2. 25 - 1 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Other Assurance Services Chapter 25

3. 25 - 2 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Learning Objective 1 Distinguish AICPA attestation standards from auditing stan- dards and know the type of engagements to which they apply.

4. 25 - 3 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Attestation standards Types of attestation engagements Levels of service Attestation Engagements

5. 25 - 4 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Types of Engagements and Related Reports ExaminationReviewAgreed-upon procedures proceduresExtensiveSignificantVaryingHighModerateVaryingPositiveNegativeFindingsGeneralGeneralLimited Type of Engagement Amount of Evidence Level of Assurance Form of ConclusionDistribution

6. 25 - 5 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Learning Objective 2 Understand the nature of WebTrust assurance services.

7. 25 - 6 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder In a WebTrust assurance services 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. WebTrust Services

8. 25 - 7 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder WebTrust Services The WebTrust service is a specific service developed under the broader Trust Services principles and criteria jointly issued in 2003 by the AICPA and CICA.

9. 25 - 8 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Five Trust Services Principles Security The system is protected against unauthorized access (both physical and logical). Availability The system is available for operation and use as committed or agreed. Processingintegrity System processing is complete, accurate, timely, and authorized. Onlineprivacy Personal information obtained as a result of e-commerce is collected, used, disclosed, and retained as committed or agreed. Confidentiality Information designated as confidential is protected as committed or agreed.

10. 25 - 9 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Learning Objective 3 Understand the nature of SysTrust assurance services.

11. 25 - 10 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder In a SysTrust engagement, the SysTrust licensed accountant evaluates a company’s computer system using Trust Services principles and criteria. SysTrust Services

12. 25 - 11 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder A licensed SysTrust accountant may report on only one Trust Service principle or any combination of principles. SysTrust Services

13. 25 - 12 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Learning Objective 4 Describe special engagements to attest to prospective financial statements.

14. 25 - 13 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Prospective Financial Statements Forecasts and projections Use of prospective financial statements Types of engagements Examination of prospective financial statements

15. 25 - 14 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Learning Objective 5 Describe agreed-upon procedures engagements.

16. 25 - 15 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder 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 subject matter.

17. 25 - 16 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Learning Objective 6 Understand the level of assurance and evidence requirements for review and compilation services.

18. 25 - 17 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder The standards for compilations and reviews of financial statements are called... Review and Compilation Services

19. 25 - 18 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Relationship between Evidence Accumulation and Assurance Attained Level of Assurance Attained None(compilation) Moderate(review) High(audit) Minimal(compilation)Significant(review)Extensive(audit) Amount of Evidence Accumulated

20. 25 - 19 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder 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

21. 25 - 20 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Procedures Suggested for Review Engagements 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.

22. 25 - 21 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder 1.Inquire as to the company’s proceduresfor 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.Inquire of persons having responsibility for financial and accounting matters. Make Inquires of Management

23. 25 - 22 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Form of Report 1.The first paragraph is similar to an audit report except for its reference to a review service rather than an audit. 2.The second paragraph notes that a review consists primarily of inquiries and analytical procedures.

24. 25 - 23 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Form of Report 3.The third paragraph expresses limited assurance in the form of a negative assurance that “we are not aware of any material modifications that should be made to the financial statements.”

25. 25 - 24 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder If a client has failed to follow GAAP in a review engagement, a modification of the report is needed. Failure to Follow GAAP

26. 25 - 25 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Compilation Services A compilation service engagement is defined in SSARS as one in which the accountant presents to a client or third party financial statements that the accountant has prepared. the accountant has prepared. The CPA firm does not express any assurance on the statements.

27. 25 - 26 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Possess knowledge about the accounting Possess knowledge about the accounting principles and practices of the client’s industry. principles and practices of the client’s industry. Know the client; the nature of the client’s Know the client; the nature of the client’s business transactions; and the basis, form, business transactions; and the basis, form, and content of the financial statements. and content of the financial statements. Requirements for Compilation Establish an understanding with the client about Establish an understanding with the client about the nature and limitations of the services to be the nature and limitations of the services to be performed and a description of the report. performed and a description of the report.

28. 25 - 27 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Make inquiries to determine whether Make inquiries to determine whether the client’s information is satisfactory. the client’s information is satisfactory. Read the compiled financial statements Read the compiled financial statements and be alert for any obvious omissions and be alert for any obvious omissions or errors in arithmetic and GAAP. or errors in arithmetic and GAAP. Requirements for Compilation

29. 25 - 28 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Compilation with full disclosure: It requires disclosures in accordance with GAAP. Compilation that omits substantially all disclosures: This type of statement is usually expected to be used primarily for management purposes only. Form of Compilation Report

30. 25 - 29 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Form of Compilation Report Compilation without independence: A CPA firm can issue a compilation report even if it is not independent with respect to the client, as defined by the Code of Professional Conduct.

31. 25 - 30 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Learning Objective 7 Describe special engagements to review interim financial information for public companies.

32. 25 - 31 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Like reviews under SSARS, a review for a public company does not provide a basis for expressing a positive form opinion. 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 10Q.

33. 25 - 32 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder The review is conducted according to the standards of the PCAOB, and there is no reference to the SSARS in a review report. Interim Financial Information for Public Companies

34. 25 - 33 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Learning Objective 8 Describe other audit and limited assurance engagements related to historical financial statements.

35. 25 - 34 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder 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

36. 25 - 35 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Reporting Requirements Introductory paragraph Scope paragraph Middle paragraph stating the accounting basis Opinion paragraph

37. 25 - 36 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder The specified elements, accounts, or items must be identified. The basis on which the specified elements, accounts, or items are presented and the agreements specifying the basis must be described. Specified Elements, Accounts, or Items

38. 25 - 37 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder The source of significant interpretations made by the client about the provisions of a relevant agreement must be indicated and described. Specified Elements, Accounts, or Items If the specified element, account, or item is presented on a basis that is not in conformity with GAAP, a paragraph that restricts the distribution of the report to those within the entity and the parties to the contract or agreement must be added.

39. 25 - 38 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder 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

40. 25 - 39 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder 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. Debt Compliance Letters and Similar Reports

41. 25 - 40 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder End of Chapter 25