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Other Assurance Services. Chapter 25. Learning Objective 1. Distinguish AICPA attestation standards from auditing stan- dards and know the type of engagements to which they apply. Attestation Engagements. Attestation standards. Types of attestation engagements. Levels of service.
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Other Assurance Services Chapter 25
Learning Objective 1 • Distinguish AICPA attestation • standards from auditing stan- • dards and know the type of • engagements to which they apply.
Attestation Engagements Attestation standards Types of attestation engagements Levels of service
Type of Engagement Amount of Evidence Level of Assurance Form of Conclusion Distribution Examination Review Agreed-upon procedures Extensive Significant Varying High Moderate Varying Positive Negative Findings General General Limited Types of Engagements and Related Reports
Learning Objective 2 • Understand the nature of • WebTrust assurance services.
WebTrust Services In a WebTrustassurance services engagement, a client engages a CPA to provide reasonable assurance that a company’s Web site complies with certain Trust Servicesprinciples and criteria for one or more aspects of e-commerce activities.
WebTrust Services The WebTrustserviceis a specific service developed under the broader Trust Services principles and criteria jointly issued in 2003 by the AICPA and CICA.
Security The system is protected against unauthorized access (both physical and logical). Availability The system is available for operation and use as committed or agreed. Processing integrity System processing is complete, accurate, timely, and authorized. Online privacy Personal information obtained as a result of e-commerce is collected, used, disclosed, and retained as committed or agreed. Confidentiality Information designated as confidential is protected as committed or agreed. Five TrustServices Principles
Learning Objective 3 • Understand the nature of • SysTrust assurance services.
SysTrust Services In a SysTrust engagement, the SysTrust licensed accountant evaluates a company’s computer system using Trust Servicesprinciples and criteria.
SysTrust Services A licensed SysTrustaccountant may report on only one Trust Service principle or any combination of principles.
Learning Objective 4 • Describe special engagements • to attest to prospective financial • statements.
Prospective Financial Statements Forecasts and projections Use of prospective financial statements Types of engagements Examination of prospective financial statements
Learning Objective 5 • Describe agreed-upon procedures • engagements.
Agreed-Upon Procedures Engagements The audit is limited to certain specific audit procedures. These are referred to as procedures and findings engagements. The SASs deal with financial statement items, whereas the SSAEs deal with nonfinancial statement subject matter.
Learning Objective 6 • Understand the level of assurance • and evidence requirements for • review and compilation services.
Review and Compilation Services The standards for compilations and reviews of financial statements are called... Statements on Standards for Accounting and Review Services (SSARS)
High (audit) Level of Assurance Attained Moderate (review) None (compilation) Minimal (compilation) Significant (review) Extensive (audit) Amount of Evidence Accumulated Relationship between EvidenceAccumulation and Assurance Attained
Review Services A review service (SSARS review) engagement is designed to allow the accountant to express limited assurance that the financial statements are in accordance with GAAP.
Procedures Suggested for ReviewEngagements Obtain knowledge of the accounting principles of the client’s industry. Obtain knowledge of the client. Makeinquiries of management. Perform analytical procedures. Obtain letter of representation.
Make Inquires of Management 1. Inquire as to the company’s procedures for recording, classifying, and summarizing transactions and disclosing information in the statements. 2. Inquire into actions taken at meetings of stockholders and the board of directors. 3. Inquire of persons having responsibility for financial and accounting matters.
Form of Report 1. The first paragraph is similar to an audit report except for its reference to a review service rather than an audit. 2. The second paragraph notes that a review consists primarily of inquiries and analytical procedures.
Form of Report 3. The third paragraph expresses limited assurance in the form of a negative assurance that “we are not aware of any material modifications that should be made to the financial statements.”
Failure to Follow GAAP If a client has failed to follow GAAP in a review engagement, a modification of the report is needed.
Compilation Services A compilation service engagement is defined in SSARS as one in which the accountant presents to a client or third party financial statements that the accountant has prepared. The CPA firm does not express any assurance on the statements.
Requirements for Compilation • Establish an understanding with the client about • the nature and limitations of the services to be • performed and a description of the report. • Possess knowledge about the accounting • principles and practices of the client’s industry. • Know the client; the nature of the client’s • business transactions; and the basis, form, • and content of the financial statements.
Requirements for Compilation • Make inquiries to determine whether • the client’s information is satisfactory. • Read the compiled financial statements • and be alert for any obvious omissions • or errors in arithmetic and GAAP.
Form of Compilation Report Compilation with full disclosure: It requires disclosures in accordance with GAAP. Compilation that omits substantially all disclosures: This type of statement is usually expected to be used primarily for management purposes only.
Form of Compilation Report Compilation without independence: A CPA firm can issue a compilation report even if it is not independent with respect to the client, as defined by the Code of Professional Conduct.
Learning Objective 7 • Describe special engagements • to review interim financial • information for public • companies.
Interim Financial Information for Public Companies The SEC requires quarterly financial statements to be reviewed by the company’s external auditor prior to the company’s filing of the Form 10Q. Like reviews under SSARS, a review for a public company does not provide a basis for expressing a positive form opinion.
Interim Financial Information for Public Companies The review is conducted according to the standards of the PCAOB, and there is no reference to the SSARS in a review report.
Learning Objective 8 • Describe other audit and limited • assurance engagements related • to historical financial statements.
Other Comprehensive Basisof Accounting Cash or modified cash basis Basis used to comply with the requirements of a regulatory agency Income tax basis A definite set of criteria having substantial support
Reporting Requirements Introductory paragraph Scope paragraph Middle paragraph stating the accounting basis Opinion paragraph
Specified Elements, Accounts,or Items The specified elements, accounts, or items must be identified. The basis on which the specified elements, accounts, or items are presented and the agreements specifying the basis must be described.
Specified Elements, Accounts,or Items The source of significant interpretations made by the client about the provisions of a relevant agreement must be indicated and described. If the specified element, account, or item is presented on a basis that is not in conformity with GAAP, a paragraph that restricts the distribution of the report to those within the entity and the parties to the contract or agreement must be added.
Debt Compliance Letters and Similar Reports The engagement and report should be limited to compliance mattersthe auditor is qualified to evaluate. The auditor should provide a debt compliance letter only for a client for whom the auditor has done an audit of the overall financial statements.
Debt Compliance Letters and Similar Reports The auditor’s opinion is in the form of a negative assurance, stating that nothing came to the auditor’s attention that would lead the auditor to believe there was noncompliance.
