APPROACHES TO THE INTERPRETATION OF THE TERM “HISTORICAL FINANCIAL INFORMATION” AS THE CRITERION FOR THE CLASSIFICATION OF AUDIT, REVIEW, AND OTHER ASSURANCE ENGAGEMENTS

Abstract

The criterion “underlying subject matter” and the associated criterion “subject matter information” is an essential element of the assurance engagements and the basis for distinguishing their different types. The purpose of the study is to define the characteristics of “historical financial information” and the forms of its structured representation as a defining criterion for the classification and differentiation of audit, review, and other assurance engagements. The subject of the study is the term “historical financial information” in the context of its use in International Standards on Quality Control, Auditing, Review Engagements, Assurance Engagements, and Related Services. Methodology. To achieve the goal set in the work, a complex of general scientific methods (analysis, synthesis, induction, deduction, abstraction) and methodical techniques (systematization, generalization, review, comparison) was used. In the study of the historical stages of using the terms “financial statements” and “historical financial information”, the method of system analysis, historical and logical methods were used. The study of their essence as mandatory elements of the assurance engagements was based on provisions of the dialectical method of knowledge of processes and phenomena in their interconnection and development. In developing approaches to the interpretation of the term “historical financial information”, the algorithm for selecting engagements for different types of objects and directions of standardization a method of modelling was applied. Results. Based on the systematization of the historical stages of the use of terms “financial statements” and “historical financial information” in IAASB International Standards, it is substantiated that the interpretation of the term “historical financial information” is not specific, allows the ambiguity of interpretations, which complicates the processes of identifying the type of engagements, agreeing its conditions, lead to dissatisfaction of users with the results of auditors’ work. It is substantiated that prior to the definition of the term “historical financial information” as the main criterion for distinguishing between audit, review, and other assurance engagements, two approaches can be applied: narrow when the term “historical financial information” is limited to a complete set of financial statements, a separate financial statement, an account, an article or item of financial statements, and a broad one, which stipulates the allocation of different forms of structured presentation on the basis of specification of required characteristics of historical financial information. Problems of their influence on the application of International Standards are generalized. Practical implications. Based on the proposed approaches, an algorithm for selecting objects that can be the subject of various assurance engagements has been elaborated. It is useful for both auditors and for responsible parties, intended user, clients and will increase the effectiveness of their cooperation and reduce the “expectations gap”. Problems of the impact of “narrow” and “broad” approaches to the interpretation of the essence of the term “historical financial information” on the content and directions of the improvement of International Standards and national regulatory documents are systematized. Value/originality. The research developed a theoretical approach to distinguishing types of audit services based on the specification of the scope of the application of International Auditing Standards (ISAs) and Assurance Engagements (ISAEs). There is substantiated the possibility of using narrow and broad approaches to understanding the term “historical financial information” as a subject matter, the definition of possible forms of structured representation of historical financial information as a subject matter information and the key condition for the delineation of audit, review, and other assurance engagements.

Keywords

• assurance engagements
• audit engagements
• historical financial information
• financial statements