(upbeat music)
-: The first learning objective in audit module one
is to explain the status of the different auditing
and assurance services with reference
to the International Framework for Assurance Engagements.
So there are a few things you need to know in order
to satisfy this learning objective.
That is, what are the different services
that assurance practitioners perform in terms
of the International Assurance Framework?
What are the relevant standards used
to perform those services?
What are the levels of assurance
that each service provides?
And finally, who issues the different standards
and how do they all fit together?
We are going to satisfy this learning objective
by imagining the basic structure
of a house, all houses have roofs.
In terms of our house of pronouncements,
the roof would be the IESBA code of ethics
for professional accountants,
the roof covers the entire house.
Similarly, the code is an overarching standard
that applies to all professional accountants.
In Australia, the equivalent of the IESBA code
is the APS 110 code of ethics.
This is issued by the Accounting Professional
and Ethics Standards Board or a APESB.
The rest of our house of pronouncements relate to standards
issued by the International Auditing
and Assurance Atandards Board, or the IAASB.
Every house needs to be built on a strong foundation.
The foundation holds up the rest of the house
and ensures the integrity of the house structure.
Similarly, in our analogy, the foundation would need
to be the International Standards
on Quality Control or ISQC 1.
This standard is issued by the IAASB
and is applicable to all services covered
by assurance practitioners.
So no matter which room you find yourself in,
the code which is the roof, as well as ICQC 1,
which is the foundation, will always be applicable.
Knowledge at the ceiling of our house structure.
The ceiling would be the International Framework
for Assurance Engagement.
The framework provides a frame of reference
for assurance practitioners and others involved
in the assurance engagements, including intended users
of the assurance report, and those engaging
an assurance practitioner.
The International Framework has four classifications
of engagements, these four classifications would form
the rooms of our house analogy.
Before we get into the different engagement classifications,
we need to consider the continuum of assurance levels.
We will be using this to plot
where the different classifications of engagements fall
so that we can visualise the level of assurance
that different services provide.
On the one end of the continuum,
we have no assurance.
On the extreme opposite end,
we have absolute assurance.
This is the highest level of assurance since 100%
of the population will be tested.
This type of assurance is very rare in practise
as it is time consuming,
and the costs far outweigh the benefits.
Next, we have reasonable assurance
that provides a high level of assurance
but is less than absolute assurance.
Limited assurance would sit between reasonable assurance
and no assurance.
This is because the assurance that is provided
would be less than reasonable assurance,
but more than no assurance at all.
The first engagement classification
under the International Framework
for Assurance Engagements is audit
of historical financial information.
The standards applicable to audits
are the International Standards on Auditing
or ISA for short.
Audit engagements provide reasonable assurance.
So if we were to plot this on the continuum,
you would note that audit results
in a very high level of assurance,
but it will not provide absolute assurance.
The second engagement classification
under the International Framework
for Assurance Engagements are reviews
of historical financial information.
The standards applicable for reviews
are the International Standards on Review Engagement
So ISRE for short.
Review engagements provide limited assurance.
So if we were to plot this on the continuum,
you would note that the level of assurance provided
is on the lower end of the continuum.
The third engagement classification relates
to assurance engagements other than audit
so reviews of historical financial information,
for example, providing assurance on a prospectus
for its investors.
The prospectus would include financial
as well as non-financial information.
Further, they would be financial forecasts rather
than historical financial information.
The standards applicable for these engagements
are International Standards on Assurance Engagements,
or ISAE for short.
Assurance engagements conducted under ISA 3000
can either provide reasonable assurance
or limited assurance.
The fourth engagement classification
under the International Framework
for Assurance Engagements is related services.
Examples of related services include consulting,
tax advice, or financial statement compilation.
The standards applicable to related service engagements
are the International Standards on Related Services
or is ISRS for short.
Related service engagements are not assurance engagements.
This means that no opinion is provided
over the subject matter.
It should be noted that related services,
even though no assurance is provided, are included as one
of the engagements under the International Framework
for Assurance Engagements
as it includes services that are commonly performed
by assurance practitioners.
Further, the standards and related services
which is the ISRS are issued by the IAASB.
To recap, we used the analogy of a house
to identify the different standards and pronouncements
that apply to assurance practitioners.
We also identify different classifications
of engagements, which standards
are applicable to each engagement and the level
of assurance provided
by the different engagement classifications.