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Course Code and Title: ACTP 2- Auditing and Assurance Principles

Lesson Number: 01

Topic: Fundamentals of Assurance Services

Learning Objectives:
At the end of this lesson, you should be able to:
1. Determine the elements of assurance engagement.
2. Compare the different classification assurance engagement according to structure
and assurance level provided;
3. Discuss the different non-assurance services.

Pre-Assessment:
Directions: Indicate whether the following statements is true or false. You may write
your answers in yellow pad and submit it to school or you may send the picture of your
answers through Facebook Messenger.

___1. Assurance engagements require independence on the part of the auditor.

___2. The degree of satisfaction achieved (the level of assurance which may be provided)
is directly related to the scope of procedures performed and their results.
___3. Assurance refers to the responsible party’s satisfaction as to the reliability of an
assertion being made by one party for use by another party.
___4. Assurance engagements performed by professional accountants are intended to
enhance the credibility of information.
___5. An engagement may be classified as an assurance engagement once it meets all six
elements required by the Framework for Assurance Engagements.
___6. The responsible party and the intended user need to be from separate organizations.
___ 7. A professional accountant may agree to perform an assurance engagement which they are
not competent to carry out,
___8. The responsible party or parties is the person(s) responsible for the subject matter.
___9. The responsible party is always the one who engages the accountant.
___10. The intended user is the person or class of persons who engages the professional
accountant/ CPA.

Lesson Presentation:
Introduction
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We defined accounting as a process of identifying, measuring and communicating

economic information to permit informed judgement and decision by users of information. As
financial information is very vital in decisions made by various stakeholders of a company,
there is an increased need for a reliable information. But, how could you say an information
is reliable? Reliability of an information depends on the credibility of the sources of this
information as well as the accuracy of the information being reported.
In verifying the accuracy of a financial information, users of financial information turns
to an independent CPA, since majority of the users are not well versed in accounting. These
CPA performs audit or assurance engagements to increase the reliability of information.

Users of Financial Information

User of
Financial Example of Decisions they made
Statements
Investors Whether to buy, hold, or sell shares of the company
Creditors Whether to approved loans applied for by the company
Government Whether to amend or retain the taxation rules and regulations currently in
force
Customers Whether to continue doing business with the company, or to find another
supplier that can sustain their operations in a long run
Employees Whether to demand a salary increase; whether to stay with the company, or to
go looking for another job.

Nature and Objective of assurance services

 Assurance services (or assurance engagements) are three-party

contracts in which assurers (such as a CPA) reports on the quality of information.

 Assurance engagements performed by CPAs are intended to enhance the credibility

of information about a subject matter (such as financial statements) by evaluating
whether the subject matter conforms in all material respects with suitable criteria.

Examples of Assurance Engagements:

 Audit of 2019 Complete Set of Financial Statements
 Operational Audit performed by Internal audit to ensure that Internal Controls were
operating effectively

Elements of Assurance Engagement

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Elements of

1. Three party relationship

Assurance Engagement involves three separate parties: a practitioner, a responsible party

and intended users. Practitioner pertains to an independent party who performs the
assurance engagement. A responsible party is the person or persons responsible for the
subject matter or the subject matter information of the engagement. The intended users
are the person, persons, or class of persons for whom the practitioner prepares the
assurance report.

Intended users and responsible properties can be from the same entity, example of such
engagement is as follows:

 The management engaged an external auditor to conduct

a fraud audit on the company’s cash disbursement
transactions.

2. Subject matter

Subject matter, by the word itself pertains to the subject being audited. It can be in the form
of historical financial statements, prospective financial statements, performance of
a certain department or company, or compliance with a specified criterion.

Subject of audits can be in the form of subject matter or subject matter information as
follows:
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Form Subject Matter Subject Matter Information

Financial performance Historical or prospective Information

or financial position, financial recognition, measurement,
Conditions performance and cash flows presentation and disclosure
represented in financial
statements
Non-financial performance of an entity key indicators of efficiency
performance or and effectiveness
conditions
Physical capacity of a facility specifications document
Characteristics
Systems and an entity's internal control or an assertion about
Processes IT system effectiveness
Behavior corporate governance, a statement of compliance
compliance with regulation, or a statement of'
human resource practices effectiveness

3. Suitable criteria

Criteria are the benchmarks used to evaluate or measure the subject matter including,
where relevant, benchmarks for presentation and disclosure.

Characteristics of suitable criteria

Characteristics Explanation
Relevance Relevant criteria contribute to conclusion that assist decision-
making by the intended users.
Completeness Criteria are sufficiently complete when relevant factors could
affect the conclusions in the context of the engagement
circumstances are not omitted.
Reliability Reliable criteria allow reasonably consistent evaluation or
measurement of the subject matter including where relevant,
presentation and disclosure, when used in similar circumstances
by similarly qualified practitioners,
Understandability Understandable criteria contribute to conclusions that are clear,
comprehensive, and not subject to significantly different
interpretations

Established criteria versus specifically developed criteria

Criteria’s used in assurance engagement can either be an established criteria or specifically

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developed criteria.
Established criteria are those embodied in laws or regulations, or issued by authorized or
recognized bodies of experts that follow a transparent due process. This criterion is used for
similar type of engagements.

Example of an established criteria are:

 Philippine Financial Reporting Standards
 Generally Accepted Accounting Principles
 National Internal Revenue Code
 Train Law (RA10963)

Specifically, developed criteria are those designed for the purpose of the engagement.
Examples of specifically developed criterias are:
 Debt-equity ratio and current ratio that the company needs to comply stated on the
loan agreement;
 Budgeted volume of production;
 Budgeted cash flow

Regardless whether the criteria are established or specifically developed, this criterias
should be made available to the intended users. Criterias are made available to the
intended users by the following ways:

 Publicly.
 Through Inclusion in a clear manner in the presentation of the subject matter
information.
 Through inclusion in a clear manner in the assurance report.

4. Sufficient appropriate evidence

Evidences are gathered throughout the engagement to support the audit report that
the practitioner will issue. An evidence must be both sufficient and appropriate in order for
the practitioner to perform his audit procedures and render an appropriate audit report.

Sufficiency is the measure of the quantity of the evidence while appropriateness is

the measure of the quality of evidence; that is, its relevance and reliability.

In gathering audit evidences and performing audit, the practitioner/auditor must exercise
professional skepticism. Professional skepticism is an attitude of recognizing that
circumstances may exist that cause the subject matter information to be materially
misstated. An attitude of professional skepticism means the practitioner makes a critical
assessment, with a questioning mind, of the validity of evidence obtain and is alert to
evidence that contradicts or brings into question the reliability of documents or
representations by the responsible party.

Reliability of the evidences can be assessed through the following generalization:

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 Evidence is more reliable when it is obtained from independent sources outside the
entity. For example, documents, bank statement or passbook provided by the bank
as support to the existence of the company’s bank balance.

 Evidence that is generated internally is more reliable when the related controls are
effective. For example, the list of official receipts obtained by the auditor is more
reliable when the actual official receipts are pre-numbered.

 Evidence obtained directly by the practitioner (for example, observation of the

application of a control) is more reliable than evidence obtained indirectly or by
inference. For example, inquiry from the MIS department as to how does the ERP or
Accounting Software works).

 Evidence is more reliable when it exists in documentary form, whether paper,

electronic, or other media. For example, an email reply from an accountant is more
reliable than the oral representation of the accountants on the auditor’s inquiries.

 Evidence provided by original documents is more reliable than evidence provided by

photocopies or facsimiles. For example, original copies of contracts were provided for
vouching of documents instead of photocopies.

Cost-Benefit Considerations

Assurance engagements were performed to provide a reasonable assurance but not

absolute assurance. In performing assurance engagement, the practitioner or the auditor
must consider whether the cost of obtaining an evidence would exceed the benefits that he
would get from it. If the cost exceeds the benefits, the auditor must consider performing
alternative audit procedures.

For example, the auditor cannot obtain a direct confirmation of the cash in bank balance of
the company and the BIR deadline is fast approaching, since the audit team cannot afford to
wait for the bank’s reply, they performed alternative procedure in confirming the bank’s
balance, which is by requesting the Passbook or the Bank Statement.

Materiality

Materiality is relevant when the practitioner determines the nature, timing and extent of
evidence-gathering procedures, and when assessing whether the subject matter information
is free of misstatement. Since in performing an assurance engagement, the cost- benefit
principle is observed, not all of the general ledger accounts must be audited, only those
identified to be material in amount and in substance must be consider in performing the
audit.

Assurance Engagement Risk

Assurance engagement risk must also consider in gathering evidences, aside from
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materiality and cost benefit principle, the auditor must also consider the assessed
assurance engagement risk in gathering evidences and in performing audit procedures.
An assurance engagement risk is the risk that the practitioner expresses an inappropriate
conclusion when the subject matter information is materially misstated.

5. Assurance Report

The practitioner provides a written report containing a conclusion that conveys the
assurance obtained about the subject matter information. A practitioner normally can
express two levels of assurance: a reasonable level of assurance and a limited level of
assurance.

Forms of Conclusion

 In a reasonable assurance engagement, the practitioner expresses the conclusion in

the positive form, for example:

"In our opinion, the financial statements present fairly, in all material respects, the financial
position of the entity as at [date] and its financial performance and its cash flows for the year
then, ended in accordance with XYZ framework;"

 In a limited assurance engagement, the practitioner expresses the conclusion in the

negative form, for example:

"Based on the procedures performed and evidence obtained, nothing has come to our
attention that causes us to believe that the entity has not complied, in all material respects,
with XYZ law."

Classification of Assurance Engagements

According to Level of Assurance

 Reasonable Assurance Engagement

 Limited Assurance Engagement

According to Structure
 Attestation Engagement
 Direct Engagement

Reasonable Assurance Engagement

The objective this engagement is a reduction in assurance engagement risk to an

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acceptably low level in the circumstances of the engagement as the basis for a positive form
of expression of the practitioner's conclusion. Examples of reasonable assurance
engagements are audit of historical financial statements.

Limited Assurance Engagement

The objective of this engagement is a reduction in assurance engagement risk to a level that
is acceptable in the circumstances of the engagement, but where that risk is greater than for
a reasonable assurance engagement, as the basis for a negative form of expression of the
practitioner's conclusion. Examples of reasonable assurance engagements are review of
historical financial statements.

Attestation Engagement

An attestation engagement is an engagement in which a practitioner is engaged to issue, or

does issue a written communication that expresses a conclusion about the reliability of a
written assertion that is a responsibility of another party.

Examples of Attestation Engagements

There are two common attestation engagements in practice today:

1. An independent audit engagement is one that provides a reasonable (but not absolute)
level of assurance that the subject matter (such as financial statements) is free of material
misstatement.

2. A review engagement involves a limited investigation of much narrower scope than an

audit and undertaken for the purpose of providing limited assurance that the subject matter
is presented in accordance with identified suitable criteria.

Direct Engagement

In a direct engagement, the practitioner measures or evaluates the underlying subject

matter against the criteria and presents the resulting subject matter information as part of, or
accompanying the assurance report. The practitioner's conclusion in a direct engagement
addresses the reported outcome of the measurement or evaluation of the underlying subject
matter against the criteria. In some direct engagements, the practitioner's conclusion is, or is
part of, the subject matter information.

Limitations of Assurance Engagements

Reasonable assurance is less the absolute assurance. Reducing assurance

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engagement risk to zero is very rarely attainable or cost beneficial as a result of factors

 The use of selective testing. Since not all of the accounting transactions and documents
were selected for testing, a 100% assurance cannot be provided.

 The inherent limitations of internal control. Internal controls of the company can be
effective, but it cannot prevent, detect and correct misstatements or control deviation on
a 100%, thus it will be impossible for the auditor to provide a 100% assurance on the
subject matter being audited.

 The fact that much of the evidence available to the practitioner is persuasive rather than
conclusive. Not all of the evidence obtained are conclusive or convincing, for example,
when a check is not deposited on the same day or the next banking day the auditor will
inquire the cashier why the collected check was not deposited on the same day or the
next day, the only audit evidence that the auditor will be able gather is the representation
of the cashier, no other evidence was acquired.

 The use of judgment in gathering and evaluating evidence and forming conclusions
based on that evidence. The audit procedures that the auditor will be performed as well
as the manner of selecting samples are dependent on the judgement of the audit team.

 The characteristics of the subject matter (in some cases).Some of the line items audited
in the financial statements were subject to estimation, for example, the allowance for
doubtful accounts is based on the assessment of the collectability of the AR made by
the management, this items are difficult to assess whether they are properly valued.

Non-Assurance Services
Not all engagements performed by CPAs are assurance services. Non-assurance services
lack at least one of the elements of assurance engagements. Examples of common non-
assurance engagements are:

 Agreed-upon procedures
 Compilation of Financial or Other Information
 Tax Services
 Management Consulting and Other Advisory Services

Agreed-upon procedures

In an engagement to perform agreed-upon procedures, an auditor is engaged to carry out

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those procedures of an audit nature to which the auditor and the entity and any appropriate
third parties have agreed and to report on factual findings.

The recipients of the report must form their own conclusions from the report by the auditor.
The report is restricted to those parties that have agreed to the procedures to be performed
since others, unaware of the reasons for the procedures, may misinterpret the results.

Compilation of Financial or Other Information

In a compilation engagement, the accountant is engaged to use accounting expertise as

opposed to auditing expertise to collect, classify and summarize financial information. This
ordinarily entails reducing detailed data to a manageable and understandable form
without a requirement to test the assertions underlying that information. The procedures
employed are not designed and do not enable the accountant to express any assurance on
the financial information.

Some tax services, such as preparation of tax returns where no conclusion is

expressed, and tax consulting

Individuals and business leaders look to CPAs for advice on income tax and business tax
strategies. A CPA can develop tax strategies to help individuals or businesses legally
minimize their tax liability. Tax services save clients’ money and worry. Non-assurance tax
services also include assistance in preparing tax returns; and representation of
clients to tax authorities.

Management Consulting and Other Advisory Services

Technically, "Management consulting refers to both the industry, and the practice of, helping
organizations improve their performance, primarily through the thorough analysis of existing
business problems and development of plans for improvement10."Some examples of areas
where CPAs can offer advice are:

1. Small business management

2. Cash management
3. Compensation plan evaluations
4. Growth planning
5. Purchasing or selling a business
6. Measuring the performance of a business
7. Disaster recovery planning

Summary (Key Concepts)

 The following are the users of Financial Statements:
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 Investors
 Creditors
 Government
 Customers
 Employees

 Assurance engagements performed by CPAs are intended to enhance the credibility of

information about a subject matter (such as financial statements)
by evaluating whether the subject matter conforms in all material respects with suitable
criteria.

 Elements of Assurance Engagements:

 Three party relationship – Assurance Engagement involves a practitioner,

a responsible party and an intended user.

 Subject matter- It can be in the form of historical financial statements, prospective

financial statements, performance of a certain department or company, or compliance
with a specified criterion.
 Suitable criteria- Criteria are the benchmarks used to evaluate or measure the subject
matter including, where relevant, benchmarks for presentation and disclosure.
 Sufficient appropriate evidence- Evidences are gathered throughout the engagement
to support the audit report that the practitioner will issue.

 Assurance Report -The practitioner provides a written report containing a conclusion

that conveys the assurance obtained about the subject matter information.

 Classification of Assurance Engagements

 According to Level of Assurance
o Reasonable Assurance Engagement
o Limited Assurance Engagement
 According to Structure
o Attestation Engagement
o Direct Engagement

 Non-Assurance Services:
 Agreed-upon procedures
 Compilation of Financial or Other Information
 Tax Services
 Management Consulting and Other Advisory Services

Activity/Evaluation:
True or False
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Directions: Indicate whether the following statements is true or false. You may write your
answers in yellow pad and submit it to school or you may send the picture of your
answers through Facebook Messenger.

___1. The responsible party may also be one of the intended users.
___2. The subject matter of an assurance engagement may be presented as point in
time or covering a period of time.
___3. Criteria are the standards of benchmarks used to evaluate or measure the subject
matter of an assurance engagement.
___4. In the case of an audit of financial statements the suitable criteria to be used are
Philippine Standards n Auditing (PSAs).
___5. Appropriateness refers to quantity while sufficiency refers to quality, of evidential
matter.
___6. Evidence obtained directly by the practitioner is less reliable than evidence
obtained indirectly or by inference.
___7. The responsible party expresses a conclusion that provides a level of assurance
as to whether the subject matter conforms in all material respects, with the identified
suitable criteria.
___8. In an attestation engagement, the professional accountant expresses a
conclusion on the subject matter based on suitable criteria, regardless of whether the
responsible party has made a written assertion about the subject matter.
___9. The CPAs conclusion provides a level of assurance about the subject matter.
___10. Absolute assurance is attainable owing to the fact that much of the evidence
available to the CPA is persuasive rather than conclusive.

Multiple Choice

Directions: Choose the correct answer. You may write your answers in yellow pad and
submit it to school or you may send the picture of your answers through Facebook
Messenger.

1. Which of the following statements best describes assurance services?

a.Independent professional services that are intended to enhance the credibility of

information to meet the needs of an intended user.
b.Services designed to express an opinion on the fairness of historical financial
statements based on the results of an audit
c.The preparation of financial statements or the collection, classification, and
summarization of other financial information.

2. How many separate parties are involved in an assurance engagement?

a.2
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b.3
c.4
d.5

3. An assurance engagement should have which of the following elements?

Subject Matter Criteria

a.Yes No
b.No Yes
c.Yes Yes
d.No No

4. Which of the following is an assurance service?

a. Examination of prospective financial information

b. Audit of historical financial statements
c. Review of financial statements
d. Compilation of financial information

5. The subject matter of an assurance engagement may include:

Financial Internal Compliance

Information Controls with Regulation
a.Yes, Yes Yes
b.No No No
c.Yes, No Yes
d.No Yes No

6. For assurance engagements regarding historical

financial information, reasonable assurance engagements
are called

a. Compilations
b. Audits
c. Examinations

7. Relevant criteria contribute to conclusions that are

a.free from bias.
b.Clear and comprehensive.
c.Subject to different interpretations.
d.Useful for decision making.

8. Criteria that are embodied in laws or regulations, or issued by authorized or

recognized bodies of experts that follow a transparent due process are called
a. Suitable criteria
b. Established criteria
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c. Specifically developed criteria

9. In an assurance engagement, the outcome of the evaluation or measurement of a

subject matter against criteria is called

a. Subject matter information

b. Subject matter
c. Assurance
d. Conclusion

10. In some assurance engagements, the evaluation or measurement of the subject

matter is performed by the responsible party, and the subject matter information is in the
form of an assertion by the responsible party that is made available to Intended users.
These engagements are called

a. Direct reporting engagements

b. Assertion-based engagements
c. Non-assurance engagements
d. Recurring engagements

11. A practitioner's assurance report contains the following conclusion:

"Based on our work described in this report nothing has come to our attention that
causes us to believe that internal control is not effective, in all material respects, based
on ABC criteria"

What type of assurance engagement was performed?

a. Limited assurance engagement

b. Reasonable assurance engagement
c. Negative assurance engagement
d. Positive assurance engagement

12. In assertion-based assurance engagements, the evaluation or measurement of the

subject matter against criteria is performed by the

a. Intended users
b. Responsible party
c. Practitioner
d. AASC

13. An unmodified conclusion is not appropriate for either reasonable or limited

assurance engagement when
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a. Circumstances prevent the practitioner from obtaining evidence required to reduce

assurance engagement risk to the appropriate level.
b. The responsible party or the engaging party imposes a restriction that prevents the
practitioner
c. obtaining evidence required to reduce assurance engagement risk to the
appropriate level.
d. Both A and B.
e. Neither A nor B.

14. In an assurance- engagement, the responsible party and the intended users

a. Should be from different entities.

b. Should be from the same entity.
c. May be from the same entity or different entities.
d. Are both responsible for determining the nature, timing and extent of the procedures
to be performed.

15. The criteria against which the subject matter of the assurance engagement is to be
evaluated or measured should possess which of the following characteristics?

Relevant Concise Neutral

a. Yes, No Yes
b. No Yes No
c. Yes No No
d. No Yes Yes

16. In an assurance engagement, the person

or persons, either as individuals or representatives
of an entity, responsible' for the subject matter is the
a. Intended user
b. Responsible party
c. Professional accountant
d. Client

17. In an assurance engagement, the person or class of persons for whom the
professional accountant prepares
the report for a specific use or purpose is the
a. Intended user
b. Responsible party
c. Management

18. What type of assurance engagement is involved, when the practitioner expresses a
positive form of conclusion?
a. Limited assurance engagement
b. Positive assurance engagement
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c. Reasonable assurance engagement

d. Absolute assurance engagement

19. What type of assurance engagement is involved when the practitioner expresses a
negative form of conclusion?
a. Reasonable assurance engagement
b. Negative assurance engagement
c. Assertion-based assurance engagement
d. limited assurance engagement

20. A proposed assurance engagement can be accepted when the practitioner's

preliminary knowledge about the engagement circumstances indicates that relevant
ethical requirements will be satisfied and

I. The subject matter of the engagement is appropriate.

II. The criteria to be used are suitable and are available to the intended users.
III. The practitioner has access to sufficient appropriate evidence to support the
conclusion
IV. The conclusion is to be contained in a written report.

a.I, II and III only

b.I, II, IV, and V only
c.I, 111 111, and IV only
d.I, II, III, IV,and V

21. Assurance engagement risk is the risk

a. That the practitioner expresses an inappropriate conclusion when the subject matter
information is materially misstated.
b. Of expressing an inappropriate conclusion when the subject matter information is
not materially misstated.
c. Through loss from litigation, adverse publicity, or other events arising in connection
with a subject matter reported on.
d. Of expressing an inappropriate conclusion when the subject matter information is
either materially misstated or not materially misstated.

22. Reducing assurance engagement risk to zero is very rarely attainable or cost
beneficial as a result of the following factors, except

a. The use of selective testing.

b. The fact that much of the evidence available to the practitioner is persuasive rather
than conclusive.
c. The practitioner may not have the required assurance knowledge and skills to
gather and evaluate evidence.
d. The use of judgment in gathering and evaluating evidence and forming conclusions
based on that evidence.
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23. What level of assurance is provided by the auditor in an audit engagement?

a. Absolute
b. High, but not absolute
c. Moderate
d. No assurance

24. What level of assurance is provided by the

practitioner in a review engagement?
a. No assurance
b. High, but not absolute
c. Reasonable
d. Moderate

25. In a compilation engagement, the practitioner applies accounting and financial

reporting expertise to assist management in the preparation and presentation of
financial information of an entity in accordance with an acceptable financial reporting
framework. What type of assurance is provided by the practitioner when he/she
performs this engagement?

a. Positive assurance
b. Negative assurance
c. No assurance
d. Limited assurance

26. In an engagement to perform agreed-upon procedures, an auditor is engaged to

a. Carry out those procedures of an audit nature to which the auditor and the entity and
any appropriate third parties have agreed and to report on factual findings.
b. Apply accounting and financial reporting expertise to assist management in the
preparation and presentation of financial information of an entity in accordance with
an applicable financial reporting framework.
c. Provide a moderate level of assurance that the information is free of material
misstatement
d. Provide a high, but not absolute, level of assurance that the information is free of
material misstatement.

27. Reports on agreed-upon procedures are intended to be distributed

a.To only the involved parties, who are aware of the reasons for the procedures.
b.Only to the stockholders of the entity.
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c.To any party to whom the client wishes.

d.Only to the entity's management.

28. An engagement to perform agreed-upon procedures may involve the auditor in

performing certain procedures concerning

I. Individual items of financial data.

II. A single financial statement.
III. A complete set of financial statements.

a. I and II only
b. II and III only
c. I and III only
d. I, II, and III

29. The overall objectives of the auditor in conducting an audit of financial statements
are
I. To obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether caused by fraud or error.
II. To report on the financial statements.
III. To obtain conclusive rather than persuasive evidence.
IV. To detect all misstatements, whether due to fraud or error.

a. I and II only
b. II and IV only
c. I, II, and III only,
d. If II, III, and IV

30. The auditor is required to maintain professional skepticism throughout the audit.
Which of the following statements concerning professional skepticism is false?

a. A belief that management and those charged with governance are honest and have
integrity relieves the auditor of the need to maintain professional skepticism.
b. Maintaining professional skepticism throughout the audit reduces the risk of using
inappropriate assumptions in determining the nature, timing, and extent of the audit
procedures and evaluating the results thereof.
c. Professional skepticism is necessary to the critical assessment of audit evidence.
d. Professional skepticism is an attitude that includes questioning contradictory audit
evidence obtained.

Case Study
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Directions: Answer the discussion case below. You may write your answers in yellow
pad and submit it to school or you may send the picture of your answers through
Facebook Messenger.

Case 1:

Juan, CPA is engaged to provide assurance on the report of customer satisfaction

regarding the newly opened resort of the Seascapes Resort Inc. for the past 3 months.
Seascapes Resort Inc.’s management has indicated that the criteria it tends to use to
evaluate customer satisfaction are a combination of increase in peso sales and
customer satisfaction rate.

Requirements:

1. Describe the factors to be considered by Juan in determining whether the criteria is

suitable.
2. If the engagement is assertion-based engagement, identify the different structures
that the engagement may take.

3. If the engagement is a direct reporting engagement, identify the different structures

that the engagement may take.

Case 2:

You are a CPA and external auditor of ABC Resorts Inc. The CEO of the company to
provide consultancy services to project whether their new project is feasible. The CEO
of the company keeps mentioning the phrase “provide us with assurance that the
project will be feasible…”

Required: You want to clarify with the CEO on what type of engagement he wants you
to engage. Differentiate assurance services from consulting services, based on the
following factors:

Parties involved
Primary purpose
Focus
Output’s objective