Types of Assurance Engagement

Typically, the assurance engagements which the accounting service in Singapore provide and offer can be categorised into two different levels, which are the limited assurance engagement and the reasonable assurance engagement.

Some companies may choose to have an assurance engagement (Also see Essential Elements of Assurance Engagement) with the primary purpose of enabling the professionals and the audit firms to perform their job so that they may express their audit opinion according to the type of the assurance of their engagement. The audit assurance is critical, especially for bigger companies, as part of the foundation of confidence that help the management to “process” the inputs before they rely on the financial statements to make business or commercial decisions.

Limited Assurance Engagement

Usually, in the limited assurance engagement, the auditors would express audit opinion in a negative assurance. An example of this type of assurance engagement is the financial statements review. In practice, this form of engagement is less likely when the statutory requirement now required positive assurance and the businesses (Also see How Can You Improve Your Business?) now become more skeptical.

To understand this, as an instance, a company wants to acquire a loan from a bank, and it has obtained the bank’s approval. However, as a part of the requirement, the company has to submit its financial statements (Also see Which is the Most Important Financial Statement?) for a quarter. Also, the bank requires the statements to be reviewed by qualified auditors. Hence, in such a situation, the management of the company requires an engagement with the auditors and let them review their company’s financial statements (Also see Accounting – 4 Things about Financial Statements Every Business Owner Should Know).

This type of engagement has a limited level of assurance, and as mentioned above, the opinion which the auditors will express is in a negative form. Given to lower requirement, lesser work is carried out when issuing such assurance and therefore tend to be cheaper.

Reasonable Assurance Engagement

In a reasonable assurance engagement, the auditors would express audit opinion in a positive form. Sometimes, people would call this type of engagement a positive assurance engagement.

In reasonable assurance engagement, the opinion that the auditors express will reduce the risks of the assurance engagement to a low level which is acceptable for the subject matter which the company has been expressing on. This is because extensive audit testing is carried out before the auditor is able to issue a report with positive assurance.

An example of the reasonable assurance engagement is the statutory audit on the financial statements. After performing the audit, the auditors will express audit opinion according to the results of their examination. Those opinions will be in a positive form that directly indicate whether the financial statements are true and fair, instead of just indicating whether there is anything brought to their attention.