In an assurance engagement the practitioner reduces

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mangement’s written assertion on the subject matter, can be evaluated. In an assurance engagement, the practitioner reduces engagement risk to a level that is appropriate for the assurance provided in his or her report. The term engagement risk is the risk that the practitioner may express an inappropriate conclusion. The three components of engagement risk are inherent risk, control risk, and detection risk. Practitioners should in theory be able to vary infinitely the level of assurance provided in assurance engagements. However, in order to help users understand the level of assurance being provided by the practitioner, the standards in this Section limit assurance to two distinct levels—a high level and a moderate level. In an audit engagement, the practitioner provides a high, though not absolute, level of assurance by designing procedures so that, in the practitioner’s professional judgment, the risk of an inappropriate conclusion is reduced to a low level through procedures such as inspection, observation, enquiry, confirmation, computation, analysis, and discussion. Use of the term “high level of assurance” refers to the highest reasonable level of assurance a practitioner can provide concerning a subject matter. Absolute assurance is not attainable as a result of factors such as the use of judgment, the use of testing, the inherent limitations of control, and the fact that much of the evidence available to the practitioner is persuasive rather than conclusive in nature. Assurance will also be influenced by the degree of precision associated with the subject matter itself. In a review engagement, the practitioner provides a moderate level of assurance by design- ing procedures so that, in the practitioner’s professional judgment, the risk of an inappropri- ate conclusion is reduced to a moderate level through procedures which are normally limited to enquiry, analysis, and discussion. Such risk is reduced to a moderate level when the evi- dence obtained enables the practitioner to conclude the subject matter is plausible in the circumstances. Both attest engagements and direct reporting engagements can be completed with either a high or a moderate level of assurance. The level of assurance appropriate for a particular engagement will depend on the needs of users and the nature of the subject matter. With these concepts and definitions, it is now possible to develop meaningful standards for assurance engagements. These have already been listed and compared with GAAS in Chapter 2. As noted there, the assurance standards are subdivided into ( a ) general stan- dards of the practitioner and the use of suitable criteria in evaluating a subject matter (for example, criteria for control discussed in this chapter); ( b ) performance standards relating to obtaining sufficient appropriate evidence supporting the practitioner’s conclu- sion, along with documentation, including the concepts of significance (materiality) and engagement risk; and ( c ) reporting standards prescribing the minimum requirements of
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  • Fall '12
  • Smith
  • Accounting, Accountant, Auditor's report, CICA Handbook

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