A. A Thron Party Relationship Involves a practitioner, a responsible party, and intended users; a Practitioner - The term "practitioner" as used in this Framework is broader than the form "auditor" as used in PSAs and PSREs, which relates only to practitioners performing audit or review engagements with respect to historical financial Information.A practitioner may be requested to perform assurance engagements on a wide range of subject matters. Some subject matters may require specialized skills and knowledge beyond those ordinarily possessed by an individual practitioner. The practitioner is satisfied that those persons carrying out the engagement collectively possess the requisite skills and knowledge, and that the practitioner has an adequate level of involvement in the engagement and understanding of the work for which any export is used. b. Responsible Party The responsible party is the person (or persons) who (a) In a direct reporting engagement, is responsible for the subject matter, or (b) In an assertion-based engagement, is responsible for the subject matter information (the assertion), and may be responsible for the subject matter, An example of when the responsible party is responsible for both the subject matter information and the subject matter, is when an entity engages a practitioner to perform an assurance engagement regarding a report it has prepared about its own sustainability practices. An example of when the responsible party is responsible for the subject matter information but not the subject matter, is when a goverment organization engages a practitioner to perform an assurance engagement regarding a report about a private company's sustainability practices that the organization has prepared and is to distribute to intended users. The responsible party may or may not be the party who engages the practitioner "(Aued But Bebus out C. Intended Users - are the person, persons or class of persons for whom the practitioner prepares the assurance report. The responsible party can be one of the Intended users, but not the only D. An appropriate subject matter, The subject matter, and subject matter information, of an assurance engagement can take marry forms, such as: . Financial performance or conditons (for example, historical or prospective financial position, financial performance and cash flows) for which the subject matter information may be the recognition,measurement, presentation and disclosure represented in financial statements. Non-financial performance or conditions (for example, performance of an onity) for which the subject matter information may be key indicators of officioncy and effectiveness. Physical characteristics [for example, capacity of a facility) for which the subject matter information may be a specifications document. Systems and processes (for example, an entity's internal control or IT aysiam) for which the subject matter Information may be an assertion about effectiveness. . Behavior (for example, corporate governance, compliance with regulation, human resource practicesj for which the subject matter information maybe a statement of compliance or a statement of ofoctavoness. Subject matters have different characteristics, including the degree to which information about them is qualitative versus quant taave, objective versus subjective, historical versus prospective, and relates to a point in time or covers a period, Such characteristics affect the: (a) Precision with which the subject matter can be evaluated or measured against criteria, and (b) The persuasiveness of available evidence. The assurance report notes characteristics of particular relevance to the intended users An appropriate subject matter is: (a) identifiable, and capable of consistent evaluation of measurement against the idonthed criteria; and (b) Such that the information about it can be subjected to procedures for gathering sufficient appropriate evidence to support a reasonable assurance of limited assurance conclusion, as appropriate. C. Suitable criteria Criteria are the benchmarks used to evaluate or measure the subject matter including. where relevant, benchmarks for presentation and disclosure. Criteria can be formal, for example in the preparation of financial statements, the criteria may be Philippine Financial Reporting Standards; when reporting on internal control, the criteria may be an established intomal control framework or individual control objectives specifically designed for the engagement; and when reporting on compliance, the criteria may be the applicable law, regulation or contract. Examples of less formal criteria are an internally developed code of conduct or an agreed level of performance (auch as the number of times a particular committee is expected to meet in a year). Suitable criteria exhibit the following characteristics: (a) Relevance: relevant criteria contribute to conclusions that assist decision- making by the intended users (b) Completeness: criteria are sufficiently complete when relevant factors that could affect the conclusions in the contest of the engagement Page 3 7circumstances are not cmilled. Complete criteria include. where relevant, benchmarks for presentation and disclosure. jo) Reliability: reliable orferia allow reasonably consistent evaluation or measurement of the subject matter including. where relevant, presentation and disclosure, when used in similar circumstances by similarly qualified practitioners. 'd) Noutrality: moutral criteria contribute to condusions that are tme from bias. (e) Understandability: understandable criteria contribute to conclusions that are clear, comprehensive, and not subject to significantly different Interpretations. Criteria need to be available to the intended users to alow them to understand how the subject matter has been evaluated of measured. Criteria are made avaliable to the intended users in one of morn of the folowing ways (a) Publicly. (h) Through inclusion in a cinar manner in the presentation of the subject matter information. (e) Through inclusion in a clear manner in the assurance report. (d) By general undamlanding. for awampin the criterion for mansuring time in hours and minutes. The practitioner plans and performs on asouforce engagement with an altitude of professional shepodium to obtain pullcient appropriate evidence about whather the Mibjact matter information is from of material minstainment. amituria of professional skepticism mongnizing that circumstances may cwist that cause the subject matter Information to be materially misstated, An alloude of professional skepticism means the practitioner makes a cribcal assessment, with a questioning mind, of the validity of evidence obtained and is alert to evidence that contradicts or brings into question the rellablity of documents or representations by the responsible party D. Sufficiency and Appropriateness of Evidence Surfdelaney is the measure of the quantity of evidence. Appropriateness is the measure of the quality of evidence; that is, Its relevance and its reliability. Accordingly, the sufficiency and appropriateness of evidence are interelated. However, merely obtaining more evidence may not compensate for its poor quality The reliability of evidence is influenced by its source and by its nature, and is dependent on the individual circumstances under which it is obtained. Generalizations about the reliability of various kinds of evidence can be made: however, such generalizations are subject to important exceptions. Even when evidence is obtained Page Qfrom sources external to the entity, circumstances may exist that could affect the reliability of the information obtained. For example, evidence obtained from an independent external source may not be reliable if the source is not knowledgeable. While recognizing that exceptions may exist, the following generalizations about the reliability of evidence may be useful: Evidence is more reliable when it is obtained from independent sources outside the entity- Evidence that is generated intemally is more reliable when the related controls are effective Evidence obtained directly by the practitioner (for example, observation of the application of a control) is more reliable than evidence obtained Indirectly or by Inference (for example, inquiry about the application of a controll Evidence is more reliable when it exists in documentary form, whether paper, electronic, or other media (for example, a contemporaneously written record of a mosting is more milahle than a subsequent oml representation of what was discussed). Evidence provided by original documents is more reliable than evidence provided by photocopies of facsimiles. The practitioner considers the relationship between the cost of obtaining evidence and the usefulness of the information obtained. However, the matter of difficulty of expense involved is not in itself a valid basis for omitting an evidence gathering procedure for exercises professional skepticism In evaluating the quantity and quality of evidence, and thus its sufficiency and appropriateness, to support the assurance report. E. Written Assurance Report - A written assurance report in the form appropriate to a reasonable assurance engagement or a limited assurance engagement. The practitioner provides a written import containing a conclusion that coreys the assurance obtained about the subject matter information. ISAs, ISREs and ISAEs establish basic elements for assurance reports. In addition, the practitioner considers other reporting responsibilities, Including communicating with those charged with governance when it is appropriate to do so. Classification and Types of Assurance Engagements Assertion-based Engagements and Direct Reporting Engagements Assertion -based Engagements . In some assurance engagements, the evaluation or measurement of the subject matter is perfomed by the responsible party, and the subject matter information is in the form of an assertion by the responsible party that is made available to the intended users. Direct Reporting Engagements The practitioner either directly performs the evaluation or measurement of the subject matter, or obtains a representation from the respons ble party that hasperformed the evaluation or measurement that is not available to the intended users. The subject matter information is provided to the intended users in the assurance report. There are two types of assurance engagement a practitioner is permilled to perform: a reasonable assurance engagement and a limited assurance engagement. . Reasonable Assurance Engagement The objective of a reasonable assurance engagement is a reduction in assurance engagement risk to an acceptable low level in the circumstances of the engagement as the basis for a positive form of expression of the practitioner's conclusion. . Limited Assurance Engagement The objective of a limited assurance engagement is a reduction in assurance angagnmant risk to a Inval that is acceptable In the circumstances of the engagement. but whom that risk is greater than for a maannabin assuranon anigagamant, as the basis for a nagative form of axpression of the practitioner's conclusion. Assurance Barvlogs . Audit Servions - the auditor's opinion enhances the credibility of financial statements by providing a mon, but not absoluis, level of assurance. Absolute assurance in budiling is not allainable as a result of much factors as we need for judgment to use of besung. Doe inherent Imitations of any accounting and internal control systems and the fact that most of the avicianna malishin to the auditor is parkinson, rather than cancumia, In nature The objective of an audi of inarial statements is to enable the auditor to express an opinion whather the financial statements am prepared, In all material rapacts, in nocardance with an identified financial reporting framework, The phrase used to express the audtor's option is "present fairly, in all material respects," A similar objective applies to the audit of financial or other information prepared in accordance with appropriate criteria, In forming the audi opinion, the auditor obtains sumo and appropriate audit evidence in be able to draw condusions on which to base that opinion. Review Services - the auditor provides a moderate level of assurance that the Infomation subject to review is free of material misstatement. This is expressed in the for of negative assurance. The objective of a review of financial statements is to enable an aud tor? to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the auditor's attention that causes the auditor to believe that the financial statements are not prepared, in all material respects, in accordance with an identified financial reporting framework. A similar objective applies to the review of financial or other information prepared in accordance with appropriate criteria. Page 6A review comprises inquiry and analytical procedures which are designed to review the reliability of an assertion that is the responsibility of one party for use by another party. While a review involves the application of audit skills and techniques and the gathering of evidence, it does not ordinarily involve an assessment of accounting and inlemal control systems, tests of records and of responses to inquiries by obtaining corroborating evidence through inspection, observation, confirmation and computation, which are procedures ordinarily perfomed during an audit. Although the auditor allempts to become aware of all signi cant mallers, the proceduma of a review make the achievement of this objective less likely than in an audit engagement, thus the kovel of assurance provided in a review report is correspondingly less than that given in an audit report. Non-Assurance Services Engagements onward by Philippine Standards for Related Services, such as agrood-upon procedures engagements and compilations of financial or other information. For agreed-upon procedures, as the auditor simply provides a report of the factual findings, no assurance Is expressed. Instead, users of the report assess for themankins the procedures and findings reported by the auditor and draw their own conclusions from the auditor's work. In an engagement to perform agrood-upon proceduma, an auditor is engaged to carry out those procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings. The recipients of the report must form their own conclusions from the report by the auditor. The report is restricted to those parties that have agreed to the proceduma to be performed since others, unaware of the reasons for the procedures, may misinterpret the results. In a compilation engagement, although the users of the compiled information derive some benefit from the accountants involvement In a compilation engagement, the accountant is engaged to use accounting expertise as opposed to auditing expertise to collect. classify and summarize financial Infomation. This ordinarily entails reducing detailed data to a manageable and understandable form without a requirement to test the assertions underlying that information. The procedures employed are not designed and do not enable the accountant to express any assurance on the financial information. However, users of the compiled financial information derive some benefit as a result of the accountants involvement because the service has been performed with due professional skill and care # The preparation of tax returns where no conclusion conveying assurance is expressed. Consulting (or advisory] engagements, such as management and tax consulting