Philippine Framework for Assurance Engagements
Introduction
This Framework (1) defines and describes the elements and objectives of an assurance
engagement, and (2) identifies engagements to which Philippine Standards on Auditing (PSAs),
Philippine Standards on Review Engagements (PSREs) and Philippine Standards on Assurance
Engagements (PSAEs) apply.
This Framework also provides a frame of reference for:
A. Professional Accountants in Public Practice when performing assurance engagements.
B. Others involved with assurance engagements, including the intended users of an
assurance report and the responsible party
C. The International Auditing and Assurance Standards Board (IAASB) in its development
of ISAs, ISREs and ISAEs and, consequently, the Auditing Standards and Practices
Council (ASPC) in its adoption of said standards for application in the Philippines.
This Framework in itself DOES NOT establish standards or provide procedural requirements for
the performance of assurance engagements. A practitioner must still refer to the relevant
Standards in the conduct of performing assurance engagements.
Ethical Principles and Quality Control Standards
Code of Ethics for Professional Accountants in the Philippines (the Philippine Code)
– establishes fundamental ethical principles for professionals accountants
– adopted from the IFAC Code of Ethics for Professional Accountants
– governs practitioners who perform assurance engagements
Philippine Standards on Quality Control (PSQCs)
- establish standards and provides guidance on a firms system of quality control
- adopted from International Standards on Quality Control
- governs practitioners who perform assurance engagements
Part A of the Code
- sets out Fundamental Ethical Principles that all professional accountants are required to
observe, these include:
o Integrity
o Objectivity
o Professional competence and due care
o Confidentiality
o Professional Behavior
Part B of the Code
- includes a conceptual approach to independence that takes into account, for each
assurance engagement, threats to independence, and accepted safeguards to public
interest.
- requires firm and members of assurance teams to:
o identify and evaluate circumstances and relationships that create threats to
independence
o take appropriate action to eliminate these threats or to reduce them to an
acceptable level by application of safeguards
Definition and Objective of an Assurance Engagement
Assurance Engagement – designed to enhance the degree of confidence of the intended users
about subject matter information.
Assertion-based Engagement vs. Direct Reporting Engagement
a. Assertion-Based Engagement
The assertion by the responsible party is made available to intended users.
The assurance engagement wherein the responsible party has performed the measurement or
evaluation of the subject matter information.
b. Direct Reporting Engagement
Subject matter information is provided to the intended users in the assurance report.
The assurance engagement wherein the practitioner directly performs the evaluation or
measurement of the subject matter.
There are two types of assurance engagement a practitioner is permitted to perform:
Reasonable Assurance Engagements vs. Limited Assurance Engagements
a. Reasonable Assurance Engagements
A positive form of assurance
A reduction in assurance engagement risk to an acceptably low level in the circumstances of
the engagement as the basis for a positive form of expression of the practitioner’s conclusion
Practiced through Audit
b. Limited Assurance Engagements
A negative form of assurance
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.
Practiced through Review
Scope of the Framework
Frequently performed engagement that do not meet the definition of an Assurance Engagement
and therefore are not covered by this Framework include:
Engagements covered by Philippine Standards for Related Services
The preparation of tax returns where no conclusion conveying assurance is expressed
Consulting or advisory engagements such as management and tax consulting
The following engagements, which may meet the definition of an Assurance Engagement, but
need not be performed in accordance with this Framework include:
Engagements to testify in legal proceedings regarding accounting, auditing, taxation or other
matters
Engagements that include professional opinions, views or wording from which a user may
derive some assurance, if all of the following may apply:
o Those opinions, views or wording are merely incidental to the overall
engagement
o Any written report issued is expressly restricted for use by the only
intended users specified in the report
o Under a written understanding with the specified intended users, the
engagement is not intended to be an assurance engagement
o The engagement is not represented as an assurance engagement in the
professional accountants report.
Reports on Non Assurance Engagements
A practitioner reporting on a non-assurance engagement within the scope of this framework,
clearly distinguishes that report from an assurance report. A report that is not an assurance report
avoids:
Implying compliance with this Framework, PSAs, PSREs, or PSAEs.
Inappropriately using the words “assurance”, “audit”, or “review”.
Including a statement that could reasonable be mistaken for a conclusion designed to enhance
the degree of confidence of intended users about the outcome of the evaluation or
measurement of a subject matter against criteria.
When there are no intended users other than the responsible party but where all other
requirements for the PSAs, PSREs, or PSAEs are met, the practitioner and the responsible party
may agree to apply the principles of this Framework to an engagement.
Engagement Acceptance
A practitioner accepts an assurance engagement only where the practitioner’s preliminary
knowledge of the engagement circumstances indicates that:
a. Relevant ethical requirements, such as independence and professional competence will be
satisfied
b. The engagement exhibits all of the following characteristics:
i. The subject matter is appropriate
ii. The criteria to be used are suitable and available to the intended users
iii. The practitioner has access to sufficient appropriate evidence to support the
practitioner’s conclusion
iv. The practitioner’s conclusion, in the form appropriate to either a reasonable
assurance engagement or limited assurance engagement is to be contained in a
written report
v. The practitioner is satisfied that there is a rational purpose for the engagement.
Engagements with scope limitations or negotiated in an inappropriate manner is
unlikely to have a rational purpose.
When a potential engagement cannot be accepted as an assurance engagement, the
practitioner may still accept such as a consulting or agreed upon procedures engagement
A practitioner may not change an assurance engagement to a non-assurance engagement, or a
reasonable assurance engagement to a limited assurance engagement, without reasonable
justification.
Elements of an Assurance Engagement
Three Party Relationship
Assurance engagements involve three separate parties:
a. Practitioner
- Relates only to practitioners performing audit or review engagements with respect to
historical financial information
- May be requested to perform assurance engagements on a wide range of subject matters
b. Responsible Party
- The responsible party is the person or persons who:
o In a direct reporting engagement, is responsible for the subject matter
o In an assertion-based engagement, is responsible for the subject matter
information (assertion) and may be responsible for the subject matter
c. Intended Users
- Are the person, persons or class of persons for whom the practitioner prepares the
assurance report.
- The responsible party can be one of the intended users, but not the only one.
When engagements are designed for specified intended users or a specific purpose, the
practitioner shall consider including a restriction in the report that limits its use to those users or
purpose.
Subject Matter
The subject matter, and subject matter information, of an assurance engagement can take many
forms, such as:
- Financial performance or conditions for which the subject matter information may be the
recognition, measurement, presentation and disclosure represented in financial statements
- Non- financial performance or conditions for which subject matter information may be
key indicators of efficiency and effectiveness
- Physical characteristics for which subject matter information may be a specifications
document
- Systems and processes for which subject matter information may be an assertion about
effectiveness,
- Behavior for which subject matter information maybe a statement of compliance or a
statement of effectiveness
Appropriate subject matter
- Identifiable, and capable of consistent evaluation or measurement against the identified
criteria
- Such information about it can be subjected to procedures for gathering sufficient
appropriate evidence to support a reasonable or limited assurance conclusion as
appropriate.
