25.3 Other Assurance and Related Services Engagements
Key Takeaways
The broader Philippine assurance framework encompasses reviews (PSRE 2400/2410 offering limited assurance via negative conclusions), assurance on non-financial/prospective data (PSAE 3000/3400), and non-assurance related services comprising agreed-upon procedures (PSRS 4400) and compilations (PSRS 4410).
PSA 800 reports on special purpose frameworks such as the income tax basis include an Emphasis of Matter paragraph alerting users to the basis of accounting.
Only a Type 2 service auditor's report under PSAE 3402 covers operating effectiveness of controls, which a user auditor needs to rely on those controls.
Under PSAE 3400, the practitioner gives only moderate (negative) assurance on the assumptions behind forecasts and projections.
Independence is required for assurance engagements but not for compilations, and PSRS 4400 (Revised) requires an AUP report to state whether the practitioner is independent.
Other Assurance and Related Services Engagements
Besides audits of general purpose financial statements, CPAs perform other assurance and related services. This section covers the professional services spectrum, special purpose frameworks and single statements (PSA 800, 805, 810), service organization reports (PSA 402 and PSAE 3402), prospective financial information (PSAE 3400), reviews (PSRE 2400 and 2410), agreed-upon procedures (PSRS 4400), compilations (PSRS 4410), and the CPA's other services.
1. Other Philippine Assurance and Related Services Engagements
The Philippine Framework for Assurance Engagements, approved by the Board of Accountancy, establishes the spectrum of professional engagements performed by CPAs:
Philippine Professional Services Spectrum
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┌────────────────────────────┴────────────────────────────┐
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Assurance Engagements Related Services
(Provide a level of assurance) (Provide ZERO assurance)
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┌─────────────┴─────────────┐ ┌─────────────┴─────────────┐
▼ ▼ ▼ ▼
Audits of FS Reviews of FS Agreed-Upon Procedures Compilations
(PSA 100-799) (PSRE 2400/2410) (PSRS 4400) (PSRS 4410)
Reasonable Assurance Limited Assurance No Assurance No Assurance
Positive Opinion Negative Conclusion Factual Findings Report Compilation Report
Comprehensive Engagement Comparison
| Engagement Type | Governing Standard | Level of Assurance | Objective & Typical Procedures | Form of Conclusion / Report |
|---|---|---|---|---|
| Financial Statement Audit | PSA 100–799 | Reasonable Assurance (High, but not absolute) | Reduce engagement risk to an acceptably low level; tests of controls, physical inspection, confirmations, recalculations, analytics. | Positive Assurance Opinion ("In our opinion, the financial statements present fairly, in all material respects..."). |
| Review of Financial Statements | PSRE 2400 / 2410 | Limited Assurance (Moderate) | Assess whether anything has come to attention; primarily inquiry and analytical procedures; no physical counts, no internal control tests. | Negative Assurance Conclusion ("Based on our review, nothing has come to our attention that causes us to believe..."). |
| Assurance on Other Subject Matters | PSAE 3000 (Revised) and subject-specific PSAEs | Reasonable or Limited Assurance | Non-financial information, controls at a service organization, or prospective financial information. | Written assurance conclusion (positive for reasonable assurance, negative wording for limited assurance). |
| Agreed-Upon Procedures (AUP) | PSRS 4400 (Revised) | NO Assurance | Perform specific procedures agreed upon between practitioner, entity, and third parties (e.g., verifying accounts payable to a bank). | Report of Factual Findings (lists factual findings; users draw their own conclusions; restricted distribution). |
| Compilation Engagements | PSRS 4410 (Revised) | NO Assurance | Applying accounting expertise to collect, classify, and summarize financial data into financial statements without verifying assertions. | Compilation Report (explicitly states that no audit or review was performed and no assurance is expressed). |
Key Board Exam Distinctions
- Review Engagements (PSRE 2400/2410): The practitioner does not obtain an understanding of internal control to assess control risk, does not test internal controls, does not observe physical inventory counts, and does not send third-party confirmation requests. Evidence is gathered almost exclusively via inquiry of management and analytical procedures.
- Agreed-Upon Procedures (PSRS 4400 Revised): Independence is not required unless requested by the terms of the engagement or by regulation (though if the practitioner is not independent, this fact must be stated in the report under the revised standard). The practitioner issues no opinion and no conclusion; the report merely recites the procedures performed and the factual results obtained.
- Compilation Engagements (PSRS 4410 Revised): The practitioner does not verify the accuracy or completeness of the information provided by management. If the practitioner becomes aware that records are incomplete or inaccurate, the practitioner must request amendments; if management refuses, the practitioner must withdraw.
2. Special Purpose Frameworks and Single Statements (PSA 800, 805, 810)
| Standard | Engagement | Key reporting features |
|---|---|---|
| PSA 800 (Revised) | Audit of financial statements prepared under a special purpose framework, such as the income tax basis, the cash basis, or a regulator's or contract's reporting provisions | The report describes the purpose of the statements and includes an Emphasis of Matter paragraph alerting users that the statements may not be suitable for another purpose; distribution may be restricted |
| PSA 805 (Revised) | Audit of a single financial statement or a specific element, account, or item (for example, a schedule of accounts receivable or royalties) | Materiality is set for the single statement or element, so it is usually lower than for the complete statements; an adverse opinion or disclaimer on the complete statements generally prevents an unmodified opinion on an element in the same report |
| PSA 810 (Revised) | Engagement to report on summary financial statements derived from audited statements | The opinion states whether the summary is consistent, in all material respects, with the audited statements; it is not an opinion on fair presentation |
Micro entities that use the income tax basis permitted by Revised SRC Rule 68 present special purpose financial statements when they are audited, which is a common board example of PSA 800.
Service Organizations and Prospective Financial Information
- PSA 402 (user auditor): when a client outsources processing (for example, payroll or IT hosting) to a service organization, the user auditor obtains an understanding of the service organization's controls, often through a service auditor's report.
- PSAE 3402 (service auditor): a Type 1 report covers the description and design of controls at a point in time; a Type 2 report also covers the operating effectiveness of controls over a period, so only a Type 2 report can support reliance on controls without the user auditor's own testing.
- PSAE 3400 (prospective financial information): a forecast is based on management's best-estimate assumptions, while a projection is based on hypothetical assumptions. Because future results cannot be verified, the practitioner gives limited (negative) assurance on the assumptions and an opinion on whether the information is properly prepared on those assumptions, with a caveat that actual results are likely to differ.
Reviews, AUP, and Compilations in Practice
- PSRE 2400 (Revised) covers reviews of historical financial statements by a practitioner who is not the entity's auditor; PSRE 2410 covers reviews of interim financial information by the entity's own auditor, who can draw on knowledge from the annual audit.
- Independence: required for audits, reviews, and other assurance engagements; not required for compilations and, unless the terms or law require it, not required for agreed-upon procedures, although PSRS 4400 (Revised) requires the report to state whether the practitioner is independent.
- Compilation report: it states that the practitioner compiled the information from management's records, that management is responsible for it, and that the practitioner did not audit or review it and expresses no opinion or review conclusion.
The CPA's Other Services
Beyond audit and assurance, CPAs in public practice provide tax compliance and advisory services, management consulting (systems design, forensic and valuation work, corporate finance), bookkeeping, and financial statement preparation. These services are governed by the Code of Ethics, and when provided to an audit client they are subject to the independence limits on non-assurance services.
A client requests a CPA practitioner to perform an engagement under Philippine Standards on Related Services (PSRS 4400 Revised) to verify specific accounts receivable balances and recalculate discounts for a bank credit facility. What level of assurance will the CPA provide, and what form of report will be issued?
Reasonable assurance with a positive audit opinion.
Limited assurance with a negative conclusion.
No assurance with a report detailing factual findings.
Absolute assurance with a certified statement of solvency.
A user auditor wants to reduce substantive testing of payroll by relying on controls at an outsourced payroll processor. Which report from the service auditor best supports that reliance?
A Type 1 report on the description and design of controls at a point in time
A compilation report on the processor's financial statements
A Type 2 report that also covers the operating effectiveness of controls over a period
A review report on the processor's interim financial information
A practitioner examines a projection prepared under PSAE 3400 using hypothetical assumptions about a new plant. What assurance does the practitioner provide on the assumptions?
Reasonable assurance that the projected results will be achieved
Limited (negative) assurance that nothing suggests the assumptions do not provide a reasonable basis for the projection
No assurance, because PSAE 3400 is a related services standard
Absolute assurance, because the practitioner recomputed the projection
Sections you finish are checked off in the contents.