in a negative form
(stating that nothing has come to the auditor’s attention
that causes him to believe that the FS do not give a true
and fair view).

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Review Engagement (cont.)

– The date of the review report is stated as the date


of completion of the auditor's inquiry and
analytical procedures.
– Failure to follow approved accounting standards,
then a modification of the report is needed.

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Review Engagement (cont.)

Review on Interim Financial information for Public


Companies (ISRE 2410)
 Does not provide a basis for expressing a positive-
form opinion.
 Ordinarily, no testing of the accounting records,
independent conformations or physical
examinations.
 Because annual audit is also performed, the auditor
must obtain sufficient information about the clients’
internal control for both annual and interim financial
information.
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Review Engagement (cont.)

 Because the client is audited annually, auditor’s


knowledge of the results of these audit procedures can
be used in considering the scope and the results of the
inquiries and analytical procedures.
 Under review engagements, the auditor shall make
inquiries about the actions of directors and also
shareholders’ meetings, while under review of interim
information, the auditor reads the minutes of those
meetings.
 Must obtain evidence that the interim financial
information agrees or reconciles with the accounting
records.
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Review Engagement (cont.)

 When the auditor determines there has been a


departure from approved accounting standards, the
report should be modified.

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