What is an assurance engagement? (part II)

 

Understanding the underlying subject matter and other engagement circumstances when performing an assurance engagement

In order to understand the underlying subject matter and other engagement circumstances the practitioner shall make inquiries of the appropriate party(ies) regarding:

(a)  Whether they have knowledge of any actual, suspected or alleged intentional misstatement or non-compliance with laws and regulations affecting the subject matter information.

b) Whether the responsible party has an internal audit function and, if so, make further inquiries to obtain an understanding of the activities and main findings of the internal audit function with respect to the subject matter information; and

(c) Whether the responsible party has used any experts in the preparation of the subject matter information

Obtaining an understanding of the underlying subject matter and other engagement circumstances helps the practitioner to exercise professional judgment when:

·    Considering the characteristics of the underlying subject matter.

·    Assessing the suitability of criteria.

·  Establishing and evaluating the quantitative materiality levels (where appropriate) and considering qualitative materiality factors.

·     Developing expectations for use when performing analytical procedures.

·    Designing and performing procedures; and

·    Evaluating evidence, including the reasonableness of the oral and written representations received by the practitioner.

 Evidence obtained during an assurance engagement

The practitioner chooses a combination of procedures to obtain reasonable assurance or limited assurance, as appropriate. The procedures listed below may be used, for example, for planning or performing the engagement, depending on the context in which they are applied:

·        Inspection.

·        Observation.

·        Confirmation.

·        Recalculation.

·        Reperformance.

·        Analytical procedures and

·        Inquiry.

 Factors that may affect the practitioner’s selection of procedures include the nature of the underlying subject matter; the level of assurance to be obtained; and the information needs of the intended users and the engaging party.

 In some engagements, the practitioner may not identify any areas where a material misstatement of the subject matter information is likely to arise. Irrespective of whether any such areas have been identified, the practitioner designs and performs procedures to obtain a meaningful level of assurance.

As the practitioner performs planned procedures, the evidence obtained may cause the practitioner to perform additional procedures. Such procedures may include asking the measurer or evaluator to examine the matter identified by the practitioner, and to make adjustments to the subject matter information if appropriate.

 Work performed by other parties for an assurance engagement

When performing an assurance engagement, a practitioner may use the work performed by other parties such as:

·        Practitioner’s Expert

·        Another Practitioner,

·        Responsible Party’s or Measurer’s or Evaluator’s Expert, or

·        Internal Auditor

Work Performed by a Practitioner’s Expert

When the work of a practitioner’s expert is to be used, the practitioner shall also:

·   Evaluate whether the practitioner’s expert has the necessary competence, capabilities and objectivity for the practitioner’s purposes.

·      Obtain a sufficient understanding of the field of expertise of the practitioner’s expert.\

·      Agree with the practitioner’s expert on the nature, scope and objectives of that expert’s work; and

·      Evaluate the adequacy of the practitioner’s expert’s work for the practitioner’s purposes.

 

Work Performed by Another Practitioner, a Responsible Party’s or Measurer’s or Evaluator’s Expert, or an Internal Auditor

When the work of another practitioner is to be used, the practitioner shall evaluate whether that work is adequate for the practitioner’s purposes.

If information to be used as evidence has been prepared using the work of a responsible party’s or a measurers or evaluator’s expert, the practitioner shall:

(a)    Evaluate the competence, capabilities, and objectivity of that expert

(b)   Obtain an understanding of the work of that expert; and

(c)    Evaluate the appropriateness of that expert’s work as evidence.

If the practitioner plans to use the work of the internal audit function, the practitioner shall evaluate the following:

(a)  The extent to which the internal audit function’s organizational status and relevant policies and procedures support the objectivity of the internal auditors.

(b)   The level of competence of the internal audit function.

(c)   Whether the internal audit function applies a systematic and disciplined approach, including quality control; and

(d)   Whether the work of the internal audit function is adequate for the purposes of the engagement.

 Accumulation of uncorrected misstatements during the assurance engagement

Uncorrected misstatements are accumulated during the engagement for the purpose of evaluating whether, individually or in aggregate, they are material when forming the practitioner’s conclusion.  The practitioner may designate an amount below which misstatements would be clearly trivial and would not need to be accumulated because the practitioner expects that the accumulation of such amounts clearly would not have a material effect on the subject matter information. “Clearly trivial” is not another expression for “not material.” Matters that are clearly trivial will be of a wholly different (smaller) order of magnitude than materiality determined and will be matters that are clearly inconsequential, whether taken individually or in aggregate and whether judged by any criteria of size, nature or circumstances. When there is any uncertainty about whether one or more items are clearly trivial, the matter is considered not to be clearly trivial.

  Content of an assurance report

The assurance report shall include, at a minimum, the following basic elements:

·     A title that clearly indicates the report is an independent assurance report.

·     An addressee.

·  An identification or description of the level of assurance obtained by the practitioner, the subject matter information and, when appropriate, the underlying subject matter.

·    Identification of the applicable criteria.

·  A statement to identify the responsible party and the measurer or evaluator if different, and to describe their responsibilities and the practitioner’s responsibilities.

·     A statement that the engagement was performed in accordance with this ISAE or other standard.

·     A statement that the practitioner complies with the independence and other ethical requirements.

·     An informative summary of the work performed as the basis for the practitioner’s conclusion.

·      The practitioner’s  conclusion.

·      The practitioner’s signature.

·      The date of the assurance report.

·      The location in the jurisdiction where the practitioner practices.