## Assurance Engagements: Types and Scope

### Definition

An assurance engagement is one in which a practitioner expresses a conclusion designed to enhance the degree of confidence of intended users about a subject matter evaluated against criteria.

### Audit Is NOT the Only Assurance Engagement

Type	Level of Assurance	Subject Matter
Audit	Reasonable (high level)	Historical financial information
Review	Limited (lower level)	Historical financial information
Prospective Financial Information	Appropriate assurance	Forecasts and projections
Internal Controls	Appropriate assurance	Control effectiveness

### Distinguishing Audit from Review

Audit → Positive form of conclusion: "gives a true and fair view" — high procedures burden.
Review → Negative form: "nothing has come to our attention" — fewer procedures, lower assurance.

The difference is of degree, not of kind — both produce a written assurance report.

### Assurance on Prospective Financial Information

The practitioner must obtain sufficient appropriate evidence that:

1. Management's assumptions are not unreasonable.

2. The projections are properly prepared on the basis of those assumptions.

3. The information is properly presented with all material assumptions adequately disclosed.

### Key Takeaway

Assurance engagements cover matters beyond historical financial statements — prospective information and internal controls are valid assurance subjects, each resulting in a formal written assurance report.

Worked example

### Example 1

Kriti argued that audit is the only assurance engagement that produces a written report. Somaya correctly countered that review engagements, assurance on five-year financial projections, and assurance on internal controls each produce a written assurance report. The difference lies in the level of assurance (high vs. limited) and the subject matter (historical vs. forward-looking), not in the existence of a report. Somaya's view is correct.

### Example 2

A practitioner engaged to provide assurance on a company's five-year revenue projection must verify three things: (a) Are management's assumptions (growth rate, market share, input cost trends) not unreasonable given available evidence? (b) Is the projection arithmetically consistent with those assumptions? (c) Are all key assumptions prominently disclosed in the report so users can assess their reasonableness?

⚠️ Common exam mistakes

Treating 'audit' and 'assurance engagement' as synonymous — audit is one species within the genus of assurance engagements.
Thinking assurance engagements only relate to historical financial statements — prospective information and internal controls are equally valid subjects.
Confusing the level of assurance: audit = reasonable (high); review = limited (lower). Higher assurance requires more extensive procedures, not fewer.
Assuming all assurance engagements produce the same form of conclusion — audits use positive language; reviews use negative language ('nothing has come to our attention').

Reference:

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Types of Assurance Engagements – Audit vs. Review vs. Other

Worked example

⚠️ Common exam mistakes