(Ref: Para. 4)

The assurance practitioner may agree to provide non‑assurance services in accordance with the agreed terms of an engagement^[67] or may be a member of a firm that is to provide such non‑assurance services.  Non‑assurance services are not within the scope of this ASAE.  The assurance practitioner should consider relevant ethical requirements (including independence)^[68], and the requirements of applicable law, regulation and professional standards when considering whether they are able to agree to provide such non‑assurance services.  If non‑assurance services are able to be provided, they may be included in a separate engagement letter from the assurance services, or combined into a single engagement letter.

Examples of non‑assurance services include:

1. the preparation and issuance of a Materiality Advice Letter or similar document to an entity’s due diligence committee related to the fundraising;
2. participation in the entity’s due diligence committee;^[69]
3. the preparation of taxation information which is to be disclosed in the document and is unrelated to the financial information that is the subject of the assurance engagement;
4. agreed upon procedures engagements, where no assurance conclusion is expressed (for example, a report of factual findings in respect of subsets of financial information included in the public document or the document; or earnings per share calculations);^[70]
5. comfort letter engagements performed by an assurance practitioner who is also the appointed auditor of the entity;^[71] and
6. accounting services in respect of financial information that is not the subject of the assurance engagement.

Types of Assurance provided in the Engagement (Ref: Para. 9)

Factors to consider include:

1. the actual type of information, including its source and extent;
2. the nature and extent of documentation that is known to be available to support the financial information;
3. whether all, or part, of the financial information has been previously audited or reviewed;
4. the nature, purpose and intended users of the financial information; and
5. the engagement circumstances. 

(Ref: Para. 16)

ASAE 3000 and ASRE 2405 include requirements that apply to relevant assurance engagements.  This ASAE includes additional requirements or application and other explanatory material in relation to those topics, as applicable to assurance engagements related to corporate fundraisings or prospective financial information prepared for other purposes. 

(Ref: Para. 23)

Implications for the engagement may include:

1. whether to continue to perform the engagement;
2. issuing a modified conclusion in the assurance report;
3. refusing to issue the assurance report; or
4. withdrawing from the engagement, where it is possible under any applicable law or regulation. 

The assurance practitioner should discuss the above implications with the responsible party.

Preconditions for Acceptance (Ref: Para. 24)

The responsible party is ultimately responsible for the preparation and presentation of all information in the document.  The responsible party may engage other experts (for example, tax advisors, business advisors, or legal counsel) who may prepare, assist with the preparation of, or provide independent advice on, the information included in the document, however the responsible party retains responsibility for such information.  The only exception to this is in respect of the content of reports prepared by other parties/experts, which are included, by consent, in the document. 

If the responsible party is not also the engaging party, the assurance practitioner ordinarily considers the effect this may have on their ability to access records, documentation and other information that may be needed by the assurance practitioner to complete the engagement.

If the responsible party does not agree to sign the engagement letter, the assurance practitioner needs to consider whether it is appropriate to accept the engagement. Such considerations should take into account that applicable law, regulation, or a pre‑existing contract may already acknowledge the terms included in the engagement letter, or set out the responsible party’s responsibility in sufficient detail, such that the engagement letter is not required. For example, under the Corporations Act 2001,^[72] the directors of an entity are deemed responsible for the financial information included in a public document used in offering securities.  In such circumstances, the assurance practitioner may, using professional judgement, agree to accept the engagement, without requiring the engagement letter be signed. (Ref: Para. 27) 

Other terms and conditions that may be included in the agreed terms are: (Ref: Para. 27(d))

1. a description of assurance procedures to be performed, for example:
   1. analytical review procedures;
   2. review and consideration of key working papers, accounting records and other documents prepared by the responsible party and other experts;
   3. enquiry of, and discussion with, the responsible party and other experts related to the source and stated basis of preparation used for the historical financial information;
   4. the examination of, on a test basis, evidence supporting the financial information;
   5. consideration of events up to, and including the date of the assurance report;
   6. consistency checks of the stated basis of preparation compared to the accounting policies disclosed in the most recent historical financial information also disclosed in the document;
2. important deadlines/timelines for the completion of the engagement.  This may include deadlines such as the expected date of publication of the document and when the assurance practitioner’s consent is required;
3. arrangements regarding the planning and performance of the engagement, including the composition of the engagement team (including any experts); and
4. arrangements for the assurance practitioner to:
   1. attend meetings such as the due diligence committee meetings (if applicable under the terms of the engagement);^[73]
   2. receive draft and final versions of the document in a timely manner, when requested;
   3. use the service(s) of the responsible party’s experts and/or the assurance practitioner’s experts;
   4. communicate directly with the entity’s external auditor and/or other professional advisers regarding matters relevant to the financial information; and
   5. provide consent to the inclusion of the assurance practitioner’s assurance report in the document.  If the document is a prospectus, prepared in accordance with the Corporations Act 2001,^[74] the form of the consent must be consistent with how the prospectus is intended to be distributed.  For example, entities intending to distribute the prospectus in both electronic and paper forms must also obtain the assurance practitioner’s consent to the inclusion of the assurance report in both forms.^[75]

Appendix 1 provides an illustrative example engagement letter for an engagement. (Ref: Para. 27)

Examples of when requests from the responsible party to change the terms of the engagement may be received include where there has been a change in circumstances affecting the need for the service, or a misunderstanding of the type or nature of the assurance services to be provided. The assurance practitioner considers the justification for the proposed change, implications for the conduct and reporting of the engagement, as well as any evidence that was obtained prior to the assurance practitioner agreeing to the change. Changes that may be unacceptable to the assurance practitioner include: (Ref: Para. 28)

1. a change that relates to historical financial information that is incorrect, incomplete or otherwise unsatisfactory;
2. limiting time available to perform the engagement;
3. preventing access to all relevant documents or persons requested; and/or
4. not providing documents when requested, leading to time constraints that make the satisfactory completion of the engagement by the date required unachievable.

It is important that all changes agreed to by the responsible party and the assurance practitioner be documented in writing to ensure no misunderstanding occurs between the parties of what has been agreed. (Ref: Para. 29)

The assurance practitioner uses professional judgement to determine the extent of understanding that it is necessary to obtain of the financial information and other relevant engagement circumstances.^[76] (Ref: Para. 31)

Planning Activities

The type of planning activities the assurance practitioner performs depends on the level of understanding of the entity the assurance practitioner has. Such an understanding may have been obtained from prior audit or review engagements performed. This understanding would ordinarily include knowledge of the entity’s management skills and resources, and information technology systems (including financial systems). This understanding would need to be updated to ensure it had not changed in the current time period. Note that in certain engagement circumstances, the assurance practitioner may not be able to obtain such an understanding. For example, in a takeover or merger fundraising transaction, the assurance practitioner may not be able to access an entity’s financial information, other than that available in the public domain. Hence, the level of understanding will be necessarily more limited, as will the nature of the assurance conclusion. The entity’s document is also unlikely to be drafted at the time of engagement planning, so the assurance practitioner’s opportunity to gain an understanding of the other information to be included in the document at this stage is ordinarily very limited. (Ref: Para. 32)

The assurance practitioner may decide to discuss elements of planning with the responsible party when determining the scope of the engagement or to facilitate the conduct and management of the engagement (for example, to coordinate some of the planned procedures with the work of the entity’s personnel).  Although these discussions often occur, the overall engagement strategy and the engagement plan remain the assurance practitioner’s responsibility.  When discussing matters included in the overall engagement plan, care is needed in order to not compromise the effectiveness of the engagement.  For example, discussing the nature, timing and extent of all planned detailed procedures with the entity may compromise the effectiveness of the engagement by making the procedures too predictable. (Ref: Para. 32)

Assurance engagement risk comprises inherent risk, control risk and detection risk and the assurance practitioner considers these risk components in terms of the assurance engagement circumstances; in particular the nature of the financial information and whether a reasonable or limited assurance conclusion is sought.  These considerations are then reflected in the extent of the planned procedures to be performed and the evidence‑gathering process. (Ref: Para. 32(g))

Determining Materiality when Planning the Engagement (Ref: Para. 33‑34)

The concept of materiality ordinarily includes the principles that:

1. misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence relevant decisions of users taken on the basis of the financial information;
2. judgements about materiality are made in light of surrounding circumstances, and are affected by the size or nature of a misstatement, or a combination of both; and
3. judgements about matters that are material to intended users of the financial information are based on a consideration of the common information needs of intended users as a group.  The possible effect of misstatements on specific individual users, whose needs may vary widely, is not considered.

The assurance practitioner’s determination of materiality^[77] is a matter of professional judgement, and is affected by:

1. the assurance practitioner’s perception of the common information needs of intended users as a group.  In this context, it is reasonable for the assurance practitioner to assume that intended users:
   1. understand that the financial information is prepared and assured to levels of materiality, and have an understanding of any materiality concepts included in the stated basis of preparation;
   2. understand that the quantification of any prospective financial information involves uncertainties; and
   3. make reasonable decisions on the basis of the information in the financial information;
2. whether the stated basis of preparation includes references to materiality.  This provides a frame of reference to the assurance practitioner in determining materiality for the engagement.  If the stated basis of preparation does not include a discussion of the concept of materiality, the characteristics referred to above provide the assurance practitioner with such a frame of reference;
3. the engagement circumstances; and
4. both quantitative and qualitative factors. 

It should be noted, however, that decisions regarding materiality are not affected by the level of assurance, that is, materiality for a reasonable assurance engagement is the same as for a limited assurance engagement.

Revision as the Engagement Progresses (Ref: Para. 35)

Materiality may need to be revised as a result of a change in circumstances during the engagement (for example, the disposal of a major part of the entity’s business), new information, or a change in the assurance practitioner’s understanding of the entity and its operations as a result of performing procedures.  For example, it may become apparent during the engagement that accounting estimates used are likely to be substantially different from those included in the financial information used initially to determine materiality.  If, during the engagement, the assurance practitioner concludes that a lower materiality for the financial information (and, if applicable, materiality level or levels for particular types of accounts or disclosures within it) is appropriate than that initially determined, it may be necessary to revise performance materiality, and consequently the nature, timing and extent of the further planned procedures.

Obtaining an Understanding of the Entity and Its Environment

Analytical Procedures (Ref: Para. 36(b))

Analytical procedures performed to obtain an understanding of the entity and its environment and to identify and assess risks of material misstatement may identify aspects of the entity of which the assurance practitioner was unaware and may assist in assessing the risks of material misstatement in order to provide a basis for designing and implementing responses to the assessed risks.  

Analytical procedures may help identify the existence of unusual events, and amounts, ratios, and trends that might indicate matters that have implications for the engagement.  Unusual or unexpected relationships that are identified may assist the assurance practitioner in identifying risks of material misstatement. 

However, when such analytical procedures use data aggregated at a high level (which may be the situation with analytical procedures performed to obtain an understanding of the entity and its environment and to identify and assess risks of material misstatement), the results of those analytical procedures only provide a broad initial indication about whether a material misstatement may exist.  Accordingly, in such cases, consideration of other evidence that has been gathered when identifying the risks of material misstatement together with the results of such analytical procedures may assist the assurance practitioner in understanding and evaluating the results of the analytical procedures. 

Observation and Inspection (Ref: Para. 36(c))

Observation consists of looking at a process or procedure being performed by others, for example, the assurance practitioner’s observation of monitoring devices being calibrated by the entity’s personnel, or of the performance of control activities.  Observation provides evidence about the performance of a process or procedure, but is limited to the point in time at which the observation takes place, and by the fact that the act of being observed may affect how the process or procedure is performed. 

Inspection involves examining records, documents or reports, whether internal or external, in paper form, electronic form, or other media.  Inspection of records, documents and reports provides evidence of varying degrees of reliability, depending on their nature and source and, in the case of internal records and documents, on the effectiveness of the controls over their production.

Observation and inspection may support enquiries of management and others, and may also provide information about the entity and its environment.  Examples of such procedures include observation or inspection of the following:

1. The entity’s operations. 
2. Relevant documents supporting the financial information.
3. Reports prepared for management or those charged with governance.
4. If the entity is relying on the fundraising to ensure its continued going concern in future time periods, the assurance practitioner may request from the entity a copy of the signed underwriting agreement to assist in the assurance practitioner’s going concern assessment considerations.  Such an agreement may be used as a potential mitigating factor.

Overall Considerations

The assurance practitioner uses professional judgement to determine the extent of the understanding required and of the nature, timing and extent of procedures required to identify and assess risks of material misstatement appropriate to the level of assurance required.  The assurance practitioner’s primary consideration is whether the understanding that has been obtained and the identification and assessment of risks are sufficient to meet the objective stated in this ASAE.  The depth of the understanding that is required by the assurance practitioner is less than that possessed by management in managing the entity, and both the depth of the understanding and the nature, timing and extent of procedures to identify and assess risks of material misstatement are less for a limited assurance engagement than for a reasonable assurance engagement. (Ref: Para. 37)

Relevant industry factors include industry conditions such as the competitive environment, supplier and customer relationships, and technological developments. Examples of matters the assurance practitioner may consider include: (Ref: Para. 37(d))

1. The market and competition, including demand, capacity, and price competition.
2. Common business practices within the industry.
3. Cyclical or seasonal activity.
4. Product technology relating to the entity’s products.

Relevant legal and regulatory factors encompass, among other matters, the applicable financial reporting framework in accordance with which the entity or, if applicable, the acquiree prepares its periodic financial information, and the legal and political environment.  Examples of matters the assurance practitioner may consider include: (Ref: Para. 37(d))

1. Industry‑specific accounting practices.
2. Legal and regulatory framework for a regulated industry.
3. Legislation and regulation that significantly affect the entity’s or, if applicable, the acquiree’s or divestee’s operations, including direct supervisory activities.
4. Taxation.
5. Government policies currently affecting the conduct of the entity’s or, if applicable, the acquiree’s or divestee’s business, such as monetary policies (including foreign exchange controls), fiscal policies, financial incentives (for example, government aid programs), and tariffs or trade restrictions policies.
6. Environmental requirements affecting the entity’s or acquiree’s or divestee’s industry and business.

Examples of other external factors affecting the entity and, if applicable, the acquiree or divestee that the assurance practitioner may consider include the general economic conditions, interest rates and availability of financing. (Ref: Para. 37(d))

The assurance practitioner ordinarily has no responsibility to perform an assessment of the appropriateness, or otherwise, of the chosen stated basis of preparation.  The stated basis of preparation chosen by the responsible party is ordinarily represented by the recognition and measurement accounting principles contained in Australian Accounting Standards and the accounting policies adopted by the entity.  The stated basis of preparation described in the document should include the extent to which the entity has been consistent with that basis selected by the responsible party. (Ref: Para. 37(e))

The Use of Assertions (Ref: Para. 39(a))

Assertions are ordinarily used by the assurance practitioner in a reasonable assurance engagement, and may be used in a limited assurance engagement, to consider the different types of potential misstatements within the financial information that may occur.^[78] 

In representing that the financial information is in accordance with the stated basis of preparation, the responsible party implicitly or explicitly makes assertions regarding the quantification and presentation and disclosure of the financial information. Assertions made by the responsible party fall into the following categories and may take the following forms:

1. Assertions about the quantification of the financial information for the period subject to assurance:
   1. Occurrence—events or transactions that have been recorded have occurred and pertain to the entity.
   2. Completeness—all events or transactions that should have been recorded (in accordance with the stated basis of preparation) have been recorded.
   3. Accuracy—the amounts and other data related to the recorded event(s) or transaction(s) has (have) been recorded appropriately.
   4. Cut‑off—event(s) and transaction(s) has (have) been recorded in the correct reporting period.
   5. Classification—financial information classes (for example, assets, liabilities) have been recorded in the proper accounts. 
2. Assertions about presentation and disclosure of the financial information in the document:
   1. Occurrence and rights and obligations—disclosed financial information and other matters have occurred and pertain to the entity.
   2. Completeness—all disclosures that should have been included in the financial information have been included.
   3. Classification and understandability—financial information is appropriately presented and described, and disclosures are clearly expressed.
   4. Accuracy and valuation—all event(s) or transaction(s) included in the financial information are in accordance with the stated basis of preparation and disclosed fairly and at appropriate amounts. 
   5. Consistency—accounting policies are consistent with those applied in the prior period, or changes made are justified and have been properly applied and adequately disclosed; and comparative information, if any, is as reported in the prior period or has been appropriately restated.

Notwithstanding the presentation and disclosure assertions made by the responsible party, the assurance practitioner only designs assurance procedures related to the quantification of the financial information, as this ASAE does not require the assurance practitioner to provide assurance on the presentation and disclosure of the financial information in the document.

Other Procedures to Obtain an Understanding and to Identify and Assess Risks of Material Misstatement (Ref: Para. 40)

Obtaining an understanding, and identifying and assessing risks of material misstatement, is an iterative process.  Procedures to obtain an understanding of the entity and its environment and to identify and assess risks of material misstatement by themselves do not provide sufficient appropriate evidence on which to base the assurance conclusion.

Reliance on the work performed by others (Ref: Para. 43‑47)

The other assurance practitioner may not permit reliance on a previously issued audit or review report, due to the fact that the report was prepared and issued for a purpose other than the subject of the current engagement. In the absence of the assurance practitioner being able to place reliance, additional procedures are ordinarily performed with respect to the financial information, in order to obtain sufficient and appropriate evidence necessary for the engagement, including:^[79]

1. Requesting to review the other assurance practitioner’s working paper file supporting the issued audit or review report, and reading it, in order to ascertain the appropriateness of the audit approach taken. (Ref: Para. 46)
2. Re‑performing some, or all, audit procedures with respect to the financial information, including enquiry, observation, analytical procedures, and tests of details.
3. Performing audit test checks of certain balances within the financial information.

Causes of Risks of Material Misstatement

Matters that the assurance practitioner may consider in obtaining an understanding of how the entity makes significant accounting estimates included in the financial information, and the data on which they are based include, for example: (Ref: Para. 48(d))

1. an understanding of the data on which the accounting estimates are based including its source, reliability, and whether it has been previously audited or reviewed;
2. the method, including if applicable the model, used in making accounting estimates;
3. relevant aspects of the control environment and information system;
4. whether the responsible party has used an expert;
5. the assumptions underlying accounting estimates;
6. whether there has been, or ought to have been, a change from the prior period in the methods for making accounting estimates and, if so, why; and
7. whether and, if so, how the entity’s responsible party has assessed the effect of any uncertainty in their estimation on the financial information, including:
   1. whether and, if so, how the entity has considered alternative assumptions or outcomes by, for example, performing a sensitivity analysis to determine the effect of changes in the assumptions on an estimate;
   2. scenarios; and
   3. whether the entity monitors the outcome of accounting estimates made in the prior period, and whether it has appropriately responded to the outcome of that monitoring procedure.

Assurance Procedures (Ref: Para. 49)

When designing and performing assurance procedures, the assurance practitioner considers the adequacy, relevance and reliability of the information obtained to be used as evidence.^[80]

Because the level of assurance obtained in a limited assurance engagement is lower than in a reasonable assurance engagement, the procedures the assurance practitioner will perform in a limited assurance engagement will vary in nature from, and are less in extent than for, a reasonable assurance engagement.  The primary differences between the assurance practitioner’s overall responses to address the assessed risks of material misstatement in the financial information and the further procedures performed in a reasonable assurance engagement as compared to a limited assurance engagement are as follows:

1. The emphasis placed on the nature of various procedures: The emphasis placed on the nature of various procedures as a source of evidence will likely differ, depending on the engagement circumstances. 
2. The extent of further procedures: The extent of further procedures performed in a limited assurance engagement is less than in a reasonable assurance engagement.  This may involve:
   1. reducing the number of items to be examined, for example, reducing sample sizes for tests of details; or
   2. performing fewer procedures (for example, performing only analytical procedures in circumstances when, in a reasonable assurance engagement, both analytical procedures and tests of detail would be performed).
3. The nature of analytical procedures: In a reasonable assurance engagement, analytical procedures performed in response to assessed risks of material misstatement involve developing expectations of quantities or ratios related to the financial information that are sufficiently precise to identify material misstatements.  In a limited assurance engagement, on the other hand, analytical procedures are often designed to support expectations regarding the direction of trends, relationships and ratios, rather than to identify misstatements with the level of precision expected in a reasonable assurance engagement.  Further, when significant fluctuations, relationships or differences are identified, appropriate evidence in a limited assurance engagement may often be obtained by making enquiries of the entity and considering responses received in the light of known engagement circumstances, without obtaining additional evidence as is required by paragraph 53 in the case of a reasonable assurance engagement. In addition, when undertaking analytical procedures in a limited assurance engagement the assurance practitioner may, for example:
   1. Use data that is more highly aggregated.
   2. Use data that has not been subjected to separate procedures to test its reliability to the same extent as it would be for a reasonable assurance engagement.

Overall Responses to the Assessed Risks (Ref: Para. 50(a))

Overall responses to address the assessed risks of material misstatement in the financial information level may include:

1. emphasising to the assurance team the need to maintain professional scepticism;
2. assigning more experienced staff or those with special skills or using experts;
3. providing more supervision of engagement staff;
4. incorporating additional elements of unpredictability in the selection of further procedures to be performed; and
5. making general changes to the nature, timing, or extent of procedures, and modifying the nature of procedures to obtain more persuasive evidence.

The nature, timing, and extent of assurance procedures to be carried out are influenced by various factors, including, but not limited to:

1. the assurance practitioner’s assessment of risk and its impact on the sufficiency and appropriateness of evidence;
2. the stated basis of preparation chosen by the responsible party;
3. whether some of the financial information has already been audited or reviewed, and if so whether the audit or review was conducted in accordance with Australian Auditing Standards; and what type of audit opinion or review conclusion was expressed in the auditor’s report;
4. whether the financial information included in the document is prepared on the same basis as that of the prior period audited or reviewed historical financial information, and if not, the reasons for the differences;
5. whether the source and time period covered by the financial information are appropriate, and consistent with the stated basis of preparation; and
6. whether there is a need to make corrections in the financial information previously considered immaterial in the prior period audit or review of the financial report.

Persuasiveness of Evidence (Ref: Para. 50(b))

To obtain more persuasive evidence because of a higher assessment of risk of material misstatement, the assurance practitioner may increase the quantity of the evidence, or obtain evidence that is more relevant or reliable, for example, by obtaining corroborating evidence from a number of independent sources.

Confirmation Procedures (Ref: Para. 50(b))

External confirmation procedures may provide relevant evidence about such information as terms of agreements, contracts, or transactions between the entity and other parties, related to the financial information that is the subject of the engagement.

Analytical Procedures Performed in Response to Assessed Risks of Material Misstatement. (Ref: Para. 52(e))

Analytical procedures may be particularly effective when disaggregated data is readily available, or when the assurance practitioner has reason to consider the data to be used is reliable, such as when it is extracted from a well‑controlled source.  In some cases, data to be used may be captured by the financial reporting information system, or may be entered in another information system in parallel with the entry of related financial data and some common input controls applied.

In some cases, it may be appropriate for the assurance practitioner to evaluate how the responsible party has considered alternative assumptions or outcomes in determining the accounting estimates, and why it has rejected them. (Ref: Para. 52(g))

Sampling (Ref: Para. 52(k))

Sampling^[81] involves:

1. Determining a sample size sufficient to reduce sampling risk to an acceptably low level.  Because the acceptable level of assurance engagement risk is lower for a reasonable assurance engagement than for a limited assurance engagement, so too may be the level of sampling risk that is acceptable in the case of tests of details.  Therefore, when sampling is used for tests of details in a reasonable assurance engagement, the sample size may be larger than when used in similar circumstances in a limited assurance engagement.
2. Selecting items for the sample in such a way that each sampling unit in the population has a chance of selection, and performing procedures, appropriate to the purpose, on each item selected.  If the assurance practitioner is unable to apply the designed procedures, or suitable alternative procedures, to a selected item, that item is treated as a deviation from the prescribed control, in the case of tests of controls, or a misstatement, in the case of tests of details.
3. Investigating the nature and cause of deviations or misstatements identified, and evaluating their possible effect on the purpose of the procedure and on other areas of the engagement.
4. Evaluating:
   1. the results of the sample, including, for tests of details, projecting misstatements found in the sample to the population; and
   2. whether the use of sampling has provided an appropriate basis for conclusions about the population that has been tested.

Examples of Other Procedures (Ref: Para. 53(c)(i))

Other procedures may include, for example:

1. reviewing key contracts relevant to the financial information;
2. reconciling key recorded accounts and balances to supporting documentation; and
3. re‑performing key calculations such as accounting estimates and reconciling any differences noted.

Additional Procedures (Ref: Para. 55‑56)

Examples of additional procedures are making further enquiries of the responsible party, or requesting further supporting documentation to ascertain whether the financial information is materially misstated.  If however, having performed additional procedures, the assurance practitioner is not able to obtain sufficient appropriate evidence to either conclude that the event(s), condition(s), transaction(s) or error(s) is (are) not likely to cause the financial information to be materially misstated or determine that it does cause the financial information to be materially misstated, a scope limitation exists and the assurance practitioner should consider the implications for the assurance engagement.

Identified Misstatements (Ref: Para. 62)

The assurance practitioner may designate an amount below which misstatements^[82] would be clearly trivial and would not need to be accumulated because the assurance practitioner expects that the accumulation of such amounts clearly would not have a material effect on the financial information.  “Clearly trivial” is not another expression for “not material.”  Event(s), condition(s), transaction(s) or error(s) that are clearly trivial will be of a wholly different (smaller) order of magnitude than materiality determined in accordance with this ASAE, and will be matters that are clearly inconsequential, whether taken individually or in the aggregate and whether judged by any criteria of size, nature or circumstances.  When there is any uncertainty about whether one or more items are clearly trivial, the matter is considered not to be clearly trivial.

The assurance practitioner may communicate such matters verbally or in writing, as soon as the event(s), condition(s), transaction(s) or error(s) is (are) identified, to enable the responsible party to investigate the matter(s).  The responsible party is then able to advise the assurance practitioner of their findings, provide supporting evidence and their decision on whether the adjustment(s) will be made to the financial information.  The assurance practitioner is then able to evaluate the evidence provided to consider if the responsible party’s decision on the adjustment(s) is acceptable to the assurance practitioner.

(Ref: Para. 64)

The quantity of evidence obtained by the assurance practitioner is a measure of the sufficiency of the evidence, whilst the quality of the evidence obtained is a measure of its appropriateness; that is, its relevance and its reliability.^[83]  The extent of evidence required depends on the type of assurance required in respect of the financial information.

(Ref: Para. 65)

The assurance practitioner’s reading of the other information does not infer any assurance on that information, as the assurance practitioner reads it only to establish if there are any material inconsistencies or misstatements which may impact the financial information.  Further, the assurance practitioner performs the assessment as if the event(s) or transaction(s) giving rise to the fundraising or report on prospective financial information had occurred.  Material inconsistencies in other information that come to the assurance practitioner’s attention may raise doubt about the conclusions drawn from evidence already obtained, and possibly, about the basis for the assurance practitioner’s conclusion in the assurance report.  

The assurance practitioner ordinarily pays particular attention to the following disclosure areas within the document:

1. other financial information not subject to the assurance engagement including:
   1. summarised financial information, for example in tabular or graphical forms;
   2. any disclosures related to other financial information that has been previously audited or reviewed; and
   3. management discussion and analysis section discussing the other financial information;
2. disclosures about the nature of the event(s) or transaction(s) giving rise to the preparation of the document, including:
   1. the purpose of the document;
   2. if applicable, the nature and amount of the securities, their value and rights, as well as any minimum subscription and how the proceeds will be applied; and
   3. if applicable, the risks associated with the fundraising;
3. qualitative and quantitative disclosures about the entity’s plans and future outlooks, including:
   1. its long‑term and short‑term plans to address key challenges; and
   2. change‑related risks, opportunities and impacts;
4. key trends and factors related to the entity’s industry or nature of operations that are likely to affect the entity’s strategy or the timescale over which achievement of the strategy is planned; and
5. other relevant disclosures, including:
   1. explanations of how revenue would be generated, including summaries of relevant contracts;
   2. nature and extent of related party disclosures; and
   3. valuation of material assets.

Assessment

The assurance practitioner considers the appropriateness of the going concern assumption of the entity when the nature of the assurance engagement means that such an assessment could have implications for the assurance report.  Ordinarily the assessment of going concern is appropriate for assurance engagements relating to historical financial information.  Ordinarily in an engagement to report on prospective financial information, the going concern assumption is not relevant to the assurance practitioner’s conclusion as the nature of the information is subjective, prospective (based on anticipated event(s) or transaction(s) that have not occurred) and its preparation requires the exercise of considerable judgement by the responsible party. (Ref: Para. 67)

If the assurance practitioner considers that performing a going concern assessment^[84] is relevant, the assurance practitioner ordinarily performs the assessment as if the event(s) or transaction(s) giving rise to the corporate fundraising or reporting on prospective financial information had occurred, and considers the entity’s prepared future forecasts, future cash flow statements, the directors’ working capital statements, and financial position and any other event(s) or condition(s) that are relevant to the assessment.  For example, if the prospects for profitability are not supported by adequate positive future cash flows, then both the forecast financial performance statement and the ongoing viability of the entity are at risk.  There may also be mitigating factors that in the assurance practitioner’s professional judgement eliminate the going concern uncertainty.  These mitigating factors may include: (Ref: Para. 68)

1. a review of recently prepared forecasts, cash flow statements, working capital statements or statements of financial performance;
2. unequivocal financial support provided from another entity which has the capacity to provide support;
3. a signed underwriting agreement being in place; and/or
4. the underlying event(s) or transaction(s) giving rise to the document (for example, a capital raising) which will, if completed successfully, raise sufficient funds to result in the entity becoming a going concern. 

Mitigating factors should be supported by appropriate written evidence.  In such circumstances, the assurance practitioner needs to evaluate and document how the unequivocal financial support or proceeds from the fundraising issue will provide funding for future operations of the entity that will result in the entity becoming a going concern.  Consideration should be given to any proposed underwriting of any capital raising, and the circumstances in which the proposed underwriting may not occur.  The assurance practitioner should also consider requesting a written representation from the responsible party regarding the appropriateness of the going concern assumption.

Going Concern Assumption Inappropriate (Ref: Para. 69)

If the assurance practitioner does not consider the going concern assumption to be appropriate to the entity, the implications for the assurance report depend on whether the responsible party has modified the basis of preparation of the financial information from that of a going concern basis:

1. if the basis has not been modified, then the conclusion in the assurance report should be modified (adverse conclusion) on the basis of the going concern assumption being inappropriate to the historical financial information; or
2. if the basis has been modified, and the assurance practitioner considers the basis to be appropriate, then the assurance practitioner may still include an Emphasis of Matter paragraph in the assurance report to draw attention to the disclosure of this alternate basis.

(Ref: Para. 70-72)

In considering the impact of an identified event(s), transaction(s), correction(s) or error(s), the assurance practitioner takes into account issues such as:

1. the potential for such event(s), condition(s), transaction(s) or error(s) to materially affect the financial information in the document in terms of requiring comment on, or correction to, the financial information;
2. whether such event(s), condition(s), transaction(s) or error(s) are within the ordinary business of the entity; and
3. whether such event(s), condition(s), transaction(s) or error(s) cause the financial information to be potentially misleading or deceptive.

(Ref: Para. 73-74)

If there are event(s), condition(s), transaction(s) or error(s) omitted from the document, which come to the assurance practitioner’s attention after:

1. the document has been lodged with the appropriate regulatory body, if it is a public document; or
2. the document has been finalised and issued to its intended user(s) and before the relevant date, if it is not a public document;

the assurance practitioner considers the implications for the assurance report, as well as any reporting obligations the assurance practitioner may have to inform the entity issuing the document.

If event(s), condition(s), transaction(s) or error(s) with a potentially material impact on the financial information come to the assurance practitioner’s attention prior to the relevant date, the assurance practitioner discusses the omissions with the responsible party.  If the responsible party refuses to correct such omissions, the assurance practitioner ordinarily withdraws consent for the entity to include the assurance report in the document, and evaluates if there are any applicable laws, regulations, agreements or other professional responsibilities that impose particular reporting obligations on the assurance practitioner (for example, reporting such matters to the entity’s due diligence committee).

(Ref: Para. 75-79)

The assurance practitioner requests and obtains written representations from the responsible party at the completion of the assurance engagement.^[85]  If the responsible party is those charged with governance in the entity, the representation letter should be provided by them and not management.  The assurance practitioner ordinarily provides the responsible party with a specific list of representations required.  Such matters may already be contained in documentation reviewed by the assurance practitioner, including minutes of meetings, written acceptance of the assurance engagement terms, and due diligence committee reports.  Therefore the assurance practitioner only needs to request the inclusion of such matters in the written representations if the assurance practitioner considers it appropriate in the assurance engagement circumstances.

Appendix 2 provides an illustrative representation letter.

Oral or written representations made by the responsible party cannot replace other evidence the assurance practitioner could reasonably expect to be available.  For example, relevant minutes of meetings of the Board of Directors, or a published statement by the Board of Directors acknowledging responsibility for the preparation and presentation of the financial information, may be considered sufficient appropriate evidence under the circumstances.  To the extent the other evidence obtained is inconsistent with the responsible party’s oral or written representations, the assurance practitioner investigates and evaluates such inconsistencies in terms of their impact on the assurance report and whether additional procedures are required in order to resolve the inconsistencies and obtain sufficient appropriate evidence. 

An inability to obtain sufficient appropriate evidence regarding a matter that has, or may have, a material effect on the evaluation of the financial information in the document, when such evidence would ordinarily be available, constitutes a limitation on the scope of the assurance engagement, even if a written representation from the responsible party has been received by the assurance practitioner on the matter.

Emphasis of Matter Paragraph (Ref: Para. 83)

An example of a matter that may give rise to an emphasis of matter paragraph is when the assurance practitioner believes the going concern assumption is appropriate, but a material uncertainty exists. In such circumstances, the assurance practitioner ordinarily considers the adequacy of the going concern related disclosures within the financial information and the other parts of the document. If the assurance practitioner considers the responsible party has adequately disclosed:

1. a description of the principal event(s) or condition(s) that cast significant doubt on the entity’s going concern ability; and
2. the fact that a material uncertainty exists related to the event(s) or condition(s); and
3. therefore the entity may be unable to realise its assets and discharge its liabilities in the normal course of business;

then the assurance practitioner is able to express an unmodified conclusion on the financial information, with an Emphasis of Matter paragraph to highlight the existence of the material uncertainty and to draw attention to the responsible party’s disclosures.  If there is not adequate disclosure, then the assurance practitioner expresses a qualified conclusion or adverse conclusion, as appropriate.

Modified Conclusion

An inability to obtain sufficient appropriate evidence regarding a matter that has, or may have, a material effect on the evaluation of the financial information, when such evidence would ordinarily be available, constitutes a limitation on the scope of the assurance engagement, even if a written representation from the responsible party has been received by the assurance practitioner on the matter. (Ref: Para. 84(c))

Applicable law or regulation may preclude the assurance practitioner from expressing a modified conclusion in an assurance report that is to be included in a public document.  Where this is the case, and the assurance practitioner concludes that a modified conclusion is nevertheless appropriate, the assurance practitioner discusses the matter with the responsible party.  If the responsible party does not agree to make the changes required to enable the assurance practitioner to issue an unmodified conclusion, the assurance practitioner considers whether to withhold the assurance report, withdraw from the assurance engagement, or obtain legal advice.  If the responsible party decides to omit the modified assurance report from the document, the assurance practitioner considers any other professional reporting obligations such as, for example, to the entity’s due diligence committee. (Ref: Para. 85)

The assurance report may be prepared solely in respect of one type of financial information or be a composite report where two or more types of financial information are the subject of the assurance report (for example historical and prospective financial information). (Ref: Para. 86)

If the assurance practitioner is preparing a composite assurance report, the assurance practitioner needs to ensure that: (Ref: Para. 87)

1. the different types of financial information are clearly identified in the document, and separately referred to in the assurance report; and
2. the assurance report clearly identifies and segregates the work carried out, and type of assurance expressed, on the different types of financial information.

In respect of an assurance report that is being included in a public document prepared in accordance with the Corporations Act 2001, the assurance practitioner also needs to ensure that the assurance report is appropriately: (Ref: Para. 88)

1. cross referenced, and consistent with, other information disclosed in the public document; and
2. positioned in the public document.

Appendix 3 contains illustrative examples of assurance reports. (Ref: Para. 86)

(Ref: Para. 89-90)

For assurance reports in connection with a public document prepared in accordance with the Corporations Act 2001, the assurance practitioner is required to consent to the form and context in which the assurance report is included in that public document.^[86]  Such consent is ordinarily provided by way of a separate consent letter issued to the entity prior to the assurance report.  Consequently, the assurance practitioner ordinarily reads all other information included in the public document for consistency.  If there are material inconsistencies, or material misstatements of fact, related to the financial information which remain uncorrected by the responsible party, or the assurance practitioner does not consider the assurance report will be used for the intended purpose, the assurance practitioner ordinarily does not provide consent.

(Ref: Para. 91)

Sufficient appropriate documentation^[87] should include a record of the assurance practitioner’s reasoning on all significant matters that required the exercise of professional judgement, together with the assurance practitioner’s conclusions on the matters.  In areas involving difficult questions of estimate, principle or judgement, the documentation should include the relevant facts that were known by the assurance practitioner at the time the conclusion was reached.

In applying professional judgement to assessing the extent of documentation to be prepared and retained, the assurance practitioner ordinarily considers what would be necessary for another experienced assurance practitioner who has no previous experience with the assurance engagement to obtain an understanding of the work performed and the basis of the significant decisions taken.  It is, however, neither necessary nor practicable to document every matter the assurance practitioner considers during the assurance engagement.

Preparing the Assurance Report (Ref: Para. 95)

Basic Elements of the Assurance Report

Reasonable Assurance

The assurance report in a reasonable assurance engagement ordinarily follows a standard wording and only in summary form describes the procedures performed.  This is because, in a reasonable assurance engagement, describing in any level of detail the specific procedures performed would not assist users to understand that, in all cases where an unmodified report is issued, sufficient appropriate evidence has been obtained to enable the assurance practitioner to express an opinion.

Limited Assurance

In a limited assurance engagement, an appreciation of the nature, timing and extent of procedures performed is essential for the intended users to understand the conclusion expressed in a limited assurance report. A description of the assurance practitioner’s procedures in a limited assurance engagement is ordinarily therefore more detailed than in a reasonable assurance engagement. It also may be appropriate to include a description of the procedures that were not performed that would ordinarily be performed in a reasonable assurance engagement. However, a complete identification of all such procedures may not be possible because the assurance practitioner’s understanding and assessment of the risks of material misstatement are less than in a reasonable assurance engagement. The assurance practitioner does not ordinarily detail all procedures in the assurance report.

Factors to consider in making that determination and the level of detail to be provided include:

1. circumstances specific to the entity (for example, the differing nature of the entity’s activities compared to those typical in the sector);
2. specific engagement circumstances affecting the nature and extent of the procedures performed; and
3. the intended users’ expectations of the level of detail to be provided in the assurance report based on market practice, or applicable laws or regulations. 

In describing the procedures performed in a limited assurance report, it is important that they are written in an objective way but are not summarised to the extent that they are ambiguous, nor written in a way that is overstated or embellished or that implies that reasonable assurance has been obtained.  It is also important that the description of the procedures does not give the impression that an agreed‑upon procedures engagement has been undertaken.

In Australia, assurance practitioners are ordinarily requested by the responsible party to provide assurance on the pro forma historical financial information. In circumstances where the assurance practitioner: (Ref: Para. 96)

1. cannot access, or obtain sufficient access to, documentation supporting the source of the unadjusted historical financial information or the pro forma adjustments; or
2. does not audit one of the entities whose financial information is included in the pro forma historical financial information;

the assurance practitioner and responsible party may alternatively agree for an assurance engagement to be conducted to report on the compilation of the pro forma historical financial information.  In such circumstances, refer ASAE 3420 Assurance Engagements to Report on the Compilation of Pro Forma Historical Financial Information Included in a Prospectus or other Document.

Circumstances such as those outlined in paragraph A75 may occur, for example: (Ref: Para. 96)

1. when the fundraising involves a takeover transaction in which neither the assurance practitioner nor the responsible party of the entity are able to access the other entity’s financial information;
2. when the fundraising involves a takeover transaction where the other entity has not been subject to an audit or review; or
3. when there is insufficient time in which to conduct the engagement to enable the expression of assurance on the pro forma historical financial information itself.

Other Factors Affecting Engagement Acceptance (Ref: Para. 98)

Ordinarily, the assurance practitioner only provides limited assurance on pro forma historical financial information, as the pro forma adjustments made to the unadjusted financial information (which is historical) are based on the responsible party’s stated basis of preparation.  The assurance practitioner has no responsibility under the terms of the assurance engagement to perform an assessment of the appropriateness, or otherwise, of the selected stated basis of preparation.

Obtaining an Understanding of the Entity and Its Environment

Unadjusted Financial Information has been Audited or Reviewed (Ref: Para. 99(a)(ii))

The assurance practitioner may:

1. Request a copy of the audit or review report accompanying the unadjusted financial information and, if obtained, read it to understand if the report was modified or unmodified.  If the report was modified, understand the reasons for the modification;
2. Contact the other assurance practitioner to request access to the audit working papers supporting the audit or review report and, if provided, read the work papers to assess the appropriateness of the audit approach taken for the purposes of placing reliance on that audit or review report in assessing the appropriateness of the source of the unadjusted financial information;
3. Read the unadjusted financial information to which the audit or review report relates to establish if its stated basis of preparation (that is, its accounting policies) and time frame covered are acceptable; and/or
4. Plan to perform further procedures as is considered necessary in the engagement circumstances.

If the assurance practitioner requests access to the audit working papers of another assurance practitioner and is unable to obtain such access, this constitutes a limitation of scope on the assurance practitioner being able to assess the appropriateness of the source of the unadjusted financial information. If the assurance practitioner is unable to perform alternative procedures to obtain sufficient appropriate evidence on its appropriateness, the assurance practitioner modifies the conclusion in the assurance report in accordance with paragraph 84(c).^*

Assurance Procedures

The assurance procedures may include: (Ref: Para. 100(a))

1. enquiring of the responsible party about:
   1. the process by which the source has been prepared and the reliability of the underlying accounting records to which the source is agreed or reconciled;
   2. whether all transactions for the time period have been recorded;
   3. whether the source has been prepared in accordance with the entity’s accounting policies;
   4. whether there have been any changes in accounting policies from the most recent audited or reviewed period, and, if so, how such changes have been dealt with;
   5. its assessment of the risk that the source may be materially misstated as a result of error or fraud; and
   6. the effect of changes in the entity’s business activities and operations;
2. if the assurance practitioner has audited or reviewed the immediately preceding annual or interim financial information, considering the findings of such audit or review and whether these might indicate any issues with the preparation of the source from which the unadjusted financial information has been extracted;
3. corroborating the information provided by the responsible party in response to the assurance practitioner’s enquiries, when the responses appear inconsistent with the assurance practitioner’s understanding of the entity, or the engagement circumstances; and
4. comparing the source with the corresponding prior period financial information and, as applicable, the immediately preceding annual or interim financial information, and discussing significant changes with the responsible party.

No Audit or Review of the Unadjusted Financial Information (Ref: Para. 100(b))

When there is no audit or review report on the source from which the unadjusted financial information has been extracted, it is necessary for the assurance practitioner to perform procedures in relation to the appropriateness of that source. Factors that may affect the nature and extent of these procedures include, for example:

1. Whether the assurance practitioner has previously audited or reviewed the entity’s historical financial information, and the assurance practitioner’s knowledge of the entity from such engagement. 
2. How recently the entity’s historical financial information was audited or reviewed.
3. Whether the entity’s financial information is subject to periodic review by the assurance practitioner, for example, for purposes of meeting regulatory filing requirements. 
4. Whether the assurance practitioner is able to access documentation describing, and supporting, the source of the unadjusted historical financial information.
5. The type of assurance to be provided.

Pro Forma Adjustments (Ref: Para. 100(e))

For the pro forma financial information to be meaningful, it is necessary that the pro forma adjustments be consistent with the stated basis of preparation. In the context of a business combination, for example, this may involve consideration of such matters as:

1. whether differences exist between the acquiree’s accounting policies and those of the entity; and
2. whether accounting policies for transactions undertaken by the acquiree that the entity has not previously entered into, are policies that the entity would have adopted for such transactions under its applicable financial reporting framework, taking into account the entity’s particular circumstances.

Consideration of the appropriateness of the entity’s accounting policies may also be necessary in some circumstances. For example, as part of the event(s) or transaction(s), the entity may propose to issue complex financial instruments for the first time. If this is the case, it may be necessary to consider:

1. whether the responsible party has selected appropriate accounting policies to be used in accounting for such financial instruments under its applicable financial reporting framework; and
2. whether it has appropriately applied such policies in preparing the pro forma historical financial information.

Basic Elements of the Assurance Report (Ref: Para. 104(a)(iii))

The stated basis of preparation for the pro forma historical financial information, as chosen by the responsible party, is ordinarily represented by the application to its base historical financial information of the recognition and measurement principles contained in Australian Accounting Standards and the adopted accounting policies, as well as the pro forma adjustments made.

Assurance Engagement Acceptance

Preconditions for Acceptance

Type of assurance (Ref: Para. 106(a))

The nature of prospective financial information, being information prepared based on events and actions that have not yet occurred, and may not occur, means that the engagement is conducted either as a limited assurance engagement, or in certain circumstances, a combined limited assurance and reasonable assurance engagement on different elements of the prospective financial information:

1. Assumptions - evidence may be available to support the responsible party’s underlying assumptions, however such evidence is itself generally future orientated and, therefore, speculative in nature, as distinct from being factually supportable. Due to this, the assurance practitioner is not able to provide any assurance on the reasonableness of the assumptions but may be able to provide limited assurance on whether they provide reasonable grounds for the preparation of the prospective financial information.
2. Basis of the prospective financial information - the assurance practitioner is ordinarily able to provide limited or reasonable assurance (depending on the terms of the engagement and the sufficiency and availability of evidence) that the prospective financial information has been prepared on the basis of those assumptions, and presented fairly in accordance with the entity’s stated basis of preparation.
3. Prospective financial information itself - given the nature of the evidence available to support the underlying source of the prospective financial information is inherently uncertain, the assurance practitioner is not able to conclude as to whether the results shown in the prospective financial information overall will be achieved, however the assurance practitioner may be in a position to provide limited assurance on whether the prospective financial information itself is unreasonable, based on the results of (a) and (b) above.

The type of assurance that the assurance practitioner agrees to provide on different elements of the prospective financial information may depend on the assurance practitioner’s assessment of the following:

1. the engagement circumstances, including the nature (for example, complexity or simplicity) and type of the entity (for example, start up or ongoing), timeframe covered and overall purpose of including the prospective financial information in the document;
2. the assurance practitioner’s professional judgement in whether there is, or will be, sufficient appropriate evidence available to support the level of assurance requested; and
3. any prior experience the assurance practitioner may have with the entity in terms of the accuracy, completeness and timeliness of financial information prepared by the responsible party.

Other Factors Affecting Engagement Acceptance

In obtaining a preliminary understanding of whether the assumptions have reasonable grounds, the assurance practitioner considers matters such as: (Ref: Para. 107(a)(i))

1. whether the time available to complete the engagement is adequate;
2. the nature of the assumptions (best‑estimate or hypothetical), and whether their impact is material to the prospective financial information;
3. the economic viability, stability and financial strength of the entity;
4. the economic viability and substance of the fundraising and the assumptions related to it;
5. the source, availability, and quality of the data supporting the assumptions (for example, the data is sourced from third parties/experts or by using statistical, mathematical or computer‑assisted techniques); and
6. if applicable, the assurance practitioner’s past experience with the accuracy of the entity’s previous prospective financial information, as against actual results.

If the source of the base financial information is historical and has not been previously audited or reviewed, the assurance practitioner, in order to obtain sufficient appropriate evidence on which to conclude and express limited assurance on the different elements of the prospective financial information, needs to be able to conduct a review of such historical financial information as part of the assurance engagement terms. (Ref: Para. 107(a)(iii))

The assurance practitioner should be satisfied based on preliminary knowledge that the assurance engagement has a rational purpose. Examples where this may not be the case include: (Ref: Para. 107(b))

1. the reason for the preparation of the prospective financial information is unclear;
2. the prospective financial information does not have a reasonable basis for inclusion in a public document (for example it is a projection);^[88]
3. the prospective financial information is materially affected by hypothetical assumptions;
4. there will be significant limitations on the scope of the assurance practitioner’s work; or
5. the engagement circumstances lead the assurance practitioner to believe that the responsible party intends to associate the assurance practitioner’s name with the prospective financial information in an inappropriate manner.

No Audit or Review Report on the Source of the Prospective Financial Information (Ref: Para. 109(c))

This ASAE does not require the assurance practitioner to perform an audit or review of the source from which the unadjusted financial information has been extracted as part of the engagement, if such an audit or review has not already been performed.

Assumptions (Ref: Para. 111(b)(iv))

A high risk that there may be a significant difference between the prospective financial information and actual results may call into question the suitability and reasonableness of the assumptions used as the basis for the preparation of the prospective financial information and their characterisation as reasonable.

Prospective Financial Information prepared in accordance with the Stated Basis of Preparation and Assumptions

The assurance practitioner’s evaluation of the stated basis of preparation used by the responsible party ordinarily includes: (Ref: Para. 113(a))

1. the process for its selection and approval;
2. the differences, if any to the basis of preparation, adopted in the most recent financial report; and
3. its suitability for the preparation of the prospective financial information, based on the stated purpose of the prospective financial information.

Basic Elements of the Assurance Report (Ref: Para. 118(f)(ii))

Reasonable Assurance

The assurance report in a reasonable assurance engagement ordinarily follows a standard wording and only in summary form describes the procedures performed.  This is because, in a reasonable assurance engagement, describing in any level of detail the specific procedures performed would not assist users to understand that, in all cases where an unmodified report is issued, sufficient appropriate evidence has been obtained to enable the assurance practitioner to express an opinion.

Limited Assurance

In a limited assurance engagement, an appreciation of the nature, timing and extent of procedures performed is essential for the intended users to understand the conclusion expressed in a limited assurance report. A description of the assurance practitioner’s procedures in a limited assurance engagement is ordinarily therefore more detailed than in a reasonable assurance engagement. It also may be appropriate to include a description of the procedures that were not performed that would ordinarily be performed in a reasonable assurance engagement. However, a complete identification of all such procedures may not be possible because the assurance practitioner’s understanding and assessment of the risks of material misstatement are less than in a reasonable assurance engagement. The assurance practitioner does not ordinarily detail all procedures in the assurance report.

Factors to consider in making that determination and the level of detail to be provided include:

1. circumstances specific to the entity (for example, the differing nature of the entity’s activities compared to those typical in the sector);
2. specific engagement circumstances affecting the nature and extent of the procedures performed; and
3. the intended users’ expectations of the level of detail to be provided in the report, based on market practice, or applicable laws or regulations.

In describing the procedures performed in a limited assurance report, it is important that they are written in an objective way but are not summarised to the extent that they are ambiguous, nor written in a way that is overstated or embellished or that implies that reasonable assurance has been obtained.  It is also important that the description of the procedures does not give the impression that an agreed‑upon procedures engagement has been undertaken.

Assurance Engagement Acceptance

Preconditions for Acceptance (Ref: Para. 120(a))

The assurance practitioner does not express any assurance on the hypothetical assumptions as by their nature, sufficient appropriate evidence is not available to support such assumptions.

Assurance Procedures

Hypothetical Assumptions (Ref: Para. 123)

The assurance practitioner ordinarily considers, when hypothetical assumptions are used, all significant implications of the assumptions have been taken into consideration.  For example, if sales are assumed to grow beyond the entity’s current plant capacity, the prospective financial information will need to include the necessary investment in the additional plant capacity or the costs of alternative means of meeting the anticipated sales, such as by sub‑contracting production.

Basic Elements of the Assurance Report (Ref: Para. 127(a)(ii))

The stated basis of preparation for the projection, as chosen by the responsible party is ordinarily represented by the recognition and measurement principles contained in Australian Accounting Standards and the accounting policies adopted, as applied to the financial information, as if the future events or actions included in the projection will occur within the time frame covered by the projection (a “what‑if” scenario).

Assurance Engagement Acceptance

Other Factors Affecting Engagement Acceptance (Ref: Para. 130)

Ordinarily, the assurance practitioner only provides limited assurance on a pro forma forecast, as the pro forma adjustments made to the unadjusted financial information are based on the responsible party’s stated basis of preparation.  The assurance practitioner has no responsibility under the terms of the assurance engagement to perform an assessment of the appropriateness, or otherwise, of the selected stated basis of preparation.

Understanding the Entity and Its Environment and Identifying and Assessing Risks of Material Misstatement

Obtaining an Understanding of the Entity and Its Environment

Audited or Reviewed Unadjusted Financial Information (Ref: Para. 131(a))

The assurance practitioner may:

1. request a copy of the audit or review report accompanying the unadjusted financial information and, if obtained, read it to understand if the report was modified or unmodified. If the report was modified, understand the reasons for the modification;
2. contact the other assurance practitioner to request access to the audit working papers supporting the audit or review report and, if provided, read the work papers to assess the appropriateness of the audit approach taken for the purposes of placing reliance on that audit or review report in assessing the appropriateness of the source of the unadjusted financial information;
3. read the unadjusted financial information to which the audit or review report relates to establish if its stated basis of preparation (that is, its accounting policies) and time frame covered are acceptable; and/or
4. plan to perform further procedures as is considered necessary in the engagement circumstances.

If the assurance practitioner requests access to the audit working papers of another assurance practitioner and is unable to obtain such access, this constitutes a limitation of scope on the assurance practitioner being able to assess the appropriateness of the source of the unadjusted financial information. If the assurance practitioner is unable to perform alternative procedures to obtain sufficient appropriate evidence on its appropriateness, the assurance practitioner modifies the conclusion in the assurance report in accordance with paragraph 84(c).^*

Assurance Procedures

The assurance procedures may include: (Ref: Para. 132(a))

1. enquiring of the responsible party about:
   1. the process by which the source has been prepared and the reliability of the underlying accounting records to which the source is agreed or reconciled;
   2. whether all transactions for the time period have been recorded;
   3. whether the source has been prepared in accordance with the entity’s accounting policies;
   4. whether there have been any changes in accounting policies from the most recent audited or reviewed period, and, if so, how such changes have been dealt with;
   5. its assessment of the risk that the source may be materially misstated as a result of error or fraud; and
   6. the effect of changes in the entity’s business activities and operations;
2. if the assurance practitioner has audited or reviewed the immediately preceding annual or interim financial information, considering the findings of such audit or review and whether these might indicate any issues with the preparation of the source from which the unadjusted financial information has been extracted;
3. corroborating the information provided by the responsible party in response to the assurance practitioner’s enquiries, when the responses appear inconsistent with the assurance practitioner’s understanding of the entity, or the engagement circumstances and
4. comparing the source with the corresponding prior period financial information and, as applicable, the immediately preceding annual or interim financial information, and discussing significant changes with the responsible party.

No Audit or Review of the Unadjusted Financial Information (Ref: Para. 132(b))

When there is no audit or review report on the source from which the unadjusted financial information has been extracted, it is necessary for the assurance practitioner to perform procedures in relation to the appropriateness of that source. Factors that may affect the nature and extent of these procedures include, for example:

1. Whether the assurance practitioner has previously audited or reviewed the entity’s historical financial information, and the assurance practitioner’s knowledge of the entity from such engagement.
2. How recently the entity’s historical financial information was audited or reviewed.
3. Whether the entity’s financial information is subject to periodic review by the assurance practitioner, for example, for purposes of meeting regulatory filing requirements.
4. Whether the assurance practitioner is able to access documentation describing, and supporting, the source of the unadjusted historical financial information.
5. The type of assurance to be provided.

Pro Forma Adjustments (Ref: Para. 132(c))

For the pro forma financial information to be meaningful, it is necessary that the pro forma adjustments be consistent with the stated basis of preparation. In the context of a business combination, for example, this may involve consideration of such matters as:

1. Whether differences exist between the acquiree’s accounting policies and those of the entity; and
2. Whether accounting policies for transactions undertaken by the acquiree that the entity has not previously entered into, are policies that the entity would have adopted for such transactions under its applicable financial reporting framework, taking into account the entity’s particular circumstances.

Consideration of the appropriateness of the entity’s accounting policies may also be necessary in some circumstances. For example, as part of the event(s) or transaction(s), the entity may propose to issue complex financial instruments for the first time. If this is the case, it may be necessary to consider:

1. whether the responsible party has selected appropriate accounting policies to be used in accounting for such financial instruments under its applicable financial reporting framework; and
2. whether it has appropriately applied such policies in preparing the pro forma forecast.

Basic Elements of the Assurance Report (Ref: Para. 136(a)(iii))

The stated basis of preparation for the pro forma forecast, as chosen by the responsible party, is ordinarily represented by the application to its base financial information of the recognition and measurement principles contained in Australian Accounting Standards and the adopted accounting policies, as well as pro forma adjustments made.