Limited Assurance Engagement: All You Need to Know!

Under many jurisdictions, public companies have to perform external audits regularly. For other companies or organizations, these may be voluntary. However, a company’s stakeholder may request an audit report, which will compel it to perform an audit. These audits provide stakeholders with the confidence they need to make decisions based on the subject matter.

External audits fall under the reasonable assurance engagement category. These engagements usually have stricter regulations but also provide higher assurance. Apart from these engagements, auditors may also perform limited assurance engagements. Before understanding what these engagements are, it is crucial to understand what assurance engagement means.

What is an Assurance Engagement?

Assurance engagements are services in which an independent practitioner examines a subject matter. Usually, these practitioners use suitable criteria predetermined before the engagement to assess the given subject matter. This process aims to provide users with assurance about the reliability of the provided subject matter. For external audits, for example, may involve establishing whether a client’s financial statements are free from material misstatements.

With assurance engagements, practitioners provide an opinion, which they reach after some audit work. This opinion usually includes the practitioners’ conclusion, which they establish during their audit work. Similarly, these practitioners collect evidence during their work which helps them with reaching a conclusion. This evidence must be sufficient and appropriate for the purpose.

With almost all assurance engagements, it is not possible for practitioners to present absolute assurance. It is because providing absolute assurance requires significant resources and time. Therefore, both clients and auditors agree to lower levels of assurance. These may come as limited assurance and reasonable assurance engagements. Both of these are different from each other in several aspects.

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What is a Limited Assurance Engagement?

A limited assurance engagement is a type of assurance engagement in which an auditor provides low-level assurance. These engagements usually have a specific purpose. Similarly, they have lower costs and time constraints. Therefore, it is not feasible for auditors to perform in-depth audits to collect audit evidence. However, some can also be more specific and have higher resource requirements.

Although it provides a low assurance level, they are still helpful. The risk of material misstatements existing in the subject matter is also relatively higher compared to reasonable assurance engagements. However, since limited assurance engagements have more specific requirements, that may not be an issue for the users.

Since the requirements for limited assurance engagements differ from others, the process will also vary. Auditors will prefer some audit procedures over others to save time and get specific results. With limited assurance engagements, auditors have to specify their duties and responsibilities with the client. With limited assurance engagements, some standards and regulations may not apply. Therefore, the users will decide the scope for these engagements.

What are the Characteristics of Limited Assurance Engagements?

As mentioned above, it differs from other engagements. Therefore, these engagements illustrate some specific characteristics. With these, it is possible to differentiate between limited and other services. These features also describe how limited assurance engagements work and what users can expect from them. Some of these characteristics are as below.

Assurance Level

With limited assurance engagements, auditors provide a moderate or low level of assurance. Due to this, users cannot provide high confidence in the auditor’s opinion. With low assurance levels, the risks of material misstatements still existing are significantly higher than reasonable assurance. However, for specific purpose audits, that may not be a problem.

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Audit Evidence

Limited assurance engagements require auditors to collect sufficient appropriate audit evidence. The same applies to reasonable assurance engagements. However, with limited assurance, the quality and quantity of the audit evidence may be lower. Based on this evidence, auditors can reach a conclusion, which they can translate into an opinion.

Process

The process for limited assurance engagements also differs from others. With limited assurance services, auditors perform significantly lower procedures. These procedures usually include using enquiries or analytical procedures. For limited engagements, these may be sufficient in reaching a conclusion. It differs from reasonable assurance engagements where auditors use tests of controls and substantive audit procedures.

Conclusion

Limited assurance engagements also require auditors to reach a conclusion regarding the subject matter. For these engagements, the auditors must conclude that the subject matter is plausible in the circumstances. Auditors should state that the plausibility is with respect to identified suitable criteria.

Report

The report for limited assurance engagements may differ according to the scope of the audit. However, it also differs from reasonable assurance, which provides a positively worded assurance conclusion. Instead, limited assurance involves a negatively worded assurance conclusion. However, that does not imply that auditors will perform a modified report.

Regulations

There are many regulations that apply to reasonable assurance engagements. It is because they come under higher scrutiny from various regulatory bodies. For limited assurance engagements, the same does not apply. Auditors don’t have to deal with the same level of regulatory compliance as they do for reasonable assurance engagements.

Example

Review engagements are one of the prime examples of limited assurance engagements. As mentioned, these engagements don’t have the same level of compliance as external audits. Similarly, the objective for these audits comes from the client. Auditors usually perform lesser work and gather limited evidence during review engagements.

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Conclusion

Assurance engagements require auditors to examine a subject matter against suitable criteria. Based on that, they will provide an opinion. Limited assurance engagements involve a moderate or low assurance level. These engagements have some characteristics that differentiate them from others, as mentioned above.

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