CPA Exam — AUDForming Conclusions and ReportingMedium
An auditor is performing an attestation engagement to examine management's assertion about the effectiveness of internal control over financial reporting. Which of the following is true regarding the level of assurance provided in this type of engagement?
- AThe engagement provides limited assurance, stating that no material modifications are needed.
- BThe engagement provides absolute assurance, guaranteeing the effectiveness of controls.
- CThe engagement provides no assurance, merely presenting management's assertion.
- DThe engagement provides positive assurance, expressing an opinion on the assertion.
Show answer & explanationAnswer & explanation
Correct answer: D. The engagement provides positive assurance, expressing an opinion on the assertion.
An examination engagement, such as reporting on internal control effectiveness, provides a high (reasonable) level of assurance, expressed as a positive opinion on whether management's assertion is fairly stated or on the subject matter itself.
Why the other options are wrong
- A. Limited assurance is characteristic of a review engagement, not an examination.
- B. Absolute assurance is never provided in any attestation engagement due to inherent limitations.
- C. No assurance is provided in a compilation, and also not in an examination engagement.
Examination Engagement Assurance
An examination engagement provides a high level of assurance (reasonable assurance), expressed as a positive opinion on whether the subject matter, or the assertion about the subject matter, is fairly stated or effective.
- Highest level of assurance in attestation.
- Expressed as a positive opinion.
- Requires extensive evidence gathering.
Memory trick: Attest to the A-R-E of assurance.