chapter 25 slide present audit

©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Auditing 12/e,Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 25 - 1

Other Assurance Services

Chapter 25

©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Auditing 12/e,Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 25 - 25 - 22

Learning Objective 1

Understand the level of assuranceand evidence requirements forreview and compilation services.


The standards for compilations andreviews of financial statements arecalled Statements on Standardsfor Accounting and ReviewServices (SSARS).

Review and Compilation Services


Relationship Between EvidenceAccumulation and Assurance Attained

Leve

l of

Ass

uran

ce A

ttain

ed

None(Compilation)

Moderate(Review)

High(Audit)

Minimal(Compilation)

Significant(Review)

Extensive(Audit)

Amount of Evidence Accumulated


A review service (SSARS review) engagementis designed to allow the accountant to expresslimited assurance that the financial statementsare in accordance with GAAP.

Review Services


Procedures Suggestedfor Reviews Obtain knowledge of the accounting

principles of the client’s industry

Obtain knowledge of the client

Make inquiries of management

Perform analytical procedures

Obtain letter of representation


1. Discover the company’s procedures forrecording, classifying, and summarizingtransactions and disclosing informationin the statements.

2. Inquire into actions taken at meetings ofstockholders and the board of directors.

3. Ask if each account on the financialstatements was prepared in conformitywith GAAP.

Make Inquires of Management


Compilation Services

A compilation service engagement is defined in SSARS as one in which accountants presentto a client or third party, financial statements thatthe accountant has prepared.

The CPA firm does not express any assurance on the statements.


Possess knowledge about the accountingprinciples and practices of the client’s industry

Know the client, including the nature of itsbusiness transactions, accounting records,and content of its financial statements

Requirements for Compilation

Establish an understanding with the client aboutthe nature and limitations of the services to beperformed and a description of the report


Make inquiries to determine whetherthe client’s information is satisfactory

Read the compiled financial statementsand be alert for any obvious omissionsor errors in arithmetic and GAAP

Requirements for Compilation


1. Compilation with full disclosure

2. Compilation that omits substantially all disclosures

Form of Compilation Report

3. Compilation without independence



Describe special engagementsto review interim financialinformation for publiccompanies.


Like reviews under SSARS, a public company interim review includes five requirements forreview service engagements.

Review of Interim Financial Information for Public Companies

The SEC requires quarterly financial statementsto be reviewed by the company’s external auditorprior to the company’s filing of the Form 10-Q.


The review is conducted according to thestandards of the PCAOB and there is noreference to the SSARS in a review report.

Review of Interim Financial Information for Public Companies

Like reviews under SSARS, a review for a publiccompany does not provide a basis for expressinga positive form opinion.



Distinguish AICPA attestationstandards from auditing stan-dards and know the type ofengagements to which they apply.


Attestation standards

Types of attestation engagements

Levels of service

Attestation Engagements


Types of Engagements and Related Reports

Examination

Review

Agreed-uponprocedures

Extensive

Significant

Varying

High

Moderate

Varying

Positive

Negative

Findings

General

General

Limited

Type ofEngagement

Amount ofEvidence

Level ofAssurance

Form ofConclusion Distribution



Understand the nature ofWebTrust assurance services.


In a WebTrust attestation engagement, aclient engages a CPA to provide reasonableassurance that a company’s Web site complieswith certain Trust Services principles and criteriafor one or more aspects of e-commerce activities.

WebTrust Services


WebTrust Services

The WebTrust service is a specific servicedeveloped under the broader Trust Servicesprinciples and criteria jointly issued in 2003by the AICPA and CICA.


Five Trust Services Principles

Security The system is protected againstunauthorized access

Availability The system is available for operationand use as committed or agreed

Processingintegrity

System processing is complete,accurate, timely, and authorized

Onlineprivacy

Personal information obtained as a result ofe-commerce is collected, used, disclosed,and retained as committed or agreed

Confidentiality Information designated as confidentialis protected as committed or agreed



Understand the nature ofSysTrust assurance services.


In a SysTrust engagement, the SysTrustlicensed CPA evaluates a company’scomputer system using Trust Servicesprinciples and criteria.

SysTrust Services

The report may address a single Trust Services principle or any combinationof principles.



Describe special engagementsto attest to prospective financial statements.


Prospective Financial Statements

Forecasts and projections

Use of prospective financial statements

Types of engagements

Examination of prospective financial statements



Describe agreed-upon proceduresengagements.


The audit is limited to certain specificaudit procedures.

Agreed-Upon Procedures Engagements

These are referred to as proceduresand findings engagements.

The SASs deal with financial statementitems, whereas the SSAEs deal withnonfinancial statement matters.



Describe other audit and limitedassurance engagements relatedto historical financial statements.


Other Audits or Limited Assurance Engagements

Other comprehensive basis of accounting

Specified elements, accounts, or items

Debt compliance letters and similar reports


Other ComprehensiveBasis of Accounting Cash or modified cash basis

Basis used to comply with therequirements of a regulatory agency

Income tax basis

A definite set of criteria havingsubstantial support


Auditors are often asked to audit and issuereports in specific aspects of financialstatements.

Specified Elements,Accounts, or Items


1. Materiality is defined in terms of the elements,accounts, or items being audited rather thanfor the overall statements.

Specified Elements,Accounts, or Items

2. The first standard of reporting under GAAS does not apply.

Two differences in these types of audits:


The engagement and report should belimited to compliance matters theauditor is qualified to evaluate.

The auditor should provide a debtcompliance letter only for a clientfor whom the auditor has done anaudit of the overall financial statements.

Debt Compliance Lettersand Similar Reports


The auditor’s opinion is in the form of anegative assurance, stating that nothingcame to the auditor’s attention that wouldlead the auditor to believe there wasnoncompliance.

Debt Compliance Lettersand Similar Reports

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End of Chapter 25