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 AICPAs professional

standards
 Learning Objectives (contd.)

Role of auditing in the public sector

Hierarchy of the AICPAs Code of
Professional Conduct
Role of professional judgment in the
research process
International dimensions of auditing
 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
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
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)
Accountants services on prospective financial
information Statements on Standards for
Accountants 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)
 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

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)
Legal responsibility to establish GAAS, attestation, ethics, and
quality control standards for accounting firms who audit
public companies
Non-public companies still follow the AICPAs mission:
Develop auditing, attestation and quality control standards
for non-issuer engagements
Contribute to the development and issuance of high-
quality 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 AICPAs Code of
Professional Conduct
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 divisions ethics
committee
Provide guidelines as to the scope and application of rules
Level 4 Ethics Rulings
Formal rulings made by the professional ethics divisions
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
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
 International Auditing

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

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 auditors judgment