1. Chapter 19
Additional Assurance Services: Historical Financial Information
McGraw-Hill/Irwin
Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Engagements that involve historical information
Audit based services: assurance on additional information
Reporting on compliance
Letters for underwriters
Summary financial statements
Auditing financial statements that use a financial reporting framework other than GAAP
Special purpose frameworks
Another country’s framework
Additional GAAS Audits
Single financial statements and specified elements
Personal financial statement
Reviews of historical financial statements
Compilations of historical financial statements
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3. Types of Attestation Services
Examinations
Review
Agreed-upon procedures
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4. Audit Based Services: Assurance on Additional Information
Reports on compliance with aspects of contractual agreements or regulatory requirements related to audited financial statements.
Letter for Underwriters
Summary Financial Statements
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5. Reports on Compliance Regulatory requirements and debt agreements
Example: Report prepared for bond trustees as evidence of company’s compliance with restrictions contained in bond indenture.
To provide this service auditor must have first performed an audit of related financial statements
Report provides negative assurance
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6. Letters for Underwriters
Comfort Letter
Investment banking firms that underwrite a securities issue request letter from independent auditors who audited financial statements in registration statement
Includes
1. The independence of the auditors.
2. Whether the audited financial statements and financial statement schedules included in the registration statement comply with the accounting requirements of the Securities Act of 1933 and related regulations.
3. Unaudited financial statements, condensed interim financial information, and pro forma financial information.
4. Changes in selected financial statement items during a period subsequent to the date and period of the latest financial statements included in the registration statement.
5. Tables, statistics, and other financial information included in the registration statement.
6. Negative assurance as to whether certain nonfinancial statement information included in the registration statement complies with SEC regulations.
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7. Summary Financial Statements
Also referred to as condensed financial statements
Include less detail than the audited financial statements
Auditors who have issued an audit report on the audited financial statements may issue a report on the summary financial statements
Report indicates whether they are consistent, in all material respects, with the audited financial statements.
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8. Auditing Financial Statements using Frameworks other than GAAP
This includes financial statements prepared
In accordance with special purpose financial reporting frameworks.
Using a financial reporting framework generally accepted in another country
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9. Special Purpose Financial Reporting Frameworks
Comprehensive bases of accounting other than GAAP
Cash basis
Tax basis
Regulatory basis
Contractual basis
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10. Financial Reporting Framework Generally Accepted in Another Country
US company prepare financial statements for use in other countries
Example: US company with subsidiary in Germany may prepare financial statements for that subsidiary
Auditors follow general and fieldwork standards of AICPA to the extent appropriate
Report depends on the expected use of the financial statements
Only outside the US
Issue a US report modified to reflect accounting principles of other country OR
Issue a report form of the other country
Use in the US and outside the US—2 reports
US unmodified report with emphasis of matter paragraph indicating basis of accounting.
Either option from “Only outside the US” above.
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11. Audits of Single Financial Statements and Specified Elements of Financial Statements
Auditors may be engaged to attest only to (1) a single financial statements (e.g., balance sheet) or (2) specified elements, accounts or items of a financial statement
Example of specified elements: Report on lessee’s revenue requested by lessee. May be required by provisions of lease agreement.
Materiality for specified elements is generally less than would be in audit - in relation to other information presented
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12. Audits of Personal Financial Statements
Examples: Politicians or large loan applications
GAAP to personal financial statements
Assets shown at estimated current values
Liabilities presented at estimated current amounts
Balance sheet = statement of financial condition shown individual net worth
Income statement = statement of changes in net worth
Completeness of statements is audit concern
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13. Reviews for Nonpublic Companies
Nonpublic companies may not need an audit of annual financial information
CPAs follow Statement on Standards for Accounting and Review Services (SSARS)
Review
Attest service in which the accountants
Perform analytical procedures
Make inquiries of management and others
Obtain representation from management relating to financial statements
Report provides limited (negative) assurance
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14. Nonpublic Company Review Report Modifications
Departure from GAAP
Modify third paragraph and describe departure in separate paragraph
No modifications required for:
Lack of consistent application of GAAP
Existence of major uncertainties including going-concern uncertainties
Scope limitation – no review report
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15. Review of Public Companies
Public companies required to file quarterly financial information with SEC on 10-Q
Auditor reviews not audits information
Objective of review
Provide accountants a basis for communicating whether they are aware of any material modifications to conform with GAAP
Steps in review
Engagement letter to document understanding
Understand the client’s business and internal control
This required understanding of internal control for public company reviews is not required for nonpublic company reviews.
Other Review procedures—similar to nonpublic companies
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16. Accounting Services
Reports provide no explicit assurance that the information constitutes a fair presentation
Types
Compilation of financial statement for nonpublic companies
Compilations of prospective financial information
Compilation
Nonattest service in which accountants assist in the preparation of financial statements without providing any assurance on them
Must at least read compiled statements for appropriate format and obvious material misstatements
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17. Comparison of Audits, Reviews and Compilations
Agreed-Upon Procedures
Review
Examination
Explicit assurance
None
State findings or negative assurance
Limited (negative) assurance
Opinion
Distribution of report
General when a report is issued (limited when none issued)
Limited to specified parties involved
General, unless based on agreed- upon criteria
Minimum procedures
Read statements
Agreed-upon procedures
Limited procedures, such as inquiry and analytical procedures
Collection of sufficient evidence to support opinion
Comments
Referred to as “audits” for financial statements
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