describe the nature and characteristics of assurance services

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Nature of assurance engagements

Framework for assurance engagements

Elements of assurance engagements

Independence and professional reputation

Recent trends in other assurance services

Expertise: Quality of professional judgment

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In addition to financial information (historical and prospective), entities report a large amount of non-financial information, such as: CAR

• additional disclosures relating to wider operating data, internal controls, corporate governance, and risk management practices and outcomes
• corporate social responsibility (CSR) reporting on economic, social and environmental issues (including carbon emissions)
• reporting to regulators, regarding such issues as compliance with regulatory requirements.

ISAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information

For assurance engagements other than audits or reviews of historical financial information, the basic principles, essential procedures and related guidance are established in ISAE 3000

subject matter standrds fall under the umbrella of ISAE 3000

including

ISAE 3402 Assurance Reports on Controls at a Service Organization,

ISAE 3410 Assurance Engagements on Greenhouse Gas Statements, and

ISAE 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus.

Australian-specific assurance standards

ASAE 3100 Compliance Engagements and ASAE 3150 Assurance Engagements on Controls

key elements of an assurance engagement

International Framework for Assurance Engagements

definition of assurance engagement

assurance engagement is an engagement in which a practitioner aims to obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the measurement or evaluation of an underlying subject matter against criteria.

conclusion

It covers both opinions that are provided in: a reasonable assurance engagement (e.g. ‘In our opinion, internal control is effective, in all material respects, based on XYZ criteria’)

and conclusions that are provided in a limited assurance engagement (e.g. ‘Based on our work described in this report, nothing has come to our attention that causes us to believe that internal control is not effective, in all material respects, based on XYZ criteria’).

• Subject matter information

• Criteria

three-party relationship

, involving the professional accountant, the responsible party (the person(s) responsible for the underlying subject matter) and the intended users of the report.

identity and number of users may vary greatly or be unclear

may include:DSB

–– data (e.g. historical or prospective financial information, CSR information, statistical information provided to boards, performance indicators)
–– reports on systems and processes (e.g. internal controls, information systems) –– reports on behaviours (e.g. corporate governance, compliance with regulations,
human resource practices).

Non-financial information

is often a mix of qualitative and quantitative data. Established measurement conventions for financial information (e.g. the accounting standards) are not normally available. The subject matter information may be of a subjective nature (particularly for qualitative information).

standards, rules or benchmarks used to prepare and evaluate the subject matter information of an assurance engagement.

frameworks

Many standard-setting organisations have created frameworks to guide preparers and assurers of reports, which may form suitable criteria for an assurance engagement.

However, for some data, especially qualitative data, suitable criteria may be difficult to identify. It may also be difficult for all three parties to agree on criteria, and this becomes even more difficult where the range and identity of potential users is unclear.

Evidence

in the form of a systematic methodology for evidence-gathering and evaluation to support a conclusion.

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difficulties

internal controls over the preparation of non-financial information are commonly not as strong as those for financial information preparation.

Sufficient appropriate audit evidence for some subject matter information can be difficult to obtain.

Written Assurance Report

, level of assurance

challenges

providing reasonable or limited assurance about the subject matter information.

The determination of the level of assurance that can be provided involves consideration of the relationships between the underlying subject matter, the criteria and the quantity and quality of evidence.

There is a much greater variety in assurance reports that do not relate to historical financial information

Reporting timetables may also be shorter and sometimes less predictable (e.g. when an entity decides to issue a report on an environmental issue in response to a current event, and requires assurance on that report within a particular timeframe).

Conclusion’ and ‘opinion’

are not completely separate items. Rather, opinions form part of a range of conclusions (a conclusion does not have to be in the form of an opinion, but it may be a statement of fact).

Reasonable assurance engagements

Limited assurance engagements

• ‘In our opinion, the entity has complied, in all material respects, with XYZ law.’

• ‘In our opinion, the forecast of the entity’s financial performance is properly prepared, in all material respects, based on XYZ criteria.’

• ‘In our opinion, the [appropriate party’s] statement that the entity has complied with XYZ law is, in all material respects, fairly stated’ (ISAE 3000, para. A179).

Based on the procedures performed and evidence obtained, nothing has come to our attention that causes us to believe that [the entity] has not complied, in all material respects, with XYZ law.’

• ‘Based on the procedures performed and evidence obtained, we are not aware of any material amendments that need to be made to the assessment of key performance indicators for them to be in accordance with XYZ criteria.’

• ‘Based on the procedures performed and evidence obtained, nothing has come to our attention that causes us to believe that the [appropriate party’s] statement that [the entity] has complied with XYZ law, is not, in all material respects, fairly stated’ (ISAE 3000, para. A181).

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Table 7.1

General
requirements
relating to the
engagement

Planning

Evidence
gathering

Reporting
and other
communication
responsibilities

Recent international trends have been towards increases in both the quality and types of other assurance engagements.

These services include: SINCO

• other financial reporting, including information from within the annual report (but not part of a financial statement audit) and outside the annual report. The information can relate to both past events and prospective financial information (including future forecasts), such as:
–– enhanced business and operating reviews –– alternative profit disclosures
–– remuneration disclosures

–– voluntary taxation transparency disclosures

–– research grant acquittals often required by government bodies –– investigating accounting reports
–– pro forma financial statements for a prospectus –– due diligence reports for vendors
–– turnover certificates (e.g. shopping centres)

• sustainability reporting, such as:

–– sustainability content in the annual report –– standalone sustainability reports
–– carbon-neutral statements

–– National Greenhouse and Energy Reporting (NGER) (i.e. Australian disclosure requirements on greenhouse gas emissions)
• internal controls, such as: –– financial reporting –– control environment
–– board of directors reports –– operational processes
• non-financial information, such as:

–– corporate governance disclosures –– customer satisfaction reports
–– product disclosures

–– circulation numbers (e.g. newspapers) –– performance measurement systems
• compliance engagements, such as: –– risk management
–– corporate governance statements

–– contractual relationships (e.g. debt covenants) –– licensing agreements (e.g. casinos).

accounting profession

There are a number of factors that make it appropriate for the accounting profession to develop other assurance services.

users seek the independence and expertise of the assurance practitioner, and derive value from the knowledge that an independent member of the profession has carried out the assurance engagement.

independence

independence for assurance services implies an absence of interests that create an unacceptable risk of material bias.

practitioners need to assess likely threats to independence and apply safeguards where necessary.

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If the practitioner provides assistance to a client in preparing a report, this may result in a self‑review threat. If this or other threats are identified, safeguards would need to be considered, such as the use of assurance teams that are independent of the team developing the report.

Professional reputation

The fact that accountants operate within a profession that emphasises quality controls (over the inputs and processes) when providing assurance, serves to enhance the quality of the final report published by the client

Whether the accounting profession is successful in becoming the most appropriate group for providing assurance services will depend on a number of factors

whether society considers accountants to be experts in the underlying subject matter of the assurance engagement.

Auditors of financial statements are experts in the subject matter of accounting information.

While auditors may possibly be seen as high cost, given the necessity of having high-level quality controls in place, they have developed processes and a reputation as high-quality assurance practitioners.

Whether this reputation easily transfers to other areas—such as the potential services outlined in this module—will be the test of success.

An assurance service engagement requires the exercise of judgment in many areas, including determining: ICE

• the appropriateness of suitable criteria

• the most appropriate evidence-gathering procedures

• whether the subject matter information as disclosed is in accordance with the suitable criteria.

In some of these cases, the profession can offer guidance or standards; in other cases, the assurance practitioner relies on the expertise developed through their own training and experience.

Providing a professional service requires the practitioner to:PECD

• offer only those services they have the competence to complete

• exercise due care in the performance of the service

• adequately plan and supervise the performance of the service

• obtain sufficient appropriate evidence to provide a reasonable basis for conclusions or recommendations.

Appropriate specialist knowledge

Experience in financial statement auditing informs assurance engagements on non-financial information (e.g. assessing materiality, understanding the business, obtaining sufficient appropriate evidence, and making informed judgments).

However, ISAE 3000, para. 52, requires appropriate specialist knowledge to be applied in an assurance engagement.