What is an Assurance engagement in auditing?

By Hasaan Fazal -
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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 of subject matter subject to the criteria applicable under consideration.

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.

To summarize the above formal definition, read through the following example to understand how assurance engagement is performed and how it enhances the confidence of users

Example
Management (responsible party) of company A Ltd fulfilled its responsibility of evaluating entity’s financial position, financial performance and changes in cash flows (these all three aspects are in short the subject matter) by publishing financial statements in accordance with International Financial Reporting Standards (criteria) and the assets, liabilities etc are recognized, measured, presented and disclosed in the financial statements (subject matter information) as per the requirements of IFRSs.

Practitioner (auditor) is appointed by the shareholders (users) to express his opinion (assurance) in the form of a report over the recognition, measurement, presentation and disclosures i.e. financial statements (subject matter information) made by the management (responsible party) are actually in accordance with IFRSs (criteria) and the actual financial position, performance and changes in cash flow (subject matter).

From the definition of assurance engagement and also from the above example we understood that not every engagement undertaken by the practitioner amounts to assurance engagement. For an engagement to be assurance engagement it must have the following FIVE essentials or elements (also known as essentials or elements of assurance engagements):

  1. Existence of three party relationship which involves:
    1. practitioner
    2. a responsible party
    3. intended users
  2. Subject matter
  3. Criteria;
  4. Sufficient appropriate evidence collected as a result of examination
  5. Expression of opinion in the form of a written report issued by the practitioner providing assurance of:
    1. higher degree as under reasonable assurance engagements
    2. moderate degree as under limited assurance engagements.

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