What is assurance engagement?

IAASB Framework | Para 7
“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.

Assurance engagement is an engagement performed by a practitioner to enable himself to express an opinion about the measurement of subject matter against a criteria. Practitioner’s expression of opinion raise the confidence of the users over the measurement as to whether measurement of subject matter is a fair statement keeping the criteria applicable under consideration.

Replacing the formal jargon of the definition with the easy to understand and common jargon, we can easily understand what is assurance engagement actually:

  • Responsible party = For example management
  • Subject matter = Financial position, financial performance and cash flow information of the business. These are three aspects of any business about which users require information in order to decide anything.
  • Criteria = For example International Accounting Standards (IASs) or International Financial Reporting Standards (IFRSs), Local Accounting Standards and any other specific accounting framework that is in use for the preparation of financial statements in a particular jurisdiction or anything to be used as a benchmark.
  • Subject matter information = In simplest words it means financial statements. Actually management is duty bound to provide information regarding financial position, financial performance and cash flows (which is also called subject matter) of the business. This information is provided by management by applying financial reporting standards i.e. IFRSs (also known as criteria) to the subject matter. Thus subject matter information is basically the information obtained by applying the criteria on subject matter.
    Extending it further that why I said that set of financial statements is a subject matter information. Because management is responsible to conduct this evaluation i.e. evaluating entity’s financial position, performance and cash flows in the light of applicable financial reporting framework. This evaluation is then presented to users in the form of financial statements prepared by management. And as all the information given under financial statement is given by management therefore it is considered as assertions made by management. Due to this reason, management is considered responsible party as it is the management making the claims (assertions) automatically by publishing financial statements that all the information (evaluation) is true and fair in the light of reporting standards (criteria) and financial position, performance and cash flows (subject matter) of the entity.
    Extending it even further it is the subject matter information i.e. evaluation conducted by management already on which auditor expresses an opinion whether the evaluation is correct or not and thus enhance the confidence of users. And the reason why auditor gives opinion on subject matter information instead of subject matter directly is because audit engagement is an attestation engagement and not the direct reporting engagement. To understand the difference between two please refer to: What is the difference between attestation engagement direct reporting engagement.
  • Practitioner = For example; auditor, reviewer etc. [Remember, the term practitioner is much broader then “auditor”]
  • Users = all those people, other than responsible party, who seek assurance of practitioner about the measurement of subject matter as given by the responsible party.
To read in detail about what an assurance engagement means in auditing click here