Audit of financial statements is an assurance engagement.
Assurance engagement means an assignment in which the auditor expresses an opinion in order to enhance credibility of a subject matter against a criteria.
Following are the elements of an assurance engagement.
- A three party relationship involving a practitioner, a responsible party and intended users Responsible party is the person who is responsible for the subject matter.
- A subject matter, for example, financial statements.
- Criteria Criteria is the benchmark used to evaluate or measure the subject matter, for example IFRS.
- Evidence
Evidence is the information obtained by the practitionerto evaluate whether the subject matter is free of material misstatements. - Written report
The report contains conclusion that conveys the assurance about the subject matter information.
Following services provided by the auditor do not fall in the definition of assurance engagement:
- Agreed upon procedures.
- Compilation.
- Management and tax consultancy.