In an assertion-based engagement, also known as an attestation engagement, the responsible party takes on the role of measuring or evaluating the subject matter and subsequently reporting the resulting information.
Here's a more detailed breakdown:
Understanding Assertion-Based Engagement
Assertion-based engagements are common in situations where an independent assessment is required to provide confidence in the accuracy and reliability of information. A "responsible party" makes a claim (an assertion) about a specific subject matter, and an independent practitioner then examines this assertion.
Key Elements:
- Responsible Party: This is the individual or organization responsible for the subject matter and the assertion being made about it. They are the ones measuring, evaluating, and reporting the information.
- Assertion: This is a statement made by the responsible party regarding the subject matter. This statement forms the basis of the engagement. Examples include: "Our internal controls over financial reporting are effective" or "Our organization complies with all relevant environmental regulations."
- Subject Matter: This is the information or process that is being assessed. This could include financial data, internal controls, compliance with regulations, or other relevant business information.
- Practitioner: This is an independent professional (like a CPA) who examines the assertion and provides an opinion or conclusion on whether the assertion is fairly stated based on the evidence obtained. The practitioner provides assurance to the intended users.
- Intended Users: These are the individuals or groups who will rely on the practitioner's opinion or conclusion.
How it Works:
- The responsible party assesses the subject matter. They perform the necessary procedures to measure or evaluate the subject matter and determine if it meets the defined criteria.
- The responsible party makes an assertion. Based on their assessment, they make a statement about the subject matter.
- An independent practitioner is engaged. The responsible party or another party engages a qualified professional to examine the assertion.
- The practitioner gathers evidence. The practitioner performs procedures to gather evidence to support or refute the responsible party's assertion.
- The practitioner issues a report. The practitioner issues a report expressing their opinion or conclusion on whether the assertion is fairly stated. This report is then provided to the intended users.
Example:
Let's say a company, "GreenTech Inc.," wants to assure its stakeholders that it is committed to sustainable practices.
- Subject Matter: GreenTech Inc.'s environmental sustainability practices.
- Responsible Party: GreenTech Inc.'s management.
- Assertion: "GreenTech Inc. complies with all applicable environmental regulations and has reduced its carbon footprint by 15% in the last year."
- Practitioner: An independent environmental auditing firm.
- Intended Users: Investors, customers, and regulatory agencies.
The independent auditing firm would examine GreenTech Inc.'s environmental practices, gather evidence, and issue a report stating whether or not they agree with the company's assertion.
Benefits:
- Increased credibility and trust in the reported information.
- Improved decision-making for intended users.
- Enhanced accountability for the responsible party.
In summary, assertion-based engagement is a process where an independent expert assesses the accuracy and reliability of a claim made by a responsible party, providing assurance to those who rely on that information.
