©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Other Assurance Services Chapter 25

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Learning Objective 1 Understand the level of assurance and evidence requirements for review and compilation services.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley The standards for compilations and reviews of financial statements are called Statements on Standards for Accounting and Review Services (SSARS). Review and Compilation Services

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Relationship Between Evidence Accumulation and Assurance Attained Level of Assurance Attained None (Compilation) Moderate (Review) High (Audit) Minimal (Compilation) Significant (Review) Extensive (Audit) Amount of Evidence Accumulated

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 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. Review Services

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 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

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 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. Make Inquires of Management

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 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.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley  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 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

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley  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 Requirements for Compilation

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Compilation with full disclosure 2. Compilation that omits substantially all disclosures Form of Compilation Report 3. Compilation without independence

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Learning Objective 2 Describe special engagements to review interim financial information for public companies.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Like reviews under SSARS, a public company interim review includes five requirements for review service engagements. 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.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley The review is conducted according to the standards of the PCAOB and there is no reference to the SSARS in a review report. 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.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Learning Objective 3 Distinguish AICPA attestation standards from auditing stan- dards and know the type of engagements to which they apply.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley  Attestation standards  Types of attestation engagements  Levels of service Attestation Engagements

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Types of Engagements and Related Reports Examination Review Agreed-upon procedures Extensive Significant Varying High Moderate Varying Positive Negative Findings General Limited Type of Engagement Amount of Evidence Level of Assurance Form of ConclusionDistribution

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Learning Objective 4 Understand the nature of WebTrust assurance services.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 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. WebTrust Services

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Five Trust Services Principles SecurityThe system is protected against unauthorized access AvailabilityThe system is available for operation and use as committed or agreed Processing integrity 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 ConfidentialityInformation designated as confidential is protected as committed or agreed

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Learning Objective 5 Understand the nature of SysTrust assurance services.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley In a SysTrust engagement, the SysTrust licensed CPA evaluates a company’s computer system using Trust Services principles and criteria. SysTrust Services The report may address a single Trust Services principle or any combination of principles.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Learning Objective 6 Describe special engagements to attest to prospective financial statements.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Prospective Financial Statements  Forecasts and projections  Use of prospective financial statements  Types of engagements  Examination of prospective financial statements

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Learning Objective 7 Describe agreed-upon procedures engagements.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley The audit is limited to certain specific audit procedures. Agreed-Upon Procedures Engagements These are referred to as procedures and findings engagements. The SASs deal with financial statement items, whereas the SSAEs deal with nonfinancial statement matters.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Learning Objective 8 Describe other audit and limited assurance engagements related to historical financial statements.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Other Audits or Limited Assurance Engagements  Other comprehensive basis of accounting  Specified elements, accounts, or items  Debt compliance letters and similar reports

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 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

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Auditors are often asked to audit and issue reports on specific aspects of financial statements. Specified Elements, Accounts, or Items

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Materiality is defined in terms of the elements, accounts, or items being audited rather than for 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:

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 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. Debt Compliance Letters and Similar Reports

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 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. Debt Compliance Letters and Similar Reports

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley End of Chapter 25