2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

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Other Assurance Services
Chapter 25
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2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 2
Learning Objective 1
Understand the level of assurance and
evidence requirements for review and
compilation services.
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 3
The standards for compilations and
reviews of financial statements are
called Statements on Standards
for Accounting and Review
Services (SSARS).
Review and Compilation
Services
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 4
Relationship Between Evidence
Accumulation and Assurance Attained
L
e
v
e
l

o
f

A
s
s
u
r
a
n
c
e

A
t
t
a
i
n
e
d

None
(Compilation)
Moderate
(Review)
High
(Audit)
Minimal
(Compilation)
Significant
(Review)
Extensive
(Audit)
Amount of Evidence Accumulated
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 5
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.
Review Services
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 6
Procedures Suggested
for Reviews
Obtain
industry
knowledge
Obtain a
representation
letter
Perform
analytical
procedures
Make
inquiries of
management
Know the
client
Prepare
documentation
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 7
Form of Review Report
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 8
Compilation Services
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.
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 9
Requirements for Compilation
Document services to be
performed and a description
of the report

Know the industry accounting
principles and practices

Know the client

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 10
Determine whether the clients information
is satisfactory
Review the compiled financial statements
for any obvious omissions or errors in
math and GAAP
Requirements for Compilation
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 11
Form of Compilation Report
Full
Disclosure
Compilation
without
independence
No
Disclosure
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 12
Form of Compilation Report
Full
Disclosure
No
Disclosure
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 13
Form of Compilation Report
(without disclosures)
Full
Disclosure
No
Disclosure
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 14
Learning Objective 2
Describe special engagements to review
interim financial information for public
companies.
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 15
Like reviews under SSARS, a public company
interim review includes the five requirements for
review service engagements.
Review of Interim Financial
Information for Public Companies
The SEC requires quarterly financial statements
to be reviewed by the companys external auditor
prior to the companys filing of the Form 10-Q.
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 16
The review is conducted according to the
standards of the PCAOB and there is no
reference to the SSARS in a review report.
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.
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 17
Learning Objective 3
Distinguish AICPA attestation standards
from auditing standards and know the
type of engagements to which they apply.
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 18
Attestation
standards
Types of
engagements
Levels
of service
Attestation Engagements
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 19
Types of Engagements and
Related Reports
Examination
Review
Agreed-upon
procedures
Extensive
Significant

Varying
High
Moderate

Varying
Positive
Negative

Findings
General
General

Limited
Type of
Engagement
Amount of
Evidence
Level of
Assurance
Form of
Conclusion Distribution
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 20
Learning Objective 4
Understand the nature of WebTrust and
SysTrust assurance services.
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 21
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.
WebTrust Services
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 22
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
integrity
System processing is complete,
accurate, timely, and authorized
Online
privacy
Personal information obtained as a result o
e-commerce is collected, used, disclosed,
and retained as committed or agreed
Confidentiality Information designated as confidential
is protected as committed or agreed
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 23
In a SysTrust engagement, the SysTrust
licensed CPA evaluates a companys
computer system using Trust Services
principles and criteria.
SysTrust Services
The service provides assurance to
management, directors, or third parties
about the reliability of information systems
used to generate real-time information
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 24
Learning Objective 5
Describe engagements to report on internal
controls at service organizations.
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 25
Internal Control Reports at
Service Organizations
Historically referred to as
SAS 70 engagements
Two types of reports

Type I report on the design
of controls
Type II report on the
operating effectiveness
of controls
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 26
Learning Objective 6
Describe special engagements to attest to
prospective financial statements.
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 27
Prospective Financial
Statements
Forecasts
and
Projections
Use of
prospective
financial
statements
Types of
engagements
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 28
Examinations of Prospective
Financial Statements
Evaluating the preparation of the prospective
financial statements

Evaluate the underlying support for assumptions

Evaluate the presentation for conformity with
AICPA guidelines

Issuing an examination report
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 29
Learning Objective 7
Describe agreed-upon procedures
engagements.
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 30
The audit is limited to certain specific
audit procedures.
Agreed-Upon Procedures
Engagements
These are referred to as procedures
and findings engagements.
The SASs deal with financial statement
items, whereas the SSAEs deal with
nonfinancial statement matters.
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 31
Learning Objective 8
Describe other audit and limited assurance
engagements related to historical financial
statements.
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 32
Other Comprehensive
Basis of Accounting
Cash or
modified
cash basis
Regulatory
agency
basis
Tax basis
Definite
set of
criteria
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 33
Auditors are often asked to audit and issue
reports on specific aspects of financial
statements.
Specified Elements,
Accounts, or Items
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 34
1. Materiality is defined by the item audited
Specified Elements,
Accounts, or Items
2. GAAS (first standard) does not apply.
Two differences in these types of audits:
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 35
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.
Debt Compliance Letters
and Similar Reports
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 25 - 36
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.
Debt Compliance Letters
and Similar Reports
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley
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End of Chapter 25