Chapter 25
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Learning Objective 1
Understand the level of assurance and evidence requirements for review and compilation services.
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Review and Compilation
Services
The standards for compilations and reviews of financial statements are called Statements on Standards for Accounting and Review
Services (SSARS).
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Relationship Between Evidence
Accumulation and Assurance Attained
High
(Audit)
Moderate
(Review)
None
(Compilation)
Minimal
(Compilation)
Significant
(Review)
Extensive
(Audit)
Amount of Evidence Accumulated
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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.
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Procedures Suggested for 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
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Make Inquires of Management
1.
Discover 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. Ask if each account on the financial statements was prepared in conformity with GAAP.
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Compilation Services
A compilation service engagement is 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.
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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, including the nature of its business transactions, accounting records, and content of its financial statements
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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
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Form of Compilation Report
1. Compilation with full disclosure
2. Compilation that omits substantially all disclosures
3. Compilation without independence
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Learning Objective 2
Describe special engagements to review interim financial information for public companies.
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Review of 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 10-Q.
Like reviews under SSARS, a public company interim review includes five requirements for review service engagements.
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Review of Interim Financial
Information for Public Companies
Like reviews under SSARS, a review for a public company does not provide a basis for expressing a positive form opinion.
The review is conducted according to the standards of the PCAOB and there is no reference to the SSARS in a review report.
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Learning Objective 3
Distinguish AICPA attestation standards from auditing standards and know the type of engagements to which they apply.
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Attestation Engagements
 Attestation standards
 Types of attestation engagements
 Levels of service
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Type of
Engagement
Types of Engagements and
Related Reports
Amount of
Evidence
Level of
Assurance
Form of
Conclusion Distribution
Examination
Review
Extensive
Significant
Agreed-upon procedures
Varying
High Positive
Moderate Negative
Varying Findings
General
General
Limited
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Learning Objective 4
Understand the nature of
WebTrust assurance services.
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WebTrust Services
In a WebTrust attestation engagement, a client engages a CPA to provide reasonable assurance that a company’s Web site complies with certain Trust Services principles and criteria for one or more aspects of e-commerce activities.
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WebTrust Services
The WebTrust service is a specific service developed under the broader Trust Services principles and criteria jointly issued in 2003 by the AICPA and CICA.
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Five Trust Services Principles
Security The system is protected against unauthorized access
Availability
Processing integrity
The system is available for operation and use as committed or agreed
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
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Learning Objective 5
Understand the nature of
SysTrust assurance services.
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SysTrust Services
In a SysTrust engagement, the SysTrust licensed CPA evaluates a company’s computer system using Trust Services principles and criteria.
The report may address a single Trust
Services principle or any combination of principles.
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Learning Objective 6
Describe special engagements to attest to prospective financial statements.
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Prospective Financial
Statements
 Forecasts and projections
 Use of prospective financial statements
 Types of engagements
 Examination of prospective financial statements
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Learning Objective 7
Describe agreed-upon procedures engagements.
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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 matters.
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Learning Objective 8
Describe other audit and limited assurance engagements related to historical financial statements.
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Other Audits or Limited
Assurance Engagements
 Other comprehensive basis of accounting
 Specified elements, accounts, or items
 Debt compliance letters and similar reports
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Other Comprehensive
Basis of 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
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Specified Elements,
Accounts, or Items
Auditors are often asked to audit and issue reports in specific aspects of financial statements.
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Specified Elements,
Accounts, or Items
Two differences in these types of audits:
1. Materiality is defined in terms of the elements, accounts, or items being audited rather than for the overall statements.
2. The first standard of reporting under
GAAS does not apply.
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Debt Compliance Letters and Similar Reports
The engagement and report should be limited to compliance matters the 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.
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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.
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