1. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-1 Chapter Twenty Assurance, Related Services and Internal Auditing Services

2. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-2 Elliott Committee: Assurance Services Assurance services are independent professional services that improve the quality of information, or its context, for decision makers.

3. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-3 Decision Making and the Role of Information

4. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-4 Assurance Services and IAASB Standards

5. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-5 IAASB: Assurance Engagements An engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria.

6. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-6 IAASB: Assurance Engagements Practitioner. Intended user. Responsible party. Subject matter and subject matter information. Criteria. Assertion-based engagements. Direct reporting engagements.

7. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-7 IAASB: Assurance Engagements

8. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-8 IAASB: Assurance Engagements Ethical requirements. Appropriate subject matter. Suitable criteria. Sufficient appropriate evidence. Practitioner’s conclusion in a written report. Reasonable or limited assurance. Conclusion in positive or negative form. Rational purpose. Assurance engagement risk is the risk that the practitioner expresses an inappropriate conclusion when the subject matter information is materially misstated.

9. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-9 IAASB Assurance Standards and Assurance Level

10. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-10 IAASB Assurance Standards and Assurance Level Reasonable assurance means that the engagement assurance risk is reduced to an acceptably low level in the circumstances of the engagement. In a limited assurance engagement the risk is greater than for a reasonable assurance engagement, but still acceptable in the circumstances of the engagement. The nature, timing and extent of procedures for gathering sufficient appropriate evidence in a limited assurance engagement are deliberately limited relative to a reasonable assurance engagement.

11. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-11 Review of Historical Financial Information Review as an alternative to an audit. Review performed by the auditor of the entity, for example review of interim financial information. Historical financial information. Inquiries and analytical procedures. Limited assurance. Negative form of expression of the conclusion. Negative form of expression of the conclusion The review provides a basis to express a conclusion whether anything has come to the practitioner’s attention that causes the practitioner to believe that the financial information is not in accordance with the applicable financial reporting framework.

12. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-12 Review of Historical Financial Information

13. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-13 Review of Historical Financial Information

14. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-14 Assurance Engagements Other Than Audits and Reviews of Historical Financial Information Ethical requirements. Quality control. Engagement acceptance and continuance. Agreeing on the terms of the engagement. Planning and performing the engagement. Using the work of an expert. Obtaining evidence. Considering subsequent events. Documentation. Preparing the assurance report. Other reporting responsibilities. ISAE 3000 Establish basic principles and essential procedures for assurance engagements not covered by ISAs or ISREs. Basic elements

15. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-15 Assurance of The Shell Report 2004

16. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-16

17. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-17

18. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-18

19. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-19 IAASB Assurance Projects Internal Control Sustainability Prospective Financial Information Prospectus

20. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-20 Assurance on Sustainability Reporting What type of information does sustainability reporting typically include? What are relevant criteria for reporting on sustainability? Why do companies report on sustainability? Why is external verification of sustainability reporting demanded? What is relevant guidance for assurance on sustainability reporting? What is the role of independent accountants as verifiers of sustainability reporting?

21. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-21 Assurance on Sustainability Reporting

22. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-22

23. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-23 Assurance on Prospective Financial Information Financial forecasts are prospective financial information based on expectations of future events and actions. General use Limited use Financial projections are prospective financial information based on hypothetical assumptions about future events and actions.

24. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-24 Assurance on Prospective Financial Information (1) Evaluating the preparation. (3) Evaluating the presentation. (2) Evaluating the support of the underlying assumptions. (4) Issuing an assurance report.

25. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-25 Assurance on Internal Control Increasing Demand Sarbanes-Oxley Act Financial Institutions IAASB Project ISAE 3000

26. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-26 Electronic Commerce Trust Services WebTrustSysTrust

27. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-27 Trust Services Security Availability Processing Integrity Online Privacy Five Principles of Trust Services Confidentiality

28. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-28 Electronic Commerce Trust Services

29. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-29 Electronic Commerce Trust Services

30. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-30

31. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-31 Related Services Agreed-Upon Procedures Compilation ISRS 4410 ISRS 4400 Provide No Assurance

32. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-32 Agreed-Upon Procedures

33. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-33

34. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-34 Compilation

35. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-35 Internal Auditing Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

36. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-36 Institute of Internal Auditors (IIA) Standards Standards and Ethics Practice Advisories Practice Aids The IIA oversees and sets standards for internal auditing internationally.

37. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-37 IIA Code of Ethics Principles Integrity ObjectivityConfidentiality Competency

38. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-38 Internal Auditors’ Roles Evaluating Risks and Controls Reviewing Compliance Financial AuditingOperational Auditing

39. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-39

40. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-40 Interactions between Internal and External Auditors Some of the work performed by internal auditors is directly relevant to the work of the independent auditor. Before relying on the work of internal auditors, the external auditor must evaluate the internal auditors’ objectivity and competence.

41. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20-41 End of Chapter 20