CHAPTER 23 Assurance Services: Attest Engagements

1. CHAPTER 23Assurance Services: Attest Engagements

2. Special Reports GAAS identifies “special audit-based engagements” for which a public accountant may be engaged.

3. Special Reports:financial information other than financial statements An auditor may be engaged to report on a specific aspect of the financial statements, e.g., sales, accounts receivable, costs of a capital project. accounts receivable

4. Special Reports:financial information other than financial statements An auditor may be engaged to report on a specific aspect of the financial statements, e.g., sales, accounts receivable, costs of a capital project. Materiality must be defined in terms of the element/account/item rather than the overall financial statements.

5. Special Reports:financial information other than financial statements Materiality must be defined in terms of the element/account/item rather than the overall financial statements. The auditor should comply with the general and examination standards of GAAS.

6. Special Reports:financial information other than financial statements • Introductory Paragraph • audit performed • any relevant portions of any agreements statutes,etc. • basis of accounting if other than GAAP • any lack of consistent application or interpretation • responsibilities of management and auditor

7. Special Reports:financial information other than financial statements • Introductory Paragraph • Scope Paragraph • similar but refers to financial information

8. Special Reports:financial information other than financial statements • Introductory Paragraph • Scope Paragraph • Opinion Paragraph • whether information is presented fairly in accordance with accounting basis and any interpretations

9. Special Reports:Applying specified auditing procedures Client specifies audit procedures to be applied and form of report. Distribution of report is normally restricted

10. Special Reports:Applying specified auditing procedures Client specifies audit procedures to be applied and form of report. Distribution of report is normally restricted. The public accountant should comply with the general and first examination standard of GAAS.

11. Special Reports:Applying specified auditing procedures • Report specifies: • financial information • procedures • factual results of the procedures • audit not performed - disclaimer • any restrictions

12. Special Reports:compliance with agreements, statutes, regulations In this type of engagement, the auditor determines whether a client is in compliance with accounting and reporting requirements in contract, statutes, regulations, e.g., a debt covenant.

13. Special Reports:compliance with agreements, statutes, regulations In this type of engagement, the auditor determines whether a client is in compliance with accounting and reporting requirements in contract, statutes, regulations, e.g., a debt covenant. The auditor should comply with the general and examination standards of GAAS.

14. Special Reports:compliance with agreements, statutes, regulations • Introductory Paragraph • compliance is as audited • relevant provisions of agreement, statute or regulation and any interpretations • any lack of consistent interpretation • responsibilities of management and auditor

15. Special Reports:compliance with agreements, statutes, regulations • Introductory Paragraph • Scope Paragraph • similar but refers to compliance with relevant agreement, statute, regulation

16. Special Reports:compliance with agreements, statutes, regulations • Introductory Paragraph • Scope Paragraph • Opinion Paragraph • whether entity has complied with the established criteria

17. Special Reports:Opinion on control procedures at a service organization Service organizations may provide custodial, data-processing, or asset management services

18. Special Reports:Opinion on control procedures at a service organization Types of engagements: 1. design and existence of control procedures at point in time 2. design, effective operation and continuity of control procedures during a period of time

19. Special Reports:Opinion on control procedures at a service organization Service auditor should comply with the general standard, and the first and third examination standards.

20. Special Reports:Opinion on control procedures at a service organization Steps: 1. plan scope 2. review design of internal control 3. perform tests of control 4. evaluate results 5. obtain written management representation 6. prepare report

21. What is a Review of Financial Statements?

22. What is a Review of Financial Statements? A review is an engagement in which the accountant expresses limited assurance as a result of a few auditing procedures.

23. What is a Review of Financial Statements? A review is an engagement in which the accountant expresses limited assurance as a result of a few auditing procedures (enquiry, analysis, discussion). Assessing plausibility of the financial information - is it worthy of belief?

24. Review Standards General Standards - performed by person(s) having adequate technical training and proficiency in conducting reviews, with due care and an objective state of mind

25. Review Standards General Standards Review Standards - adequate planning, proper execution and proper supervision - possess sufficient knowledge of the business for intelligent enquiry and assessment of information - assess whether information is plausible using - enquiry, analysis, discussion - additional procedures if necessary

26. Review Standards General Standards Review Standards Reporting Standards - indicate scope, clearly indicate nature of review and distinguish from an audit - indicate whether anything causes you not to believe information is in accordance with criteria or no assurance - explain any reservations and, if determinable, their effect

27. Review Procedures - gain sufficient knowledge of accounting principles and practices of the client and the industry A C E

28. Review Procedures - gain sufficient knowledge of accounting principles and practices of the client and the industry - enquire of management/other personnel to determine fairness of statements and management integrity EXAMPLES: - accounting practices - actions at board and share- holder meetings - accounting methods used

29. Review Procedures - gain sufficient knowledge of accounting principles and practices of the client and the industry - enquire of management/other personnel to determine fairness of statements and management integrity - perform analytical procedures to identify unusual items and relationships

30. Review Procedures - gain sufficient knowledge of accounting principles and practices of the client and the industry - enquire of management/client personnel to determine fairness of statements and management integrity - perform analytical procedures to identify unusual items and relationships - discuss with management/client personnel the results of analytical procedures, the financial statements, and other matters

31. Is an Engagement Letter Requiredon a Review Engagement?

32. Is an Engagement Letter Requiredon a Review Engagement? NO! But it is strongly advised as agreement as to nature and extent of services is required

33. What Should an Engagement Letter Cover?

34. What Should an Engagement Letter Cover? • public accountant’s services • client’s responsibilities • audit not to be performed; no opinion to be expressed • any restrictions on distribution • each page of financial statements should be marked “unaudited” • expected content of the report • engagement can’t be relied on to detect fraud, error or other irregularities • statements don’t satisfy any statutory requirements (if applicable)

35. Is a Representation Letter Required on a Review Engagement?

36. Is a Representation Letter Required on a Review Engagement? NO! But it is strongly advised

37. Review Engagement Report We have reviewed the balance sheet of Ace Company as at December 31, 2004 and the statements of income, retained earnings, and changes in financial position for the year then ended. Our review was made in accordance with generally accepted standards for review engagements and accordingly consisted primarily of enquiry, analytical procedures and discussion related to information supplied to us by the Company.

38. Review Engagement Report We have reviewed the balance sheet of Ace Company as at December 31, 2004 and the statements of income, retained earnings, and changes in financial position for the year then ended. Our review was made in accordance with generally accepted standards for review engagements and accordingly consisted primarily of enquiry, analytical procedures and discussion related to information supplied to us by the Company. A review does not constitute an audit and consequently we do not express an audit opinion on these financial statements.

39. Review Engagement Report We have reviewed the balance sheet of Ace Company as at December 31, 2004 and the statements of income, retained earnings, and changes in financial position for the year then ended. Our review was made in accordance with generally accepted standards for review engagements and accordingly consisted primarily of enquiry, analytical procedures and discussion related to information supplied to us by the Company. A review does not constitute an audit and consequently we do not express an audit opinion on these financial statements. Based on our review, nothing has come to our attention that causes us to believe that these financial statements are not, in all material respects, in accordance with generally accepted accounting principles.

40. Review Procedures If a reservation is necessary: - separate reservation paragraph before negative assurance paragraph - revise negative assurance paragraph, inclu- ding a reference to reservation paragraph - if due to scope limitation, scope paragraph should refer to reservation paragraph

41. Special Review Engagements 1. financial information other than financial statements - parallel with S. 5805 2. compliance with agreements - parallel with S. 5815

42. What is a compilation?

43. What is a compilation? In a compilation engagement, the public accountant prepares the client’s finan- cial statements without expressing any assurance on the statements. assurance

44. Compilation Procedures - assemble the information and ensure it is arithmetically correct

45. Compilation Procedures - assemble the information and ensure it is arithmetically correct - before issuing the report, read the compiled statements and consider whether such statements appear obviously false or misleading

46. Should an Engagement Letter and a Representation Letter be Obtained on a Compilation Engagement?

47. Should an Engagement Letter and a Representation Letter be Obtained on a Compilation Engagement? YES! It is always advised to do so

48. Notice to Reader We have compiled the balance sheet of Ace Company as at December 31, 2004 and the statements of income, retained earnings, and changes in financial position for the year then ended from information provided by management.

49. Compilation Report We have compiled the balance sheet of Ace Company as at December 31, 2004 and the statements of income, retained earnings, and changes in financial position for the year then ended from information provided by management.We have not audited, reviewed or otherwise attempted to verify the accuracy or completeness of such information. Readers are cautioned that these statements may not be appropriate for their purposes. disclaimer

50. Compilation Procedures - each page of the compiled statements should be marked: “unaudited - see Notice to Reader” why?