What are the merits and demerits of assurance engagement?

Personally I don’t see any demerits or disadvantages of assurance engagements, however, if we count limitations of audit engagement as disadvantage or a problem then it is surely up to us. And in that case we can continue our discussion.

Merits or demerits of assurance engagement depends on many different factors such as:

who is conducting such engagement?: how independent this person is and what is his authority. More over what kind of assurance and more importantly what level of assurance is being provided by that person

for whom such assurance is provided?: who constitutes the audience and how much are they relying on such assurance and for what purpose are they relying on such assurance.

under what framework such assurance is provided?: what framework has been used to assess the subject matter? Is it provided by the client or some other standardised framework is used for such purpose.

All the above points and similar others can affect the assurance engagement to be considered advantageous or disadvantageous in a given set of circumstances. Also the assurance engagements are of different types as well. However, most of the time when we refer to assurance engagement we mean audit engagements. Before readers read more, I suggest to get a good understanding of what audit engagement is and how it is different from other types of engagement to better understand the merits/benefits and demerits/discrepancies of assurance engagements by reading What is the difference between Audit engagement and Assurance engagement?

Possible merits are:

  1. primarily it increases user’s confidence over financial statements especially if independent person has audited them and expressed his opinion
  2. the procedures applied during the engagement help discover such issues that management might not aware of before
  3. auditor when working in conjunction with management may improve different aspects of operations
  4. it helps those charged with governance carrying out their duties

Demerits of audit engagement as mentioned earlier are mostly connected with the limitations of audit engagement which are:

  1. it cannot provide absolute assurance whether subject matter is absolutely accurate
  2. it does not help in determining the effectiveness of the management
  3. most of the time it helps in discovering the discrepancies in the system that has resulted in the misstatement and the ones with no connected misstatement go unnoticed
  4. even if auditor conduct the engagement with reasonable care, some misstatements may go undetected
  5. use of judgment and existence of persuasive evidence also limits the accuracy of engagement and conclusions reached by the auditor
  6. audit is usually conducted on the basis of general purpose framework that might not be helpful in specific situations and might not provide assurance of specific nature