Chapter 25 - Other Assurance Services

Chapter 25 - Other Assurance Services

Other Assurance Services Chapter 25 2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 1 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 - 2 Level of Assurance Attained Relationship Between Evidence Accumulation and Assurance Attained High (Audit)

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 - 3 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 - 4

Procedures Suggested for Reviews Obtain knowledge of the accounting principles of the clients 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 - 5

Make Inquires of Management 1. Discover the companys 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 - 6

We have reviewed the accompanying balance sheet of XYZ Company as of December 31, 199X, and the related statements of income, retained earnings, and cash flows for the year then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants All information included in these financial statements is the representation of the management of XYZ Company. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole Accordingly, we do not express such an opinion Based on our review, we are not aware of any material modifications that should be

made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles 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 clients 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 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 We have compiled the accompanying balance sheet of XYZ Company as of December 31, 1 99X, and the related statements of income, retained earnings, and cash flows for the year then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. A compilation is limited to presenting in the form of financial statements information that is the representation of management We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any other form of

assurance on them. 2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 11 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 - 12 Attestation Engagements Attestation standards Types of attestation engagements Levels of service 2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 13 Types of Engagements and Related Reports

Type of Engagement Amount of Evidence Examination Extensive Review Level of Form of Assurance Conclusion Distribution

High Positive General Significant Moderate Negative General Agreed-upon procedures Varying Varying

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Findings Limited 25 - 14 WebTrust Services In a WebTrust attestation engagement, a client engages a CPA to provide reasonable assurance that a companys 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 - 15 SysTrust Services In a SysTrust engagement, the SysTrust licensed CPA evaluates a companys 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 - 16 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 - 17

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 - 18

SPECIAL REPORTS 2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 19 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 - 20 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 - 21 We have audited the accompanying statement of assets and liabilities arising from cash transactions as of XYZ Company as of December 31, 1 99X, and the related statements of revenue collected and expenses paid for the year then ended These financial statements are the responsibility of the Companys management Our responsibility is to express an opinion on these financial statements based on our audit. Standard scope paragraph As described in Note 1, these financial statements were prepared on the basis of cash receipts and disbursements, which is a comprehensive basis of accounting other than GAAP. In our opinion, the financial statements referred to above present fairly, in all material respects,

the assets and liabilities arising from cash transactions of XYZ Company as of December 31, 1 99X, and the revenue collected and expenses paid during the year then ended, on the basis of accounting described in Note 1. 2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 22 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 - 23 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 - 24 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 - 25 Debt Compliance Letters and Similar Reports The auditors opinion is in the form of a negative assurance, stating that nothing came to the auditors attention that would lead the auditor to believe there was noncompliance.

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 26 Compliance Reports In connection with our audit, nothing came to our attention that caused us to believe that the Company was not in compliance with any of the terms, covenants, provisions, or conditions of Section 8 to 15, inclusive, of the Indenture dated July 21, 199X, with Banco Popular de Puerto Rico However, our audit was not directed toward obtaining knowledge of such noncompliance.

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 27 End of Chapter 25 2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 25 - 28

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