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Chapter Twenty-One
Assurance, Attestation,
and Internal Auditing Services

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Assurance Services

Assurance services
are independent
professional services
that improve the
quality of information,
or its context, for
decision makers.

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Types of Assurance Services

Business Information
Risk Performance System
Assessment Measurement Reliability

Electronic Healthcare
Commerce Performance PrimePlus
Measurement

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Attest Engagements

Attest services occur

when a practitioner is
engaged to issue or
does issue a report on
subject matter, or an
assertion about subject
matter, that is the
responsibility of another
party.
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Types of Attest Engagements

Attest
Engagements

Examination

Review
Agreed-
Upon
Procedures
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Attestation Standards

Attestation
Standards

General Field Work Reporting

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General Standards
Adequate Technical Adequate
Training & Knowledge of
Proficiency Subject Matter

Subject Matter
Capable of
Evaluation

Due Professional
Independence
Care

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Standards of Field Work

Adequate Planning &

Obtain Sufficient
Supervised
Evidence
Assistants

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Standards of Reporting

Identify Subject
State Conclusion
Matter or Assertion

Restricted Use of
State Significant
Report in Certain
Reservations
Circumstances

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Reporting on an Entitys Internal

Control over Financial Reporting

The Federal Deposit Insurance Corporation Act of

1991 requires that the management of large financial
institutions issue a report on the effectiveness of the
institutions internal control and that they engage
accountants to attest to managements report.

The Sarbanes-Oxley
Act of 2002 imposed
similar requirements
on all publicly held
companies.
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Conditions for Conducting an

Engagement
Necessary
Conditions

1. Management of the entity accepts responsibility for the

effectiveness of the entitys internal control.
2. The responsible party evaluates the effectiveness of the
entitys internal control using suitable criteria (referred to as
control criteria).
3. Sufficient competent evidence exists or could be developed
to support the responsible partys evaluation.
4. Management provides to the practitioner its written assertion
based on control criteria referred to in its report.
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Financial Forecasts and Projections

Auditors have been asked to provide assurance with
respect to prospective financial statements. The
practitioner can examine, apply agreed-upon
procedures, or compile the prospective financial
statements if such statements are expected to be
used by a third party.

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Accounting and Review Services

Many nonpublic businesses do not need an audit of
their financial statements. However, these entities
may employ a CPA to assist with preparing their
financial statements, tax returns, or other financial
documents.

Compilations Reviews

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Compilation of Financial Statements

A compilation is defined as presenting, in

the form of financial statements, information
that is the representation of management or
owners without undertaking to express any
assurance on the statements.
Compilation
Compilation Compilation
when CPA
with Full that Omits
is not
Disclosure Disclosures
Independent
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Review of Financial Statements

A review is defined as the performance of

inquiry and analytical procedures to provide
the accountant with a reasonable basis for
expressing limited assurance that no
material modifications should be made to
the statements in order for them to conform
to GAAP or other comprehensive basis of
accounting.
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Review of Financial Statements

Review Work
Involves

1. Obtain knowledge of the accounting principles and practices

of the industry and an understanding of the entitys business.
2. Obtain a general understanding of the entitys organization,
its operating characteristics, and the nature of its assets,
liabilities, revenues and expenses.
3. Ask the entitys personnel questions.
4. Perform analytical procedures.
5. Read the financial statements to determine if they conform to
GAAP.
6. Obtain reports from other accountants, if any.
7. Obtain a representation letter from management.
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Conditions That May Result in

Modification of a Compilation or Review
Report

Going-
Departure
Concern
from GAAP
Uncertainty

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Internal Auditing

Internal auditing is an independent, objective assurance

and consulting activity designed to add value and
improve an organizations 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.
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Institute of Internal Auditors (IIA)

Standards
The IIA oversees and sets standards for
internal auditing internationally.

Standards and Practice

Ethics Advisories

Practice Aids
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IIA Code of Ethics

Principles

Integrity Competency

Objectivity Confidentiality

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Internal Auditors Roles

Evaluating Risks and Reviewing

Controls Compliance

Financial Auditing Operational Auditing

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Interactions between Internal and

External Auditors
Some of the Before relying
work performed on the work of
by internal internal
auditors, the
auditors is external auditor
directly relevant must evaluate
to the work of the internal
the independent auditors
auditor. objectivity and
competence.

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Trust Services

Five Principles
Security
of Trust
Availability Services
Processing
Integrity
Online
Privacy
Confidentialit
y
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Trust Services

CPA WebTrust SysTrust

CPA PrimePlus
Services

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End of Chapter 21

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