How many parties are involved in an assurance engagement?

Assurance Engagement Definition: Any assignment/engagement which has five elements(Below) becomes an assurance engagement

Five Elements of an Assurance Engagement

A three-party relationship, involving: the practitioner, a responsible party and intended users.Appropriate subject matter.Suitable criteria.Sufficient, appropriate evidence to support the conclusion.A conclusion contained within a written report.

1. An assurance engagement will require a three-party relationship comprising:
   • a) The intended user who is the person who requires the assurance report (Share Holders, Lenders, etc, etc)
   • b) The responsible party, which is the organization responsible for preparing the subject matter to be reviewed (Board of Directors)
   • c) The practitioner who is the professional who will review the subject matter and provide assurance. (i.e. an accountant)
2. The second element is required for an assurance engagement is a suitable subject matter. The subject matter is the data that the responsible party has prepared and which requires verification (e.g Financial statements)
3. The subject matter is then evaluated or assessed against suitable criteria in order for it to be assessed and an opinion provided (e.g IAS & IFRS)
4. The practitioner must ensure that they have gathered sufficient appropriate audit evidence in order to give the required level of assurance engagement.
5. In the last one, an assurance report provides the opinion which is given by the practitioner to the intended user(ShareHolders)

Types of assurance Engagement

Difference between audit and assurance OR Assurance meaning in accounting OR Types of assurance services

Types of Assurance assignments 

Reasonable Assurance

An Assurance engagement in which the Practioner(Auditor) reduces engagement risk to an
acceptably lower level in the circumstances of the engagement as the basis for the practitioner’s conclusion.Example: External AuditHigh level of assurance but NOT absolute or 100%
A high level of assurance but not the absolute level of assurance is provided, this is known as reasonable assurance.More testing (Analytical procedures, a test of controls and substantive testing) Going concern review also carried outPositive conclusion- Wording:
‘in our opinion, the financial statements give (or do not give) a true and fair view of the state of the company’s affairs’.

Limited Assurance

An assurance engagement in which the practitioner(Auditor) reduces engagement risk to an acceptable level in the circumstances of the engagement but where that risk is greater than for a reasonable assurance engagementExample: Review of financial statementsModerate level of assurance
The practitioner gathers sufficient appropriate audit evidence to be satisfied that the subject matter is credible, in this case, negative assurance is given whereby the practitioner confirms
that nothing has come to auditor's attention which indicates that the subject matter contains
material misstatements in financial statementsLesser testing-focus on obvious errors only
(Analytical testing and Enquiry)
Going concern review will not be performed
The procedures undertaken are not nearly as comprehensive in assurance engagement,
with procedures such as analytical review and inquiry used extensively. Also, the practitioner does not need to comply with ISAs And IFRSs as these only relate to external audits.Negative conclusion-Wording:
“Nothing has come to light to suggest errors or problems exist’'
However, the assurance is given in the absence of any indication to the contrary.Review engagements are often take up as an alternative to an audit and involve a
practitioner reviewing financial data, such as six-monthly figures.
This would involve the
the practitioner takes up procedures to state whether anything has come to their attention which is the reason the practitioner to believe that the financial data is not in accordance with the financial reporting framework.

Assignments were no Assurance is given

Agreed-upon procedures: A report on factual findings is given but assurance will not be given. Users must judge for themselves and draw their own conclusionsCompilation engagement: Users of the compiled information gain benefit from the accountant’s involvement but no assurance is expressed. It is used to collect, classify, and summarise financial information. It means to present data in a manageable and understandable form

This page summarises how the five elements of assurance relate to one another. The elements are: the three-party relationship; appropriate subject matter; suitable criteria; appropriate evidence; and a conclusion.

The five elements:

How the elements relate to each other

Assurance engagements involve three separate parties: a practitioner, a responsible party and intended users of the assurance report. The responsible party is responsible for the information on which the practitioner is engaged to give a conclusion.

Buyer's guide to assurance on non-financial information

Engagements will only comply with the ISAAB's Amended International Framework for Assurance Engagements (the Framework) if there is at least one intended user of the report other than the responsible party. Acknowledgement by the responsible party for its responsibilities is essential to ensure the appropriate relationship exists between the responsible party and the practitioner, and to establish a basis for a common understanding of the responsibility of each party.

The assurance services need not necessarily include an external user as, in some circumstances, it may be appropriate to provide assurance over the client’s own operations for the client’s own use. In such cases there will be two different parties within the organisation – those responsible for the operations under scrutiny (such as management) and those ultimately responsible for the organisation (the Board). We refer to this as a three-party relationship despite there being only one organisation other than the practitioner.

The subject matter of an assurance engagement can take many forms. An appropriate subject matter is (a) identifiable, and capable of consistent evaluation or measurement against the identified criteria; and (b) such that the information about it can be subjected to procedures for gathering sufficient appropriate evidence to support a reasonable assurance or limited assurance conclusion, as appropriate.

Suitable criteria are necessary because they provide the frame of reference for a reasonably consistent evaluation or measurement of a subject matter.

What constitutes suitable criteria will depend on the engagement circumstances – in some circumstances they may be identified by law or regulation, in others they may be specifically designed to meet the needs of specific intended users. Suitable criteria exhibit the following characteristics: relevance, completeness, reliability, neutrality and understandability.

How many separate parties are involved in an assurance engagement?

Which are the 3 parties involved in audit?

How many actual assurance engagements are there?

What are the 5 elements of this assurance engagements?