PHILIPPINE FRAMEWORK FOR

ASSURANCE ENGAGEMENTS
AND
FRAMEWORK OF PHILIPPINE
STANDARDS ON
AUDITING
(PSA 120)

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Classified - Internal use

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Philippine Framework for

Assurance Engagements

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Definition and Objective of an Assurance

Engagement
Assurance engagement means 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.

Two types:
Reasonable assurance engagement (RAE) - low level assurance risk
and positive conclusion.
Limited assurance engagement (LAE) - risk is greater than for a RAE
and negative conclusion.
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Non-assurance Engagements
Agreed-upon procedures and compilations engagements

Preparation of tax returns where no conclusion conveying assurance is

expressed
Consulting (or advisory) engagements such as management and tax
consulting
Engagements to testify in legal proceedings regarding accounting,
auditing, taxation or other matters

Engagements that include professional opinions not intended to be an

assurance report
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Elements of an Assurance Engagement

(a) A three party relationship involving a practitioner, a
responsible party, and intended users;
(b) An appropriate subject matter;
(c) Suitable criteria;
(d) Sufficient appropriate evidence; and
(e) A written assurance report in the form appropriate to a
reasonable assurance engagement or a limited assurance
engagement.
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A Three Party Relationship

Practitioner broader than the term auditor

Responsible party is the person responsible for

Direct reporting engagement subject matter; or
Assertion-based engagement a subject matter information (the
assertion), and/or subject matter.

Intended users whom the assurance report is prepared. The

responsible party can be one of the intended users, but not the
only one.
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What are the forms of subject matter/subject

matter information?
Financial performance or conditions
Non-financial performance or conditions
Physical characteristics

Systems and processes

Behavior

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Criteria
Benchmarks used to evaluate or measure the subject matter

Must be considered suitable

Characteristics of suitable criteria:

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Relevance
Completeness
Reliability
Neutrality
Understandability

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Evidence
Obtain sufficient appropriate evidence about whether the
subject matter information is free of material misstatement
Exercise professional skepticism
Considers materiality, assurance engagement risk, and the
quantity and quality of available evidence when planning and
performing the engagement, in particular when determining
the nature, timing and extent of evidence-gathering procedures
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Evidence
Reducing assurance engagement risk to zero is very rarely
attainable or cost beneficial as a result of factors such as the
following:
use of selective testing
inherent limitations of internal control
persuasive evidence rather than conclusive
use of judgment
characteristics of the subject matter
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Assurance report
What are the forms of an assurance report?
RAE positive form
LAE negative form

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Audit vs. Review vs. Related

Services

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Nature of
service

Objective

Level of
assurance

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Audit

Review

Agreed-upon

Compilation

To enable the CPA

to carry out those
to report whether
procedures of an audit
anything has
nature to which the
To express an
come to his
To assist the client
auditor and the entity
opinion on
attention that
in the preparation
and any appropriate
the FS
would indicate
of the FS
third parties have
that the FSs are
agreed and to report
not presented
on factual findings.
fairly
Reasonable
(High)

Limited
(Moderate)

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None

None

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Nature of service

Type of report

Audit

Positive
assurance

RAP, TOC and

Basic Procedures
SP

Independence
requirement

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Required

Review

Agreed-upon

Compilation

Negative
assurance

Description of
procedures
performed and
factual findings

Identification of
information
compiled

Inquiry and
analytical
procedures

As agreed (Audit
nature)

Reading the FS for

obvious
misstatements

Required

Not required

Not required

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