1. Other Assurance Services
Chapter 25

2. Learning Objective 1
Understand the level of assurance and evidence requirements for review and compilation services.

3. Review and Compilation Services
The standards for compilations and
reviews of financial statements are
called Statements on Standards
for Accounting and Review
Services (SSARS).
This committee has authority equivalent to the Auditing Standards Board for services involving unaudited financial statements of nonpublic companies.

4. Relationship Between Evidence Accumulation and Assurance Attained
High
(Audit)
Assurance Attained
Level of
Moderate
(Review)
None
(Compilation)
Since review and compilation services provide less assurance than audits, the accountant should establish an understanding with the client about the services to be provided through a written engagement letter.
Minimal
(Compilation)
Significant
(Review)
Extensive
(Audit)
Amount of Evidence Accumulated

5. 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.

6. Procedures Suggested for Reviews
Obtain
industry
knowledge
Know the
client
Make
inquiries of
management
The accountant can study AICPA industry guides or other sources to obtain industry knowledge.
The level of knowledge about he client should be less than the amount of knowledge for an audit; however, the information should be about the nature of the client's business, its accounting records, and the principles and practices used by the client.
Management inquiries should include a description of procedures for recording classifying and summarizing transactions
Inquire into actions taken at meetings of stockholders and the board of directors.
Ask if each account on the financial statements was prepared in conformity with GAAP.
Do you have knowledge of actual or suspected fraud?
Perform
analytical
procedures
Obtain a
representation
letter
Prepare
documentation

7. Form of Review Report

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.

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
A written engagement letter should be used to document the objectives of the engagement type and limitations of the services to be provided and a description of the report.
Know the client including the nature of its business transactions, accounting records, and content of its financial statements.

10. Requirements for Compilation
Determine whether the client’s information
is satisfactory
Review the compiled financial statements
for any obvious omissions or errors in
math and GAAP

11. Form of Compilation Report
Full
Disclosure No
Disclosure
Full disclosure is the same as for GAAP statements or some other accounting standard.
No disclosure reports are typically used for management purposes.
When the accountant lacks independence an additional paragraph must be added as the last paragraph of the report.
Compilation
without
independence

12. Form of Compilation Report
Full
Disclosure No
Disclosure

13. Form of Compilation Report (without disclosures)
Full
Disclosure No
Disclosure

14. Learning Objective 2
Describe special engagements to review interim financial information for public
companies.

15. 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 the five requirements for
review service engagements.
Industry knowledge
Client knowledge
Inquiries of management
Performa analytical procedures
Obtain a rep letter

16. 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.

17. Learning Objective 3
Distinguish AICPA attestation standards from auditing standards and know the type of engagements to which they apply.

18. Attestation Engagements
standards
Types of
engagements
The AICPA has issued 11 attestation standards that parallel the 10 generally accepted auditing standards.
To provide additional guidance for doing attestation engagements, the Auditing Standards Board of the AICPA issues Statements on Standards for Attestation Engagements (SSAE).
In general auditing standards apply to attestations that deal with providing assurance on historical financial statements including one or more parts of those statements.
The ASB decided not to attempt to define the potential boundaries of attestation engagements except in conceptual terms because new services are likely to arise.
Three levels of service are examinations, reviews, and agreed-upon procedures.
Levels
of service

19. Types of Engagements and Related Reports
Type of
Engagement
Amount of
Evidence
Level of
Assurance
Form of
Conclusion
Distribution
Examination
Review
Agreed-upon
procedures
Extensive
Significant
Varying
High
Moderate
Varying
Positive
Negative
Findings
General
Limited
An examination results in a positive conclusion.
A review provides a negative assurance conclusion that nothing came to the CPA’s attention that the assertions are not presented in all material respects in conformity with the applicable criteria.
In an agreed upon procedures engagement, all procedures the CPA will perform are agreed-upon by the CPA, the responsible party making the assertions and the specific persons who are the intended users of the report.

20. Learning Objective 4
Understand the nature of WebTrust and SysTrust assurance services.

21. 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.
The Webtrust service is a specific service developed under the broader trust services principles and criteria jointly issued by the AICPA and CICA. The CPA firm assesses whether the company’s Web site complies with the five trust services principles.

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

23. SysTrust Services In a SysTrust engagement, the SysTrust
licensed CPA evaluates a company’s
computer system using Trust Services
principles and criteria.
The service provides assurance to
management, directors, or third parties
about the reliability of information systems
used to generate real-time information

24. Learning Objective 5
Describe engagements to report on internal controls at service organizations.

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
Type I addresses suitability of the design of controls
Type II tests the operating effectiveness of the controls at the service organization

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

27. Prospective Financial Statements
Forecasts
and
Projections
Use of
prospective
financial
statements
Forecasts are prospective financial statements that present an entity’s expected financial position, operating results and cash flows.
Projections are prospective financial statements that present an entity’s financial position, operating results and cash flows to the best of the responsible party’s knowledge and belief, given one or more hypothetical assumptions.
Prospective financial statements are prepared for one of two audiences: general use statements for any third party and limited use statements solely for third parties with whom the responsible party is dealing directly.
Types of engagements include an examination , a compilation, and an agreed-upon procedures engagement
Types of
engagements

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
AICPA attestation standards clearly state that CPAs are not attesting to the accuracy of the prospective financial statements. Instead, they examine the underlying assumptions and the preparation and presentation of the forecast or projection.
For examinations, there are four elements.

29. Learning Objective 7
Describe agreed-upon procedures engagements.

30. 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.

31. Learning Objective 8
Describe other audit and limited assurance engagements related to historical financial statements.

32. Other Comprehensive Basis of Accounting
Cash or
modified
cash basis
Regulatory
agency
basis
With cash basis accounting only cash receipts and disbursements are recorded. Under modified cash basis, the cash basis is followed except for certain items such as fixed assets and depreciation.
Common examples of the regulatory agency basis include the uniform system of accounts required of railroads, utilities, and some insurance companies.
Tax basis uses the same measurement rules used for filing tax returns even though tax rules are not GAAP.
An example of a definite set of criteria is the price level basis of accounting.
Tax basis
Definite
set of
criteria

33. Specified Elements, Accounts, or Items
Auditors are often asked to audit and issue
reports on specific aspects of financial
statements.
A common example is a report on the audit of sales of a retail store in a shopping center to be used as a basis for rental payments.

34. Specified Elements, Accounts, or Items
Two differences in these types of audits:
1. Materiality is defined by the item audited
Materiality is defined in terms of the elements, accounts, or items being audited rather than for the overall statements. The effect is to require more evidence than if the item being verified is one of many parts of the statements.
The first standard of reporting under GAAS does not apply because the presentation of elements accounts or terms is not a financial statement prepared in accordance with applicable accounting standards.
2. GAAS (first standard) does not apply.

35. 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.
Auditors may issue reports on debt compliance and similar engagements as separate reports or by adding a paragraph after the opinion paragraph as part of a report that expresses their opinion on the financial statements.

36. 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.

37. End of Chapter 25