10010 Limited Assurance Engagements

Jul-2020

Objectives (Ref: Para. 12(b), 44, 73(c), 72(l))

A4.   Where the underlying subject matter is made up of a number of aspects, separate conclusions may be provided on each aspect. All such separate conclusions do not need to relate to the same level of assurance. Rather, each conclusion is expressed in the form that is appropriate to either a reasonable assurance engagement or a limited assurance engagement. References in this CSAE to the conclusion in the assurance report include each conclusion when separate conclusions are provided.

The Nature, Timing and Extent of Procedures in Limited and Reasonable Assurance Engagements
(Ref: Para. 14(a)(i), 69)

A5.   Because the level of assurance obtained in a limited assurance engagement is lower than in a reasonable assurance engagement, the procedures the practitioner performs in a limited assurance engagement vary in nature and timing from, and are less in extent than for, a reasonable assurance engagement. The primary differences between the procedures for a reasonable assurance engagement and a limited assurance engagement include:

A Level of Assurance that Is Meaningful (Ref: Para. 14(a)(i)b.)

A6.   The level of assurance the practitioner plans to obtain is not ordinarily susceptible to quantification, and whether it is meaningful is a matter of professional judgment for the practitioner to determine in the circumstances of the engagement. In a limited assurance engagement, the practitioner performs procedures that are limited compared with those necessary in a reasonable assurance engagement but are, nonetheless, planned to obtain a level of assurance that is meaningful. To be meaningful, the level of assurance obtained by the practitioner is clearly more than inconsequential (see paragraphs A19‑A20).

A7.   Across the range of all limited assurance engagements, what is meaningful assurance can vary from just above assurance that is clearly more than inconsequential to just below reasonable assurance. What is meaningful in a particular engagement represents a judgment within that range that depends on the engagement circumstances, including the information needs of intended users as a group, the criteria, and the underlying subject matter of the engagement.

A8.   Because the level of assurance obtained by the practitioner in limited assurance engagements varies, the practitioner’s report contains an informative summary of the procedures performed, recognizing that an appreciation of the nature, timing and extent of procedures performed is essential to understanding the practitioner’s conclusion (see paragraph 73(k) and A172‑A176).

A9.   Some of the factors that may be relevant in determining what constitutes meaningful assurance in a specific engagement include, for example:

• The characteristics of the underlying subject matter and the criteria, and whether there are any relevant subject‑matter‑specific CSAEs.

• Instructions or other indications from the engaging party about the nature of the assurance the engaging party is seeking the practitioner to obtain. For example, the terms of the engagement may stipulate particular procedures that the engaging party considers necessary or particular aspects of the underlying subject matter on which the engaging party would like the practitioner to focus procedures. However, the practitioner may consider that other procedures are required to obtain sufficient appropriate evidence to obtain meaningful assurance.

• Generally accepted practice, if it exists, with respect to assurance engagements for the particular underlying subject matter, or similar or related subject matter.

• The information needs of intended users as a group. Generally, the greater the consequence to intended users of receiving an inappropriate conclusion when there is a significant deviation in the underlying subject matter, the greater the assurance that would be needed in order to be meaningful to them. For example, in some cases, the consequence to intended users of receiving an inappropriate conclusion may be so great that a reasonable assurance engagement is needed for the practitioner to obtain assurance that is meaningful in the circumstances.

• The expectation by intended users that the practitioner will form the limited assurance conclusion on the underlying subject matter within a short timeframe and at a low cost.

Criteria (Ref: Para. 14(c), Appendix 1 and Appendix 2)

A12.   [...] The suitability of criteria is not affected by the level of assurance; that is, if criteria are unsuitable for a reasonable assurance engagement, they are also unsuitable for a limited assurance engagement, and vice versa. Suitable criteria include, when relevant, criteria for presentation and disclosure.

Engagement Risk (Ref: Para. 14(g))

[...]

A15.   The degree to which each of these components is relevant to the engagement is affected by the engagement circumstances, in particular:

Complying with Relevant Requirements (Ref: Para. 19)

A30.   Although some procedures are required only for reasonable assurance engagements, they may nonetheless be appropriate in some limited assurance engagements.

Preconditions for the Direct Engagement (Ref. Para. 26)

A35.   In a public sector environment, some of the preconditions for an assurance engagement may be assumed to be present, for example:

Appropriateness of the Underlying Subject Matter (Ref: Para. 26(b)(i))

A38.   An appropriate underlying subject matter is identifiable and capable of consistent measurement or evaluation against the applicable criteria and can be subjected to procedures for obtaining sufficient appropriate evidence to support a reasonable assurance or limited assurance conclusion, as appropriate.

A39.   The appropriateness of an underlying subject matter is not affected by the level of assurance; that is, if an underlying subject matter is not appropriate for a reasonable assurance engagement, it is also not appropriate for a limited assurance engagement, and vice versa.

Acceptance of a Change in the Terms of the Engagement (Ref: Para. 33)

A58.   A change in circumstances that affects the intended users’ requirements, or a misunderstanding concerning the nature of the engagement, may justify a request for a change in the engagement, for example, from an assurance engagement to a non‑assurance engagement, or from a reasonable assurance engagement to a limited assurance engagement. An inability to obtain sufficient appropriate evidence to form a reasonable assurance conclusion is not an acceptable reason to change from a reasonable assurance engagement to a limited assurance engagement.

Practitioner’s Expert (Ref: Para. 36(c)(i))

A69.   Some of the assurance work may be performed by a multi‑disciplinary team that includes one or more practitioner’s expert. For example, a practitioner’s expert may be needed to assist the practitioner in obtaining an understanding of the underlying subject matter and other engagement circumstances or in one or more of the matters mentioned in paragraph 51R (in the case of a reasonable assurance engagement) or 51L (in the case of a limited assurance engagement).

Professional Judgment (Ref: Para. 42)

A80.   Professional judgment is essential to the proper conduct of an assurance engagement. This is because interpretation of relevant ethical requirements and relevant CSAEs and the informed decisions required throughout the engagement cannot be made without the application of relevant training, knowledge, and experience to the facts and circumstances. Professional judgment is necessary in particular regarding decisions about:

Significance (Ref: Para. 14(v), 49)

A90.   Professional judgments about significance are made in light of surrounding circumstances, but are not affected by the level of assurance; that is, for the same intended users and purpose, significance for a reasonable assurance engagement is the same as for a limited assurance engagement because significance is based on the information needs of intended users.

Understanding the Engagement Circumstances (Ref: Para. 50‑52R)

[...]

A103.   The practitioner ordinarily has a lesser depth of understanding of the underlying subject matter and other engagement circumstances than the responsible party. The practitioner also ordinarily has a lesser depth of understanding of the underlying subject matter and other engagement circumstances for a limited assurance engagement than for a reasonable assurance engagement. For example, while in some limited assurance engagements the practitioner may obtain an understanding of internal control relevant to the underlying subject matter, this is often not the case.

A104.   In a limited assurance engagement, identifying the areas where a significant deviation is likely to arise enables the practitioner to focus procedures on those areas. For example, in an engagement when the underlying subject matter deals with the entity’s sustainability, the practitioner may focus on certain areas of sustainability. The practitioner may design and perform procedures over the entire underlying subject matter when it consists of only a single area or when obtaining assurance over all areas of the underlying subject matter is necessary to obtain meaningful assurance.

A109.   In both a reasonable assurance and a limited assurance engagement, the results of the entity’s risk assessment process may also assist the practitioner in obtaining an understanding of the underlying subject matter and other engagement circumstances.

The Nature, Timing and Extent of Procedures (Ref: Para. 53(L)‑54(R))

A110.   The practitioner chooses a combination of procedures to obtain reasonable assurance or limited assurance, as appropriate. The procedures listed below may be used, for example, for planning or performing the engagement, depending on the context in which they are applied by the practitioner:

• Inspection;
• Observation;
• Confirmation;
• Recalculation;
• Reperformance;
• Analytical procedures; and
• Inquiry.

A111.   Factors that may affect the practitioner’s selection of procedures include the nature of the underlying subject matter; the level of assurance to be obtained; and the information needs of the intended users and the engaging party, including relevant time and cost constraints.

A113.   In some engagements, the practitioner may not identify any areas where a significant deviation is likely to arise. Irrespective of whether any such areas have been identified, the practitioner designs and performs procedures to obtain a meaningful level of assurance.

A114.   An assurance engagement is an iterative process, and information may come to the practitioner’s attention that differs significantly from that on which the determination of planned procedures was based. As the practitioner performs planned procedures, the evidence obtained may cause the practitioner to perform additional procedures.

Determining Whether Additional Procedures Are Necessary in a Limited Assurance Engagement (Ref: Para. 54L)

A115.   The practitioner may become aware of deviations that are, after applying professional judgment, clearly not indicative of the existence of significant deviations. The following examples illustrate when additional procedures may not be needed because, in the practitioner’s professional judgment, the identified deviations are clearly not indicative of the existence of significant deviations:

• If significance is defined as 10,000 units, and the practitioner judges that a potential error of 100 units may exist, then additional procedures would not generally be required, unless there are other qualitative factors that need to be considered, because the risk of a significant deviation is likely to be acceptable in the engagement circumstances.

• If, in performing a set of procedures over an area where significant deviations are likely, a response to one inquiry among many was not as expected, additional procedures may not be needed if the risk of a significant deviation is, nevertheless, at a level that is acceptable in the circumstances of the engagement in light of the results of other procedures.

A116.   The practitioner may become aware of a matter(s) that causes the practitioner to believe that a significant deviation exists. The following examples illustrate when additional procedures may be needed as the identified deviations indicate the existence of significant deviations in the underlying subject matter:

• When performing analytical procedures, the practitioner may identify a fluctuation or relationship that is inconsistent with other relevant information or that differs significantly from expected amounts or ratios.

• The practitioner may become aware of a potential significant deviation from reviewing external sources.

• If the applicable criteria permit a 10% error rate and, based on a particular test, the practitioner discovered a 9% error rate, then additional procedures may be needed because the risk of a significant deviation may not be acceptable in the engagement circumstances.

• If the results of analytical procedures are within expectations but are, nevertheless, close to exceeding the expected value, then additional procedures may be needed because the risk of a significant deviation may not be acceptable in the engagement circumstances.

A117.   If, in the case of a limited assurance engagement, a matter(s) comes to the practitioner’s attention that causes the practitioner to believe that a significant deviation exists, the practitioner is required by paragraph 54L to design and perform additional procedures. Additional procedures may include, for example, inquiring of the appropriate party(ies) or performing other procedures as appropriate in the circumstances.

A118.   If, having performed the additional procedures required by paragraph 54L, the practitioner is not able to obtain sufficient appropriate evidence to either conclude that the matter(s) is not likely to cause a significant deviation or determine that it does cause a significant deviation, a scope limitation exists and paragraph 70 applies.

A119.   The practitioner’s judgment about the nature, timing and extent of additional procedures that are needed to obtain evidence to either conclude that a significant deviation is not likely, or determine that a significant deviation exists, is, for example, guided by:

• Information obtained from the practitioner’s evaluation of the results of the procedures already performed;

• The practitioner’s updated understanding of the underlying subject matter and other engagement circumstances obtained throughout the course of the engagement; and

• The practitioner’s view on the persuasiveness of evidence needed to address the matter that causes the practitioner to believe that the underlying subject matter may contain a significant deviation.

Scope Limitations (Ref: Para. 28, 70)

[...]

A158.   The procedures performed in a limited assurance engagement are, by definition, limited compared with that necessary in a reasonable assurance engagement. Limitations known to exist prior to accepting a limited assurance engagement are a relevant consideration when establishing whether the preconditions for a direct engagement are present, in particular, whether the engagement exhibits the characteristics of access to evidence (see paragraph 26(b)(iv)) and a rational purpose (see paragraph 26(b)(vi)). If a further limitation is imposed by the appropriate party(ies) after a limited assurance engagement has been accepted, it may be appropriate to withdraw from the engagement, where withdrawal is possible under applicable law or regulation.

Summary of the Work Performed (Ref: Para. A8, 73(k))

A172.   The summary of the work performed helps the intended users understand the practitioner’s conclusion. For many assurance engagements, infinite variations in procedures are possible in theory. In practice, however, these are difficult to communicate clearly and unambiguously. Other authoritative pronouncements issued by the Auditing and Assurance Standards Board may be useful to practitioners in preparing the summary.

A173.   Where no specific CSAE provides guidance on procedures for a particular underlying subject matter, the summary might include a more detailed description of the work performed. It may be appropriate to include in the summary a statement that the work performed included evaluating the suitability of the applicable criteria.

A174.   In a limited assurance engagement, the summary of the work performed is ordinarily more detailed than for a reasonable assurance engagement and identifies the limitations on the nature, timing and extent of procedures. This is because an appreciation of the nature, timing and extent of procedures performed is essential to understanding a conclusion expressed in a form that conveys whether, based on the procedures performed, a significant matter(s) has come to the practitioner’s attention to cause the practitioner to believe the underlying subject matter contains a significant deviation. It also may be appropriate to indicate in the summary of the work performed certain procedures that were not performed that would ordinarily be expected to be performed in a reasonable assurance engagement. However, a complete identification of all such procedures may not be possible because the practitioner’s required understanding and consideration of engagement risk is less than in a reasonable assurance engagement.

A175.   Factors to consider in determining the level of detail to be provided in the summary of the work performed may include:

• Circumstances specific to the entity (for example, the differing nature of the entity’s activities compared to those typical in the sector).

• Specific engagement circumstances affecting the nature and extent of the procedures performed.

• The intended users’ expectations of the level of detail to be provided in the report, based on market practice, or applicable law or regulation.

A176.   It is important that the summary be written in an objective way that allows intended users to understand the work done as the basis for the practitioner’s conclusion. In most cases, this will not involve detailing the entire work plan, but on the other hand, it is important for it not to be so summarized as to be ambiguous, nor written in a way that is overstated or embellished.

The Practitioner’s Conclusion (Ref: Para. 14(a)(ii)b., 73(l))

[...]

A179.   An example of a conclusion expressed in a form appropriate for a limited assurance engagement is: “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 significant respects, with XYZ law.”

Unmodified and Modified Conclusions (Ref: Para. 76‑80)

[...]

A190.   Examples of qualified and adverse conclusions and a disclaimer of conclusion are:

• Qualified conclusion (an example for limited assurance engagements with a significant deviation) – “Based on the procedures performed and the evidence obtained, except for the effect of the matter described in the Basis for Qualified Conclusion section of our report, nothing has come to our attention that causes us to believe that the entity has not complied, in all significant respects, with XYZ law.”
• [...]
• Adverse conclusion (an example for a significant and pervasive deviation for both reasonable assurance and limited assurance engagements) – “Because of the importance of the matter described in the Basis for Adverse Conclusion section of our report, the entity has not complied, in all significant respects, with XYZ law.”
• Disclaimer of conclusion (an example for a significant and pervasive limitation of scope for both reasonable assurance and limited assurance engagements) – “Because of the importance of the matter described in the Basis for Disclaimer of Conclusion section of our report, we have not been able to obtain sufficient appropriate evidence to form a conclusion on whether the entity has complied, in all significant respects, with XYZ law. Accordingly, we do not express a conclusion on such compliance.”