14_audit other related services

7/27/2019 14_Audit Other Related Services

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TOPIC 14AUDIT RELATED SERVICES

Prepared by:Aida Hazlin Ismail

&Kamaruzzaman Muhammad

Shah Alam


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Discussion topicsAudit Related Services

Introduction Assurance level for audit related services

Review of financial information Agreed upon procedures Compilation The examination of prospective financial information


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Introduction

Relationship among Assurance ServicesAssurance Services Non- Assurance Services

Attestation Services

Audits Review

Internal Control

Other Assuranceservices

Accounting andBookkeeping

Tax Services &Secretarial

Other ManagementConsulting

CertainManagementConsulting


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Introduction Assurance services provided by CA firms is attestation services, which

CA issues a report about the reliability of an assertion that is made byanother party. Attestation services fall into four categories:-

Audit of historical financial statements Effectiveness of internal controls over financial reporting Review of historical financial information Other attestation services that may be applied to a broad range of

subject matter, for example:- Agreed Upon procedures

Compilation The examination of prospective financial information

Concept:Primary purpose of assurance services is to improve thequality of information for the users to make a decision, while theprimary purpose of non assurance services is to generaterecommendation/providing services to managementin discharge their

duties..


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Introduction Audit of historical financial statements

Is a form of attestation service in which the auditor issues a writtenreport expressing an opinion about whether the financial statements arefairly statement according with FRS.

Effectiveness of internal controls Auditors also attest to the effectiveness of internal control. This

evaluation, provides forward-looking information, because effectiveinternal control reduce likelihood of future misstatement in the financialstatement.

Review of historical financial information

Audit will provide high level of assurance but review of historical financialinformation provides moderate level of assurance on the financialstatement, less evidence to accumulate necessary to support the opinion.

Other attestation services that may be applied to a broad range of subjectmatter. Basically natural extension of the audit of historical financial information,

as users seek independent assurance about other types of information.


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Introduction This topic (14) will cover other assurance services while next

topic (15) will cover non assurance services.

The international framework for assurance engagements:-

Was issued by International Auditing and Assurance StandardsBoard (IAASB) in 2004 to provide a frame of reference forprofessional accountants providing assurance services.

Applicable to all assurance engagements. The standard coverstwo main groups:1. The audit and review of historical financial information (ISA 200

and ISA 800) and2. Assurance engagements other than audits and review of historical

financial information


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Framework of auditing assurance and other related

servicesAuditing Related Services

Nature ofService

Audit Review Agreed-UponProcedures

Compilation

Comparativelevel ofassuranceprovided by

the auditor

Highassurance,but notabsolute

Moderateassurance

No assurance No assurance

Reportprovided

Positiveassurance onassertion (s)

In ourOpinion

Negativeassurance onassertion (s)

Nothing hascome to our

attention

Factualfindings ofprocedures

Identificationofinformationcomplied.Not attempt

to verify


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Introduction

Framework of auditing assurance and other related services

Explain the general meaning of the three levels of assurance.

Levels Of

Assurance

Audit Review Compilation


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Introduction In this topicwe will discuss about the assurance engagements other

than audits and review of historical financial information

They are:-

Review of financial information Agreed-upon procedures Compilation The examination of prospective financial information

The standards related to assurance engagements other than audit of

historical financial information does not provide a standardized formatof reporting for the assurance engagements covered since the subjectmatter can be quite broad.

The report has to be tailoredto the specific circumstances of thereview assurance engagements therefore has to be tailored to thespecific circumstances of the engagement. Engagement Letter is

important, to agreed about the services required..


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ISRE 2400: Engagement to ReviewFinancial Statement


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Review Financial Statement In a review engagement, the auditor provides a moderate level of

assurancethat the information subject to review is free of materialmisstatement.

Review comprises inquiry and analytical procedureswhich are designedto review reliability of an assertion, which responsibility of one party, foruse by another party.

Review of financial statement will involve the application of audit skills

and techniquesand the gathering evidence BUTit does not involve andassessment of accounting and internal control systems, tests of recordsand other procedures in auditing such as obtained third partyconfirmation and physical observation. Therefore moderate level ofassurance is express compensate to the scope of work and may be lowerfees will be received


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Review Financial Statement Objective of a Review Engagement

To enable the Chartered Accountant to state whether, in allmaterial respects, the financial statements are prepared inaccordance with an identified financial reporting framework.

General Principles of a Review Engagement

The accountant should comply with the Code of Ethics forProfessional Accountants issued by IFAC. i.e. integrity, objectivity..

Auditor should plan and perform the review with an attitude ofprofessional skepticismthat may exist of circumstances which

cause the financial statement to be materially misstated. For the purpose of expressing negative assurance in the review

report, the auditor should obtain sufficient evidence through inquiryand analytical proceduresto be able to draw conclusion..


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Review Financial Statement Terms of the Engagement:

The auditor should ensure that there is a clear understandingbetween the client and the auditor regarding the engagement. i.e.clear engagement letter..

Proceduresa. Obtain an understanding of the entitys businessand the industry

in which the entity operates

b. Obtain understanding of the accounting systemsand the nature ofthe entitys assets, liabilities, revenues and expenses

c. Inquires of the entitys personnel responsiblefor the financialreporting about all the material assertions in the financialstatements and whether all the transactions have been recorded,any changes in accounting policies and practice


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Procedures to review financial

statements (Example: Table 21-1) The proceduresinvolve:

d. Inquire about the actions taken at meetingsof the BOD, shareholdersand other relevant board committees

e. Perform analytical proceduresto identify relationships and individualitems that appear to be unusual

f. Read financial statements to determine if they conform to the identifiedfinancial reporting framework

g. For every balance sheet items, perform certain level of audit techniquebut not extent to getting confirmation from third party or physicalobservation.

h. If appropriate, obtain written representations frommanagementpertainingall matter including subsequent event..


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Review Financial Statement Reporting:

A review engagement provide a moderate level of assurance thatthe information subject to review is free of material misstatement,this is expressed in the form of negative assurance.

Example Report (After the scope paragraph):

Form of Unqualified Review Report:

Based on our review, nothing has come to our attention thatcauses us to believethat the accompanying financialstatements do not give a true and fair view (or are not

presented fairly, in all material respect) in accordance withInternational Accounting Standards.

Also qualified report (with except for) if not pervasive effect

Also adverse report of pervasive effect


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Review Financial Statement

Reporting: Also qualified report (with except for) if not pervasive effect

Management has informed us that inventory has stated at its cost

which is in excess of its net realisable value. Managementscomputation which we have reviewed shows that inventory, ifvalued at the lower of cost and net realisable value as required byApproved Accounting Standards, would been decreased byRMXXXX.

Based on our review, except for the effects of the overstatement

of inventory described in the previous paragraph, nothing hascome to our attention that causes us to believethat theaccompanying financial statements do not give a true and fair view(or are not presented fairly, in all material respect) in accordancewith International Accounting Standards.


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Review Financial Statement

Reporting: Also adverse report of pervasive effect

As noted in the note 23 of financial statements, these financial

statement do not deflect the consolidation of the financialstatement of subsidiary companies, the investment in which isaccounted for on a cost basis. Under the Approved AccountingStandards, the financial statements of the subsidiaries are requiredto be consolidated.

Based on our review, because of the pervasive effect on the

financial statements of the matter discussed in the precedingparagraph, the accompanying financial statements are notpresented fairly,in all material respects, in accordance withApproved Accounting Standards..


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ISRS 4400: Engagement to performAgreed-Upon Procedures Regarding

Financial Information


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Agreed upon procedures

Chartered accountant is engaged by a client to issue a report ofactual findings based on specific proceduresperformed onfinancial or other information and no assurance is express.

Agreed upon procedures is an engagement may involve theauditor in performing certain procedures concerning individualitems of financial data (for example, account payable, accountreceivable, purchase from related parties and sales and profits

of a segment of an entity), a financial statement (for example, abalance sheet) or even a complete set of financial statements.


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Objective of an Agreed-upon Procedures Engagement

The objective of an agreed-upon procedures engagement is for theauditors to carry out procedures of an audit nature to which theauditor and the entity and any appropriate third parties have

agreed and to report on factual finding and no assurance isexpressed..

General Principles of an Agreed-upon Procedures Engagement:

The accountant should comply with the Code of Ethics forProfessional Accountants issued by IFAC. i.e. integrity, objectivity..

Terms of the Engagement:

The auditor should ensure that there is a clear understandingbetween the client and the auditor regarding the agreed-uponprocedures and the condition of the engagement. i.e. clearengagement letter..


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Documentation

The auditor should document matters which are important inproviding evidence to support the report of factual finding.

Procedures and Evidence, Include: Inquiry and analysis

Re-computation, comparison, and other clerical accuracy clerk

Observation, Inspection and obtaining confirmation..

Depends on what has been agreed with client..

Reporting:

The report on an agreed-upon procedures engagement need todescribe the purpose and the agreed-upon procedures of theengagement in sufficient detail to enable the reader to understandthe nature and the extent of the work performed.


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Agreed upon procedures Reporting (example):

REPORT OF ACTUAL FINDINGS

To .

We have performed the procedures agreed with you about theaccount payable of ABC Company..

The procedures were performed solely to assist you in evaluating thevalidity of the account payable and are summarized as follows:-

1. We obtained suppliers statement OR if statement not available,we should requested suppliers to confirm balances owing as at 31December 2007..

We report our finding below:-

With respect to item 1, we found there were suppliers statementfor all such suppliers and the amount owing is in agreement with

the creditors listing.


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ISRS 4410: Engagements to CompileFinancial Information


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Compilation of financialinformation

For Example:Business entities registered as partnership or soleproprietorship are not required to have annual audit of theirfinancial statements under the Malaysian Law

However, these entities may sometimes engage an accountantto assist them with the preparation of their accounts, taxreturns or other financial documents

Compilation services include the collecting, classifying andsummarizing of financial information

No assurance expresson the financial statement


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The objective of a Compilation Engagement: is for accountant to use accounting expertise, as opposed to

auditing expertise, to collect, classify and summarize financialinformation, produce a report and no assurance is expressed.

General Principles of a Compilation Engagement: The accountant should comply with the Code of Ethics for

Professional Accountants issued by IFAC. Integrity, objectivity,professional competence, due care, confidentiality, professionalbehavior and technical standards..

Terms of the Engagement: The accountant should ensure that there is a clear understanding

between the client and the accountant regarding the terms ofengagement. i.e. clear engagement letter for a compilationengagement


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Procedures:a. Obtained general knowledge of the businessand operations of

the entity

b. Obtained knowledge about the accounting policies and practicesof the industryin which the entity operates

c. A general understanding of the nature of the entitys businesstransactions, the form of its accounting records and thequalifications of its accounting personnel

d. The accounting basis on which the financial statements are to bepresented and the form and content of the financial statements

e. The accountant should obtain an acknowledgment frommanagement of its responsibilityfor the appropriate presentationof the financial information.


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Reporting on a Compilation Engagement:

COMPILATION REPORT TO.

On the basis of information provided by management we havecompiled, in accordance with the International Standard onAuditing applicable to compilation engagements, the balancesheet of ABC Company as of 31 December 2007 and statementsof income and cash flows for the year then ended. Managementis responsible for these financial statements. We have notaudited or reviewed these financial statements and accordinglyexpress no assurance thereon

With modified report, if any..We draw attention to Note 10 to the financial statement becausemanagement has elected not to capitalise the leases on plant andmachinery which is departure from approved accounting standards.


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ISAE 3400: The examination of prospectivefinancial information


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Review of financial forecast andprojection

Prospective financial information means financial information based onassumptions about events that may occur in the future events and possibleactions of an entity. An example is managements predictions of the incomestatement and balance sheet one year in the future.

It is highly subjective and can be in the form of a forecast, a projection or acombinationof both, for example: one year forecast and a five yearprojection.

Financial forecasts means prospective financial information prepared, tothe best of responsible partys knowledge and believe, an entitys expectedfinancial position, result of operation and the cash flow. It is based on the

assumptions as to future events which management expects to take place.(Best-assumptions).

For example: forecast for next sales will be RM1,000,000 and to achieve theforecast, the company will launch a new product.


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Financial projectionsmeans prospective financial information preparedto the best of responsible partys knowledge and believe, given one or morehypothetical assumptions, an entitys expected financial position, result ofoperation and the cash flow. (What would happen if) The financialposition of the company based one or more situation

Different of the two:Forecast is based on conditions expected to exist andthe course of action to be taken. Projection involves one or morehypothetical courses of action.

Example of assumption for profit forecast: Actual sales for Jan to Dec 2007 estimated increase by 5% of 2006

sales due opening another two outlets in January 2006. Cost of sales is 35% of sales. Staff welfare at 1% of sales. Advertising expenses is 2% of sales


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Management is responsible for the preparation and presentation offinancial forecast and projection,including assumption used.

The purpose of Prospective financial statements are for eithergeneral or limited use.

General use: to included in a prospectus in relation to initial publicoffering (IPO).

Limited use: As an internal management tool, for example to assist inevaluating a possible capital investment, to negotiation for bank loan

facilities.


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The auditor, before accepting the engagementwould consider;-

Ensure his competency in undertaking task and the client business The intended use of the information, for IPO, loan facility

Whether the information will be for general or limited distributions The nature of the assumptions, that is best-estimate or hypothetical

assumptions The period covered by the information, 2008 -2020?/

The auditor and client should agree on the terms and engagement.Clear engagement letter.


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ISAE 3400 requires the practitioners to ascertain the following(procedures):

1. Whether the best-estimate assumptionsused for preparing the

prospective financial information are reasonable;

2. Whether the hypothetical assumptionsare consistent with the purposeof the information;

3. Whether the prospective financial information is properly preparedonthe basis of the assumptions;

4. Whether the prospective financial information is prepared on a basisconsistent with historical financial statements using appropriateaccounting standards

5. The underlying data are adequate and reliable and the calculation are

accurate.


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Reporting consideration

There are two important element details relating to the conclusion inthe report:-

On the reasonableness of the management assumptions, expressin negative formNothing has come to our attention which causeus to believe that the assumptions do not provide a reasonablebasis for the preparation of the profit forecast and ..

On whether the prospective financial informationis properly

prepared based on the assumptions and consistent with historicalfinancial statement, express in positive formIn our opinion


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1. Unmodified Opinion: When the auditor believes that the presentationand disclosure of the prospective financial information is adequate,the auditor should express unmodified report on a forecast andprojection:-

For example:

a. Based on our examination of the evidence supporting theassumption, nothing has come to our attentionwhich causes us to

believe that these assumptions do not provide a reasonable basisfor the preparation of the profit forecast; and

b. Further, in our opinionthe forecast is properly prepared on thebasis of the assumptions and is presented in accordance withapplicable approved accounting standards in Malaysia.


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2. Modified Opinion: When the auditor believes that the presentation anddisclosure of the prospective financial information is NOT adequate,the auditor should express a qualified or adverse opinion on theprospective financial information or withdraw from the engagement.


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Framework of auditing assurance and other relatedservices

Auditing Related Services

Nature ofService

Audit Review Agreed-UponProcedures

Compilation

Comparativelevel ofassuranceprovided bythe auditor

Highassurance,but notabsolute

Moderateassurance

No assurance No assurance

Reportprovided

Positiveassurance onassertion (s)

In ourOpinion

Negativeassurance onassertion (s)

Nothing hascome to our

attention

Factualfindings ofprocedures

Identificationofinformationcomplied.Not attempt

to verify


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END OF TOPIC 14

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