A rational purpose for assurance engagements

In this article in the series on assurance over emerging forms of external reporting (EER), John Ward explores the meaning of a rational purpose for assurance engagements.

As discussed in my article on the respective responsibilities of preparers and assurers in using established and bespoke reporting frameworks, those used to the audit of financial statements, will have to adapt to assurance over EER, which will involve a number of new decisions.

Another example of one of these is considering whether the assurance engagement has a rational purpose. The IAASB’s International Framework for Assurance Engagements (the Framework) requires assurance engagements to have a rational purpose including, in the case of limited assurance engagements, being able to obtain a meaningful level of assurance. This will need to be considered when deciding whether to accept the assurance engagement.

I have provided some examples of the challenges which fellow assurance practitioners may encounter in considering whether the assurance engagement has a rational purpose, along with some possible ways of responding to them.

Scenario 1

Q1 Your client is preparing a report which seems to exclude certain key information that the consultation indicates is needed by the users.

Should you accept the engagement?

A1 I would discuss this with the client to determine their intentions. What is the bigger picture here?

Q2 Further, your client indicates that they have no plans to collate and disclose the information in the future.

Should you accept the engagement?

A2 I would ask the client whether they intend to disclose this to the users. Full disclosure would help, but in the absence of this key information, would the engagement have a rational purpose?

Q3 Further, it transpires that the information is not currently available, but that your client is planning to collate and disclose it when it is ready.

Should you accept the engagement?

A3 I would ask the client whether they intend to disclose this to the users. Full disclosure and the knowledge that the client is planning to collate and disclose the information in the future would help.

Scenario 2

Q1 Your client is preparing a report which seems to fully address the users’ needs, however, they are only seeking assurance over some minor information in the report.

Should you accept the engagement?

A1 I would discuss this with the client. Assurance over only some minor information may be misleading to the users. Would the assurance be meaningful and would the engagement have a rational purpose?

Q2 Further, your client explains that the other information is not yet accurate to their satisfaction and they know it would result in a qualification due to uncertainty.

Should you accept the engagement?

A2 I would not consider it acceptable for management to publish such information. I do not think it likely that I would accept the engagement.

Q3 Further, your client is seeking limited assurance over the information because they have recognised that gaps in the information and evidence mean that reasonable assurance would not be feasible.

Should you accept the engagement?

A3 If such information is not appropriate for reasonable assurance, then it is not appropriate for limited assurance. I would not accept the engagement.