The Framework of Concepts of International Auditing Standards (ISA'S Framework) establishes the main concepts for the proper understanding of these standards. According to the ISAs, the Framework of Concepts entitles:
"International Framework for Assurance Engagements"
This document is exposed in the second part of the Supplement to the Manual of International Pronouncements of Quality Control, Audit, Review, Other Assurance Engagements, and related Services.
Next, we will develop the most significant aspects of this Framework of Concepts (Framework), since its use is important for the application of the International Auditing Standards - ISAs.
General features
The Concept Framework is issued solely to facilitate understanding of the elements and objectives of assurance engagements and engagements to which International Standards on Auditing apply. The Framework of Concepts is not a standard and consequently does not establish requirements for conducting audits.
Ethical principles and quality control standards
It is generally recognized that both Quality Control in audit firms, compliance with ethical principles, as well as independence requirements are in the public interest and therefore are part of high quality assurance assignments.
Assurance engagements can be understood as the financial audit work performed by a professional Certified Public Accountant.
The code of ethics establishes the following fundamental principles that the practitioner must comply with:
- Professional competence and diligence. Confidentiality; yProfessional behavior.
Description of Assurance Engagements
In the Financial Audit work, the practitioner aims to obtain sufficient and adequate evidence that allows him to express a conclusion whose purpose is to increase the degree of trust of the users to whom the report is intended.
Reasonable security charges and limited security charges.
In a reasonable assurance engagement, the professional Chartered Accountant reduces risk to an acceptably low level (but risk cannot be totally eliminated), depending on the circumstances as the basis for expressing a conclusion.
In a limited security engagement, the practitioner reduces the risk to an acceptable level, his or her risk being greater than that of a reasonable security engagement.
Reports on Non-Assurance Engagements
A practitioner issuing a report that is not an assurance engagement should clearly differentiate that report from another report that is an assurance report so as not to mislead users.
Elements of an Assurance Engagement
The elements of an assurance engagement are:
- A relationship between three parties, the professional Public Accountant, the Head of the Financial Statements (If it is a reasonable assurance assignment) and the Users to whom the report is designated An underlying matter under analysis (Example: the financial statements if is a reasonable assurance engagement on general purpose financial statements) Adequate criteria Sufficient and adequate evidence A written Assurance Report, in a form appropriate to a reasonable or limited assurance engagement.
At this point, it is important to clarify that the elements mentioned above have particularities and a fairly deep conceptual content and detailed analysis. For the purposes of this bulletin we will only develop the most significant aspects of subsection d) referring to sufficient and adequate Evidence.
Evidence
Assurance engagements are planned and performed with an attitude of professional skepticism in order to obtain sufficient and adequate evidence. It is necessary to apply professional judgment when considering the relative importance, the risk of the engagement and the quantity and quality of evidence available when the engagement is planned and carried out (As an engagement, the Audit work agreed with the client can be understood), and the quantity and quality of evidence available when the work is planned and carried out, more specifically, when the nature, timing and extent of the procedures are determined.
Professional skepticism
Professional skepticism is an attitude that implies special attention, for example, to:
- Evidence inconsistent with other evidence obtained Information that questions the reliability of documents and responses to inquiries to be used as evidence Circumstances that suggest the need to apply additional procedures to those required by the assurance standards; and Conditions that may indicate a possible misstatement.
Maintaining professional skepticism throughout work is necessary to reduce the risk of:
- Overlooking unusual circumstances, Over-generalizing when reaching conclusions from observed facts; yUsing inappropriate hypotheses in determining the nature, timing and extent of procedures and in evaluating results.
Professional judgment
Professional judgment or judgment is essential to perform an audit engagement properly. Professional judgment is necessary, especially in relation to decisions to be made on:
- Materiality and audit risk The nature, timing and extent of the procedures used to meet the requirements of the Assurance Standards and obtain the evidence The evaluation of whether sufficient and adequate evidence has been obtained and of if more needs to be done to achieve the objectives The appropriate conclusions drawn from the evidence obtained.
What characterizes the professional judgment is that the professional Certified Public Accountant whose practical training, knowledge and experience facilitates the development of the necessary competencies to reach reasonable judgments.
Sufficient and adequate evidence
The sufficiency and adequacy of the evidence are interrelated. Sufficiency is the quantitative measure of evidence. The amount of evidence required depends on the risk that the information on the subject under analysis contains material misstatements, as well as on the quality of that evidence.
Adequacy is the qualitative measure of the evidence, that is, its relevance and reliability to support the conclusions on which the practitioner's conclusion is based.
Materiality or Relative Importance
Materiality is relevant in the planning and performance of the audit work, as well as in determining the nature, timing and extent of the procedures and when evaluating whether the information on the subject under analysis is free of inaccuracies.
Audit Risk
It may happen that the information about the object of analysis is not adequately expressed and consequently is incorrect to a degree that can become material or of relative importance. This occurs when the measurement or evaluation criteria of the financial information to be audited are not properly applied.
Audit risk is the risk that the professional will express an inappropriate conclusion when there are material misstatements.
Reducing risk to zero is very rarely achievable or practical, considering the cost-benefit ratio, consequently "reasonable security" is less than absolute security.
Nature, timing and extent of the procedures
A combination of procedures is generally used to obtain reasonable assurance or limited assurance, procedures may include:
- Inspection; Observation; Confirmation; Recalculation; Re-execution; Analytical procedures; eInquiry.
Conclusions
Although the concept framework is not an audit standard per se, it is useful for us to properly understand what is established by the standards by explaining the proper interpretation that should be given to each concept. Likewise, it is important to note that the latest International Framework of Assurance Engagements addresses modern concepts such as Engagements, Assurance, Underlying Matter Object of Analysis, etc. In this understanding, the fact of constantly studying these regulations should be seen as an opportunity for constant professional development, which in parallel to the development of the businesses is constantly and continuously updated.
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The content of this newsletter is published for informational purposes only. For the application of the information contained in this bulletin, you should always act with the appropriate professional advice for each particular case.
