## Types of Assurance Engagements

Assurance engagements differ in the level of assurance provided, the procedures performed, and the standards that govern them.

### 1. Audit of Financial Statements

Assurance level: Reasonable (highest)
Provides assurance that financial statements as a whole are free from material misstatement, whether due to fraud or error
Auditor expresses an opinion on whether statements are prepared in accordance with the applicable financial reporting framework
Governed by Standards on Auditing (SA)

### 2. Review of Financial Statements

Assurance level: Limited (lower than audit)
Involves fewer procedures than audit
Gathers sufficient appropriate evidence for limited conclusions only

### 3. Examination of Prospective Financial Information

Assurance level: Moderate
Governed by Standards on Assurance Engagements (SAE)
Practitioner obtains evidence that:
Management's assumptions are not unreasonable
PFI is properly prepared on the basis of those assumptions
PFI is properly presented with all material assumptions adequately disclosed

### Assurance Level Summary

Engagement Type	Assurance Level	Governing Standard
Audit	Reasonable (High)	Standards on Auditing
Prospective Financial Info	Moderate	Standards on Assurance Engagements
Review	Limited (Low)	Standards on Review Engagements

### Historical vs. Prospective Financial Information

	Historical FI	Prospective FI
Basis	Past economic events already occurred	Future events and possible actions by entity
Nature	Factual, rooted in past	Assumption-based, forward-looking

Worked example

### Example 1

Scenario (5 Marks): CA Paras accepted audit of an entity's financial statements. Explain and distinguish the assurance provided by (i) audit, (ii) review, and (iii) examination of prospective financial information.

Answer:

1. Audit → Reasonable assurance. The auditor opines that financial statements as a whole are free from material misstatement (fraud or error), in accordance with the applicable reporting framework.

2. Review → Limited (lower) assurance. Fewer procedures, limited conclusions — does not rise to the level of an audit opinion.

3. Examination of PFI → Moderate assurance. Practitioner verifies that management's assumptions are not unreasonable, and that PFI is properly prepared, presented, and disclosed.

### Example 2

Scenario (4 Marks): Rajul Ltd. engaged CA Rajul to provide assurance on its prospective financial information, which projected a 15% revenue increase (₹75 crore), driven by a new product launch. Identify the applicable standard, level of assurance, and distinguish prospective from historical financial information.

Answer:

Applicable standard: Standards on Assurance Engagements (SAE)
Level of assurance: Moderate — the practitioner verifies assumptions are not unreasonable and PFI is properly prepared and disclosed
Historical FI vs. Prospective FI: Historical FI relates to past economic events already occurred. Prospective FI relates to future events based on management's assumptions — it is inherently uncertain, unlike historical data.

⚠️ Common exam mistakes

Confusing 'moderate assurance' (prospective FI examination) with 'reasonable assurance' (audit) — moderate is NOT the same as high
Saying review provides 'no assurance' — it provides limited (lower) assurance, not zero
Applying Standards on Auditing (SA) to prospective financial information engagements — SAE applies, not SA
Treating prospective financial information examination as equivalent to audit in scope of procedures required

Reference:

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Types of Assurance Engagements and Levels of Assurance

Worked example

⚠️ Common exam mistakes