Simon Finley is a teaching fellow at the Aston University Accounting Group Reference 1 Auditing: Commission Issues Recommendation on Limiting Audit Firms’ Liability , European Commission, 6 June 2008 13) Continue to be rest assured This article looks at the topic of assurance in the context of Paper P7, Advanced Audit and Assurance , describing a framework for the classification of assurance and non-assurance engagements, and giving guidance on the practical approach required when undertaking assurance assignments Note: ISAE 3000, ISAE 3400, ISRS 4400, ISRS 4410 and ISRE 2400 are not examinable documents for Paper P7 UK and Ireland. Assurance engagements The glossary of terms published by the International Auditing and Assurance Standards Board (IAASB) describes an assurance engagement as: ‘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.’ IAASB and the assurance framework The IAASB has developed the International Framework for Assurance Engagements in which it gives detailed guidance on assurance and non-assurance engagements. The structure and hierarchy of pronouncements are summarised at in the IAASB handbook, which is freely available online. For Paper P7 purposes, a summary of the developing framework for assurance and non-assurance engagements is shown below: 49
AAA Technical Articles Assurance engagements on historic financial information The first distinction to be made is to distinguish between the two types of assurance engagements on historic financial information that can be provided. The difference is the level of assurance provided on the historical information. Reasonable assurance engagement This is a statutory audit, where the approach required will need to be consistent with local legislative requirements, such as the Companies Act 2006 in the UK, and audit work will need to be carried out in accordance with International Standards on Auditing (ISAs). The auditor will express a conclusion designed to enhance the degree of confidence of the intended users of the financial statements, and moderate to high assurance would normally be given. Limited assurance engagement A limited assurance engagement is increasingly being seen as an alternative to the statutory audit. A good example of this type of engagement is represented by recent initiatives in the UK, which have proposed the introduction of ‘mini’ audits for companies below the audit exemption threshold. There currently exists no UK statutory requirement for a ‘mini’ audit, although an increasing number of companies are requesting, on a voluntary basis, limited assurance engagements. Such engagements do not give the same level of assurance as a statutory audit, but instead give ‘negative assurance’ based on more limited procedures than are required with a statutory audit. Negative assurance will typically be worded as follows:
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