Chapter 8
Assurance Services
and Auditing
Research
Learning Objectives
The types of assurance and consulting
services, and applicable standards
 The environment for the assurance
services standard setting process
 Authoritative auditing support
 How to utilize the AICPA’s professional
standards
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Learning Objectives (contd.)
Role of auditing in the public sector
 Hierarchy of the AICPA’s Code of
Professional Conduct
 Role of professional judgment in the
research process
 International dimensions of auditing
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Assurance services
“Independent professional services that
improve the quality of information, or its
context, for decision makers”
 Adds value to the user, not just the report
 Three party contracts – the client, the
assurer, and the third party to whom the
accountant is providing assurance

Consulting services and
standards
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Attestation and audit services are special types
of assurance services
In an attest engagement, the CPA reports on the
reliability of a written assertion that is
managements responsibility
Consulting is not part of assurance services
 Two party contact: client, consultant,
accountant
 CPA develops findings, conclusions, and
recommendations
Auditing standard-setting
environment
Audits add credibility to financial information
 Auditor conducts audit in conformity with
GAAP and in conjunction with auditing
standards
 Attestation services and standards
 In the past, only audit opinions
 Now expanded to include opinions on
internal controls

Attest engagements and
guidelines
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Audit and attest services – Generally Accepted
Audit Standards (GAAS), Statements on
Auditing Standards (SAS) – Auditing standard
boards (ASB)
Accounting and review services – Statements on
Standards for Accounting and Review –
Accounting and Review Services Committee
(ARSC)
Accountant’s services on prospective financial
information – Statements on Standards for
Accountant’s Services on Prospective Financial
Information – Auditing Standards Board
Attest engagements and
guidelines
Other attest services – Statements on
Standards for Attest Engagement – ASB,
ARSC, and the management consulting
services executive committee
 Audit and attest services for public
companies – Auditing and Related
Professional Practice Standards – Public
Company Accounting Oversight Board
(PCAOB)
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Attestation standards

General Standards
 Adequate technical training and proficiency
 Adequate knowledge
 Services shall be performed only if the
subject matter is capable of being evaluated
 Independence in mental attitude
 Due professional care
Attestation standards (contd.)
 Fieldwork
 Adequately
planned, and assistants
properly supervised
 Sufficient evidence to provide a
reasonable basis for conclusion
Attestation standards (contd.)

Standards of Reporting
 Report shall identify subject matter
 Conclusion shall be reported
 Reservations shall be reported
 Report shall state the use of the report is
restricted to specified parties
Auditing standards
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Auditing standards provided measures of the quality of
performance
Audit procedures refer to the specific acts or steps to
perform in an audit
 Procedures change, standards remain constant
10 broad requirements referred to as GAAS
 In addition, to GAAS, there are Statements of
Auditing Standards (SAS) Interpret GAAS by
clarify procedures
Generally accepted auditing
Standards

General standards
 Adequate technical training
 Independence
 Due professional care
Generally Accepted Auditing
Standards

Field work
 Adequately planned and assistants supervised
 Sufficient understanding of the business and
internal controls to plan the audit and determine
the nature, timing and extent of procedures
 Sufficient competent evident matter to form an
opinion
GAAS (contd.)

Standards of reporting
 Report shall state if in accordance with
GAAP
 Shall report if not consistent
 Informative financial statement
disclosures
 Written expression
Auditing standard-setting
process
Previously, set by ASB
 SOX transferred standard setting
responsibility to PCAOB for public
company audit

Auditing standard-setting
process

There is a standards hierarchy
 Primary support
General application
Special application to certain entities
 Secondary authoritative support
Public Company Accounting
Oversight Board (PCAOB)
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Legal responsibility to establish GAAS, attestation, ethics, and
quality control standards for accounting firms who audit
public companies
Non-public companies still follow the AICPA’s mission:
 Develop auditing, attestation and quality control standards
for non-issuer engagements
 Contribute to the development and issuance of highquality national and international auditing and assurance
standards
 Respond to the needs for practical guidance in
implementing professional standards
AICPA reSource database
Professional standards, accounting trends
and techniques, technical practice aids,
auditing and accounting guides, and audit
alerts
 Home tab – lists the literature available in
the database
 Once select a certain literature, can query
 Results tab – click on the link to find the
result

Code of professional conduct
Minimum level of conduct
 Principles, rules, interpretations, and ethics
rulings
 Rule 202- compliance with standards
 Rule 203 – accounting principles
 AICPA issues a newsletter that lists
violators of professional conduct.

Hierarchy of the AICPA’s Code of
Professional Conduct
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Level 1 – Principles
 provided framework for development
Level 2 – Rules
 Serve as the enforceable part of the Code
Level 3 – Interpretations of the Rules of Conduct
 Have been adopted by the professional ethics division’s ethics
committee
 Provide guidelines as to the scope and application of rules
Level 4 – Ethics Rulings
 Formal rulings made by the professional ethics division’s
executive committee.
 Summarize the application of the rules and interpretations to
particular factual circumstances
Auditing in the public sector

GAO – Government Auditing Standards – “Yellow
book”
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Applicable to all governmental organizations
Measure effectiveness of the expenditures, not just identify
the amounts spent
Include compliance auditing
Three levels of auditing
GAAS
 Government Auditing Standards (aka generally accepted
government auditing standards)
 Federal audit requirements – OMB Circular A-133 Audits of
States, Local Governments, and Non-Profit Organizations

Accounting Services
Compilation – a service presenting, in the
form of financial statements, information
that is the representation of management
without expressing any assurance on the
statements.
 Review – a service performing inquiry and
analytical procedures that provide the
accountant with a reasonable basis for
expressing limited assurance on the
statements
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International Auditing
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International Federation of Accountants (IFAC)
International Auditing Practices Committee
(IAPC)
International Standards on Auditing (ISAs)
International Practice Statements (IAPs)
International Auditing and Assurance Standards
Board (IAASB)
Role of judgment in accounting
and auditing research
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Judgment in: substance of transaction, adequacy
of disclosure, materiality thresholds
Auditor gathers information, evaluates and
judges, then expresses an opinion
Many pronouncements provide only guidelines
or alternatives, requiring judgment.
 Critical thinking skills are crucial
SAS No. 5 – discusses auditor’s judgment