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©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 5 - 5

Other Assurance ServicesOther Assurance ServicesChapter 25Chapter 25

©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 25 - 25 - 22

Learning Objective 1Learning Objective 1

Understand the level of assurance and Understand the level of assurance and evidence requirements for review evidence requirements for review and compilation services.and compilation services.


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

Review and Compilation Review and Compilation ServicesServices


Relationship Between EvidenceRelationship Between EvidenceAccumulation and Assurance Accumulation and Assurance

AttainedAttained

Leve

l of

Assu

ranc

e At

tain

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 ServicesReview Services


Procedures SuggestedProcedures Suggestedfor Reviewsfor Reviews

Obtain industry

knowledge

Obtain a representation

letter

Perform analytical procedures

Make inquiries of

managementKnow the

client

Prepare documentation


Form of Review ReportForm of Review Report


Compilation ServicesCompilation Services

Defined in SSARS as one in which accountants present 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 Requirements for CompilationCompilation

Document services to beperformed and a description of the report

Know the industry accountingprinciples and practices

Know the client


Determine whether the client’s information is satisfactory

Review the compiled financial statements for any obvious omissions or errors in math and GAAP

Requirements for Requirements for CompilationCompilation


Form of Compilation ReportForm of Compilation Report

Full Disclosure

Compilation without

independence

No Disclosure


Form of Compilation ReportForm of Compilation Report

Full Disclosure

No Disclosure


Form of Compilation ReportForm of Compilation Report(without disclosures)(without disclosures)

Full Disclosure

No Disclosure



Describe special engagements to Describe special engagements to review interim financial information review interim financial information for publicfor publiccompanies.companies.


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

Review of Interim Financial Review of Interim Financial Information for Public Information for Public

CompaniesCompaniesThe 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 Review of Interim Financial Information for Public Information for Public

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



Distinguish AICPA attestation Distinguish AICPA attestation standards from auditing standards standards from auditing standards and know the type of engagements and know the type of engagements to which they apply.to which they apply.


Attestation standards

Types of engagements

Levels of service

Attestation EngagementsAttestation Engagements


Types of Engagements and Types of Engagements and Related ReportsRelated Reports

ExaminationReviewAgreed-uponprocedures

ExtensiveSignificant

Varying

HighModerate

Varying

PositiveNegative

Findings

GeneralGeneral

Limited

Type ofEngagement

Amount ofEvidence

Level ofAssurance

Form ofConclusionDistribution



Understand the nature of Understand the nature of WebTrustWebTrust and and SysTrustSysTrust assurance services. 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.

WebTrustWebTrust Services Services


Five Five TrustTrust ServicesServices PrinciplesPrinciples

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 oe-commerce is collected, used, disclosed,and retained as committed or agreed

ConfidentialityInformation designated as confidentialis protected as committed or agreed


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

SysTrustSysTrust Services Services

The service provides assurance to management, directors, or third parties about the reliability of information systems used to generate real-time information



Describe engagements to report on Describe engagements to report on internal controls at service internal controls at service organizations.organizations.


Internal Control Reports at Internal Control Reports at Service OrganizationsService Organizations

Historically referred to as SAS 70 engagements

Two types of reports

Type I – report on the designof controls

Type II – report on the operating effectiveness

of controls



Describe special engagements to Describe special engagements to attest to prospective financial attest to prospective financial statements.statements.


Prospective Financial Prospective Financial StatementsStatements

Forecasts and

ProjectionsUse of

prospective financial

statementsTypes of

engagements


Examinations of Prospective Examinations of Prospective Financial StatementsFinancial Statements

Evaluating the preparation of the prospective financial statements

Evaluate the underlying support for assumptions Evaluate the presentation for conformity with

AICPA guidelines

Issuing an examination report



Describe agreed-upon procedures Describe agreed-upon procedures engagements.engagements.


The audit is limited to certain specificaudit procedures.

Agreed-Upon Procedures Agreed-Upon Procedures EngagementsEngagements

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 limited Describe other audit and limited assurance engagements related to assurance engagements related to historical financial statements.historical financial statements.


Other ComprehensiveOther ComprehensiveBasis of AccountingBasis of Accounting

Cash or modified cash basis

Regulatory agency

basis

Tax basisDefinite set of criteria


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

Specified Elements,Specified Elements,Accounts, or ItemsAccounts, or Items


1.Materiality is defined by the item audited

Specified Elements,Specified Elements,Accounts, or ItemsAccounts, or Items

2.GAAS (first standard) 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 LettersDebt Compliance Lettersand Similar Reportsand 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 LettersDebt Compliance Lettersand Similar Reportsand Similar Reports

©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 5 - 5

End of Chapter 25End of Chapter 25

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