Auditing &
Assurance
Services,
6e
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Module A
Other Public Accounting Services
Mod A-2
Learning Objectives
1.
2.
3.
4.
5.
Explain and provide examples of attestation engagements.
Describe reviews and compilations of unaudited financial statements
and prepare appropriate reports given specific factual
circumstances.
Explain auditors’ responsibilities related to reporting on interim
financial information.
Define, explain, and give examples of other special reports provided
by auditors, including specified elements of financial statements,
special purpose frameworks and application of requirements of
appropriate financial reporting frameworks.
Explain and provide examples of assurance services engagements.
Mod A-3
Attestation Engagements
• Report on subject matter or assertion
about subject matter.
• Responsibility of another party
• Responsible party—acknowledge
responsibility
Mod A-4
Types of Attestation Engagements—
Levels of Assurance
• Examination
– Similar to an audit
– High level of assurance
• Review
– Moderate (“negative”) level of assurance
– Not allowed on certain engagements
• Agreed upon procedures
– Assurance depends on procedures
Mod A-5
Attestation Standards
• Statements on Standards for Attestation
Engagements (SSAEs) from the Auditing
Standards Board (ASB) of the AICPA
• Similar to fundamental auditing principles
–
–
–
–
Practitioner’s knowledge about subject matter
Suitable criteria
Evaluation of internal control not required
Restricted distribution
Mod A-6
Agreed-Upon Procedures Engagements
• Consists of performing procedures normally
associated with an audit or special engagement
– Inventory observation
– Confirmation of receivables
– Summarize customer comment cards
• Scope less than in an audit (responsibility of user)
• Accountant reports procedures and findings
– No opinion or negative assurance provided
• Must restrict distribution of report to users who
established scope of engagement
Mod A-7
Financial Forecasts and Projections (AT 301)
• Prospective Financial Information (PFI)
– Financial information representing the financial position, results
of operations, and cash flows for some period of time in the
future.
• Types of PFI
– Financial projection: PFI based on the occurrence of one or more
hypothetical events that change existing business structure
– Financial forecast: PFI based on expected conditions and courses
of action (e.g., no new distribution center).
• The company may be negotiating directly with a single user who has
requested prospective financial information for use in economic
decisions.
– This is referred to as limited use.
– Any PFI can be used for limited purposes.
• The company may be preparing prospective financial statements that
it intends to present to a large number of users, none of whom it is
negotiating with at the current time.
– This type of situation is referred to as general use.
Mod A-8
Reporting on Pro Forma
Financial Information (AT 401)
• Reporting "AS IF" a transaction had occurred by a
specific date (retrospectively).
• Basic engagement objectives
– Management's assumptions on significant effects of
transactions are reasonable
– Management's assumptions are properly reflected in
pro forma adjustments
– The adjustments are properly made in the pro forma
results
Mod A-9
Examination of an Entity’s Internal
Control over Financial Reporting (AT 501)
• Necessary Conditions
– Management accepts responsibility
– Management’s evaluation of control is based on
suitable and available criteria
– Management’s evaluation of control is supported by
sufficient evidence
– Management presents its assertion in a written report
that accompanies the auditors’ report
Mod A-10
Compliance Attestation (AT 601)
• Examples
–
–
–
–
dividend limitations
loan limitations
prescribed debt/equity ratios
limitations on geographic operations
• Examination made in conjunction with F/S
audit
Mod A-11
Mod A-12
Management Discussion and Analysis (AT 701)
• Management Discussion and Analysis (MD&A)
accompanies audited financial statements in the
annual report.
• Auditors are required to read the MD&A to
ensure that information is consistent with the
audited financial statements.
• Auditors may accept an engagement to perform
an examination or review of the MD&A.
Mod A-13
Service Organizations (AT 801)
• Third-parties often process transactions for other entities. Many
companies use third-parties to
– process payroll.
– handle dividend distribution.
– handle investments (banks, brokerage houses).
• The controls exist at the third-party provider
– The auditors for the users of these services must ensure that
those controls at the service provider are adequate.
– Providers engage auditors to issue a special report concerning the
controls.
• Types of Reports
– Type 1—Description of controls placed in operation
– Type 2—operating effectiveness (required for AS 5)
• Included with Service Organization Reports (SOCs)
Mod A-14
Unaudited Financial Statements
• Reviews—moderate (negative) assurance
• Compilations—no assurance
• Statements on Standards for Accounting
and Review Services (SSARs) from the
AICPA’s Accounting and Review Services
Committee
Mod A-15
Review Engagements
• Review engagement procedures:
– Written engagement letter
– Understanding of the client’s business.
– Analytical procedures.
– Inquiry of management
– Written management representations
• Audit documentation must include:
– Analytical procedures
– Procedures used in response to results of analytical
procedures
– Inquiries
– Unusual matters considered in the engagement
– Written representations
Mod A-16
Review Reports
• Reports should include
– Statement that information is representation of
management
– A description of the scope of a review engagement
– Level of assurance provided --Moderate assurance.
– The date of completion should be used as the date of
the accountant's review report.
– Each page of the Financial Statements reviewed should
include: “SEE ACCOUNTANTS' REVIEW REPORT".
Mod A-17
Mod A-18
Compilation Engagements
•
•
•
•
Do not have to include footnotes.
Accountants do not have to be independent.
No assurance provided.
The date of completion=the date of the
accountant's report.
• Each page of the compiled financial statements
should include:
“SEE ACCOUNTANTS' COMPILATION REPORT".
Mod A-19
Mod A-20
Other Issues
•
•
•
•
•
•
•
Reviews, compilations and fraud
Comparative financial statements
Different levels of service
Prescribed forms
Predecessor accountants
Additional paragraphs
Personal financial plans
Mod A-21
Mod A-22
Review of Interim Financial Information
• Financial information that covers a period ending on a
date other than the entity’s fiscal year end.
• SEC companies are required to have a review of the
interim financial information filed with the SEC.
• Need to gain sufficient knowledge of the entity’s business
and internal control.
• May have a report on interim financial information
– Separate from the audited financial statements.
– Presented as a supplement to audited financial statements.
Mod A-23
Mod A-24
Special Reports
• Special reports refers to auditors' reports
issued in connection with the following:
– Specified elements, accounts, or items of a
financial statement
– Financial statements that are prepared in
conformity with a special purpose framework
(SPF)
– Reporting on the requirements of appropriate
financial reporting frameworks
Mod A-25
Reports on Elements of Financial
Statements (AU 805)
• Independent auditors may be requested to express an
opinion on one or more specified elements, accounts, or
items of a financial statement.
• GAAS audit performed.
• Report similar to audit report
– Instead of financial statements, specified elements, accounts, or
items are audited.
– Auditors express an opinion on whether the account, element, or
item is fairly stated in accordance with the appropriate
framework.
• If adverse opinion or disclaimer is issued for the financial
statements taken as a whole, the auditors may not accept
engagement (i.e., the auditors may not reduce scope of
service).
Mod A-26
Special Purpose Frameworks (SPFs) (AU 800)
• Types of bases that may be used
– Statements conforming to regulatory agency
accounting rules
– Basis used for income tax purposes
– Cash basis or Modified cash basis
– Some other method required for contractual purposes
• A GAAS audit is still performed
• Limited distribution
Mod A-27
Assurance Services
• Assurance Services are independent professional services
that improve the quality of information, or its context, for
decision makers.
• Extensible Business Reporting Language (XBRL)
• Enhanced Business Reporting
• Trust Services
– WebTrust
– SysTrust
• Sustainability
Mod A-28