Essential Elements of Assurance Engagement
Some companies may choose to have an assurance engagement with the audit firms in Johor Bahru. Then, there may be a question that arises in your mind: What is an assurance engagement, and what are the related elements?
Typically, an assurance engagement will involve three different parties, and it comprises of five essential elements, which includes the criteria, evidence (Also see Audit – Introduction to Audit Evidences) , report, subject matter, as well as the three-party relationship.
The criteria of the engagement are one of the elements in the assurance engagement. As an instance, if the engagement involves financial statement auditing, the criteria will be the principles or standards that the management is using to prepare their company’s financial statements. We may assume that the management is using IFRS (Also see New IFRS 16 Leases now comes into play in Singapore) when they prepare for the financial statements. In such a condition, the auditors will perform the audit by implementing ISA.
The practitioner should report the result of the work that it has performed to the users of those reports. As an instance, in an audit engagement, the auditors would issue the report by expressing their audit opinions according to the results of the audit. They should express their opinion according to a predetermined set of objectives. They should also perform their work independently without the influence of the management, which is responsible for the preparation of subject matter. This indicates that there is a reduced conflict of interest which its level would not have any impact on the quality of audit opinion.
The auditors require strong support from the management of the company so that they can perform their job and acquire the evidence (Also see Introduction to Audit Documentation) they need. Evidence plays a crucial role in the quality of an audit report. To support the audit opinion in the audit report, the practitioner needs to acquire sufficient and appropriate audit evidence. Besides, the auditors should comply with the auditing standards if they are unable to obtain the evidence, or there is any intervenes from the management that prevents them from getting the evidence.
All assurance engagements should possess a well-defined subject matter. As an instance, if the company engage an audit firm to conduct assurance services, for example, reviewing its due diligent and financial statements or a financial statement auditing, there should be a clear subject matter for the engagement. This includes an objective of the engagement, as well as the period which the service would cover.
Typically, three parties will involve in an assurance engagement.
Firstly, it is the intended users. This group of people includes the company’s management, the board of directors, shareholders, as well as the government.
The second party is the practitioner. This often refers to the professional audit firms which audit the financial statements of a company or provide other services with limited assurance.
The third is the responsible party. It is responsible for the subject matter that the practitioner examines. As an instance, a company and its management engage a practitioner for an audit. Preparation of the financial statements is the responsibility of the management.