C ONCEPT & N EED

FOR A SSURANCE
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ISAE & ISA Framework

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What ?

Is this ok?

It Looks ok
to me.

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Assurance services are (1) independent (2)

professional services that (3) improve the quality
of information, or its context, (4) for decision
makers.

Assurance services include many areas of information,

including nonfinancial areas.

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Why ?

Increase
confidence Assurance Services Reduce
Risk

Of the user

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Assurance

• An assurance engagement is one 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.

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Elements Assurance Engagement

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The key elements of an assurance engagement

Sufficient
Appropriate
Three Party A subject Suitable Evidence to A Written
Relationship matter Criteria Support the Report
Assurance
Opinion

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Practitioner

Examines

Responsible Subject Relevant

Party Criteria
Matter

Reports to

Intended users
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Three Party Relationship

The responsible
The practitioner party (the person(s)
The intended users
(accountant i.e. who prepared the
(stakeholders)
auditor) subject matter i.e. the
management)

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Stakeholders of a company
The stakeholders of a company are all those who are influenced
by, or can influence, the company’s decisions and action. The
stakeholder group are:

 Shareholders Slicegp
 Lenders
 Investors
 Customer
 Employee
 Government and their Agent
 Public at large

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Subject Matter

Behavior (for
Data (for example, Systems or
example, social and
financial processes (for
environmental
statements or example, internal
performance or
business control systems or
corporate
projections) computer systems)
governance)

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Suitable Criteria
• The person providing the assurance must have something
by which to judge whether the information is reliable and
can be trusted. So for example, in an assurance engagement
relating to financial statements, the criteria might be
accounting standards (e.g. BAS). The practitioner will be
able to test whether the financial statements have been put
together in accordance with accounting standards and if
they have, then the practitioner can conclude that there is a
degree of assurance that they are reliable.

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Sufficient appropriate evidence to support the

assurance opinion
• The practitioner must substantiate the opinion that
he draws in order that the user can have confidence
that it is reliable. The practitioner must obtain
evidence as to whether the criteria have been met.

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A written report in appropriate form

• Lastly, it is required that assurance reports are

provided to the intended users in a written form
and contain certain specified information. This adds
to the assurance that the user is being given, as it
ensures that key information is being given and that
the assurance given is clear and unequivocal.

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Level of Assurance

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Level of Assurance

Reasonable Assurance Limited Assurance

Engagement Engagement

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Reasonable Assurance Engagement

• A high, but not absolute level of assurance

• In audit engagement, the auditor (practitioner) provides a

high, but not absolute, level of assurance that the information
subject to audit is free of material misstatement. This is
expressed positively in the audit report as reasonable
assurance.

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Limited Assurance Engagement

• A Moderate level of assurance

• In a review engagement, the auditor (practitioner) provides a

moderate level of assurance that the information subject to
review is free of material misstatement. This is expressed in
the form of negative assurance.

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Key differences between the two types of assurance

are:

• The evidence obtained

• The type of opinion given

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Say, for example, that a practitioner is seeking evidence to

conclude whether the report issued by the Chairman of a company
in the financial statements is reasonable or not. He could seek
evidence, conclude that the statement is reasonable and state in a
report something like this:

“In my opinion, the statement by the Chairman

regarding X is reasonable.”

This is a positive statement of his conclusion that the statement is reasonable.

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Alternatively, he could state in a report something like this:

“In the course of my seeking evidence about the statement by

the Chairman, nothing has come to my attention indicating that
the statement is not reasonable.”

This is a negative statement of his conclusion that the statement is reasonable.

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Standards for specific engagements usually performed by CA firms

International Standards on Auditing (ISAs) -100-999

ISAs are to be applied in the audit of historical financial information. (Reasonable
Assurance)
International Standards on Review Engagements (ISREs)- 2000-2699
ISREs are to be applied in the review of historical financial information. (Limited
Assurance)

International Standards on Assurance Engagements (ISAEs)- 3000-3699

ISAEs are to be applied in assurance engagements other than audits or reviews of
historical financial information.

International Standards on Related Services (ISRSs) - 4000-4699

ISRSs are to be applied to compilation engagements, engagements to apply agreed-
upon procedures to information, and other related services engagements as specified
by the IAASB. (NO Assurance)

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Audit Engagement

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A friend of yours, an investor in the DSE, has just

received the annual financial report of KL Company Ltd.
a listed company.
He made the following comment:

“I see the auditors have issued a clear report on the

company. I can therefore invest a further amount of
money into the company, as there will be no risk that I
will lose my money owing to mismanagement”

Your comments on this statement?

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Some thoughts
 Audit enhances credibility.
 Will not guarantee future viability.
 Does not guarantee efficiency and effectiveness.
 Gives reasonable but not absolute assurance.
 Inherent limitations in audit could affect auditor’s
ability to detect fraud.
 Audit work open to subjective judgement.

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Objective:
The objective of an audit of financial statements is to
enable the auditor to express an opinion whether the
financial statements are prepared, in all material
respects, in accordance with an applicable financial
reporting framework.

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The key elements of an assurance engagement

Sufficient
Three Party A subject Suitable Appropriate A Written
Relationship matter Criteria Evidence to Report
Support the
Assurance
Opinion
The shareholders
(users) Law and An
The accounting assurance
financial standards Audit
The board of evidence report
directors (the statements issued in a
responsible party) prescribed
form.
The audit firm (the
practitioner)

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Relationship between Assurance Service & Audit

Assurance
Service

Audit

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True and Fair View

Information is Information is free

factual and from discrimination
conforms with and bias in
reality, not false. In compliance with
addition the expected standards
information and rules. The
conforms with accounts should
required standards reflect the
True

and law. The commercial

accounts have been
correctly extracted Fair substance of the
company’s
from the books and underlying
records. transactions.
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Legal and Professional Requirements of Auditors in

Bangladesh

The legal requirements are currently contained in Companies

Act 1994.

The Companies Act 1994 requires that the auditors must be a

member of the Institute of Chartered Accountants of Bangladesh
(ICAB)

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The Companies Act 1994 also sets out factors which make a person
ineligible for being a company auditor, for example, if he or she is:

a. an officer or employee of the company;

b. a person who is a partner or who is in the employment of an

officer or employee of the company;

c. a person who is indebted to the company exceeding Taka 1,000;

d. a person who is a director or member of a partner company, or a

partner of a firm, which is the managing agent of the company;

e. a person who is a director, or the holder of shares exceeding 5%

in nominal value of the subscribed capital.

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Relevant U/S 210: Appointment and remuneration of auditors

provisions
of U/S 211: Provisions as to resolutions for appointing
Companies or removing auditors
Act 1994
regarding
Audit U/S 212: Qualification and disqualification of auditors
Issues
U/S 213: Power and duties of auditors

U/S 214: Audit of accounts of branch office of

company

U/S 215: Signature of audit report, etc.

U/S 217: Right of auditor to attend general meeting

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Professional Requirements
The Principles are
1. Integrity
2. Objectivity
3. Professional Competence and Due Care
4. Confidentiality
5. Professional Behavior

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Benefits of Assurance

Key Benefit

The independent, professional verification

being given to the users.

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Additional Confidence: It may give additional confidence to other

parties in a way that benefits to the business.

Reduce risk: The existence of an independent check might help

prevent errors or frauds being made and reduce the risk of
management bias. Therefore, it can be seen that an assurance
service may act as a deterrent.

Users Attention :Where problems exist within information, the

existence of an assurance report draws attention to the
deficiencies in that information, so that users know what those
deficiencies are.

Quality of Information: Assurance helps to ensure that high

quality, reliable information exists, leading to effective markets
that investors have faith in and trust.
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Why can assurance never be absolute?

Assurance providers will never give a

certificate of absolute correctness due to
limitations of assurance services.

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Limitations of assurance services.

1. The fact that testing is used-the auditors do not oversee
the process of building the financial statements from start
to finish.

2. The fact that the accounting and internal control

systems on which assurance providers may place a degree
of reliance also have inherent limitations.

3. The fact that most audit evidence is persuasive rather

than conclusive.

4. The fact that assurance providers would not test every

item of in the subject matter (a sampling approach is
used).
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Limitations of assurance services Conti………

5. The fact that the client’s staff members collude in fraud

that can then be deliberately hidden from the auditor or
misrepresent matters to them for the same purpose.

6. The fact that assurance provision can be subjective and

professional judgments have to be made (for example,
about what aspects of the subject matter are the most
important, how much evidence to obtain etc.).

7. The fact that assurance providers rely on the responsible

party and its staff to provide correct information, which in
some cases may be impossible to verify by other means.

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Limitations of assurance services Conti………

8. The fact that some items in the subject matter may be

estimates and therefore uncertain. It is impossible to
conclude absolutely that judgmental estimates are correct.

9. The fact that the nature of the assurance report might

itself be limiting, as every judgment and conclusion the
assurance has drawn cannot be included in it.

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The Expectation Gap

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The expectation gap means a gap between what the

assurance provider understands he is doing and
what the user of the information believes he is
doing.

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This is often because users are not aware of the nature of the
limitations on assurance provisions, or do not understand
them and believe that the assurance provider is offering a
service (such as a guarantee of correctness) which is in fact he
is not. The distinction between reasonable and limited
assurance may also be misunderstood by users.

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Assurance providers need to close this gap as far as possible in

order to maintain the value of the assurance provided for the
user. This is done in a variety of ways, for example, by issuing
an engagement letter spelling out the work that will be carried
out and the limitations of that work and by regularly
reviewing the format and content of reports issued as a result
of assurance work.

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