Other Assurance Services

Chapter 25

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 1

 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 25 - 2

 Review and Compilation
Services
The standards for compilations and
reviews of financial statements are
called Statements on Standards
for Accounting and Review
Services (SSARS).

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 3

 Relationship Between Evidence
Accumulation and Assurance Attained
Assurance Attained

High
(Audit)
Level of

Moderate
(Review)

None
(Compilation)
Minimal Significant Extensive
(Compilation) (Review) (Audit)
Amount of Evidence Accumulated

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 4

 Review Services

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.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 5

 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 25 - 6

 Make Inquires of Management

1. 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.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 7

 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 25 - 8

 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
 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

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 9

 Requirements for Compilation

 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

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 10

 Form of Compilation Report

1. Compilation with full disclosure

2. Compilation that omits substantially all disclosures

3. Compilation without independence

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 11

 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 25 - 12

 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.

Like reviews under SSARS, a public company

interim review includes five requirements for
review service engagements.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 13

 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.

The review is conducted according to the

standards of the PCAOB and there is no
reference to the SSARS in a review report.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 14

 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 25 - 15

 Attestation Engagements

 Attestation standards

 Types of attestation engagements

 Levels of service

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 16

 Types of Engagements and
Related Reports
Type of Amount of Level of Form of
Engagement Evidence Assurance Conclusion Distribution

Examination Extensive High Positive General

Review Significant Moderate Negative General
Agreed-upon
procedures Varying Varying Findings Limited

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 17

 Learning Objective 4
Understand the nature of
WebTrust assurance services.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 18

 WebTrust Services

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.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 19

 Five Trust Services Principles
Security The system is protected against
unauthorized access
Availability The system is available for operation
and use as committed or agreed
Processing System processing is complete,
integrity accurate, timely, and authorized
Online Personal information obtained as a result of
privacy e-commerce is collected, used, disclosed,
and retained as committed or agreed
Confidentiality Information designated as confidential
is protected as committed or agreed
©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 20
 Learning Objective 5
Understand the nature of
SysTrust assurance services.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 21

 SysTrust Services

In a SysTrust engagement, the SysTrust

licensed CPA evaluates a company’s
computer system using Trust Services
principles and criteria.

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 25 - 22

 Learning Objective 6
Describe special engagements
to attest to prospective financial
statements.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 23

 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 25 - 24

 Learning Objective 7
Describe agreed-upon procedures
engagements.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 25

 Agreed-Upon Procedures
Engagements
The audit is limited to certain specific
audit procedures.

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 25 - 26

 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 25 - 27

 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 25 - 28

 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 25 - 29

 Specified Elements,
Accounts, or Items
Auditors are often asked to audit and issue
reports on specific aspects of financial
statements.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 30

 Specified Elements,
Accounts, or Items
Two differences in these types of audits:

1. Materiality is defined in terms of the elements,

accounts, or items being audited rather than
for the overall statements.

2. The first standard of reporting under

GAAS does not apply.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 31

 Debt Compliance Letters
and Similar Reports
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.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 32

 Debt Compliance Letters
and Similar Reports
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.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 33

 End of Chapter 25

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 34