1. Assurance, Attestation, and Internal Auditing Services
Chapter 21
Assurance, Attestation, and Internal Auditing Services
McGraw-Hill/Irwin
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

2. LO# 1
Assurance Services
Assurance services are independent professional services that improve the quality of information, or its context, for decision makers.

3. LO# 1
Assurance Services

4. LO# 1
Decision Model

5. Types of Assurance Services
LO# 2
Types of Assurance Services
Risk Assessment
Information System Reliability
Business Performance Measurement
Electronic Commerce
PrimePlus
Healthcare Performance Measurement

6. Attest Engagements
LO# 3
Attest services occur when a practitioner is engaged to issue or does issue a report on subject matter, or an assertion about subject matter, that is the responsibility of another party.

7. Attest Engagements
LO# 3

8. Types of Attest Engagements
LO# 4
Types of Attest Engagements
Attest Engagements
Examination
Review
Agreed-Upon Procedures

9. Attestation Standards
LO# 5
Attestation Standards
Attestation Standards
General
Fieldwork
Reporting

10. General Standards Adequate Technical Training & Proficiency
LO# 5
General Standards
Adequate Technical Training & Proficiency
Adequate Knowledge of Subject Matter
Subject Matter Capable of Evaluation
Independence
Due Professional Care

11. Standards of Fieldwork
LO# 5
Standards of Fieldwork
Adequate Planning & Supervised Assistants
Obtain Sufficient Evidence

12. Standards of Reporting
LO# 5
Standards of Reporting
Identify Subject Matter or Assertion
State Conclusion
State Significant Reservations
Restricted Use of Report in Certain Circumstances

13. Reporting on an Entity’s Internal Control over Financial Reporting
The Federal Deposit Insurance Corporation Act of 1991 requires that the management of large financial institutions issue a report on the effectiveness of the institution’s internal control and that they engage accountants to attest to management’s report.
The Sarbanes-Oxley Act of 2002 imposed similar requirements on all publicly held companies.

14. Conducting an Engagement
LO# 6
Conducting an Engagement
Necessary Conditions
Management of the entity accepts responsibility for the effectiveness of the entity’s internal control.
The responsible party evaluates the effectiveness of the entity’s internal control using suitable criteria (referred to as control criteria).
Sufficient competent evidence exists or could be developed to support the responsible party’s evaluation.
Management provides to the practitioner its written assertion based on control criteria referred to in its report.

15. Financial Forecasts and Projections
LO# 7
Financial Forecasts and Projections
Auditors have been asked to provide assurance with respect to prospective financial statements. The practitioner can examine, apply agreed-upon procedures, or compile the prospective financial statements if such statements are expected to be used by a third party.

16. LO# 7
Standard Forecast

17. LO# 7
Standard Projection

18. Agreed-Upon Procedures
LO# 7

19. LO# 7
Standard Compilation

20. Accounting and Review Services
LO# 8
Accounting and Review Services
Many nonpublic businesses do not need an audit of their financial statements. However, these entities may employ a CPA to assist with preparing their financial statements, tax returns, or other financial documents.
Compilations
Reviews

21. LO# 8
Levels of Assurance

22. Compilation of Financial Statements
LO# 8
Compilation of Financial Statements
A compilation is defined as presenting, in the form of financial statements, information that is the representation of management or owners without expressing any assurance on the statements.
Compilation with Full Disclosure
Compilation that Omits Disclosures
Compilation when CPA is not Independent

23. Compilation with Full Disclosure

24. Compilation Without Disclosures

25. Review of Financial Statements
LO# 8
Review of Financial Statements
A review is defined as the performance of inquiry and analytical procedures to provide the accountant with a reasonable basis for expressing limited assurance that no material modifications should be made to the statements in order for them to conform to GAAP (or other comprehensive basis of accounting).

26. Review of Financial Statements
LO# 8
A Review Involves
Obtain knowledge of the accounting principles and practices of the industry and an understanding of the entity’s business.
Obtain a general understanding of the entity’s organization, its operating characteristics, and the nature of its assets, liabilities, revenues and expenses.
Ask the entity’s personnel questions.
Perform analytical procedures.
Read the financial statements to determine if they conform to GAAP.
Obtain reports from other accountants, if any.
Obtain a representation letter from management.

27. Standard Review
LO# 8

28. Going-Concern Uncertainty
LO# 8
Conditions That May Result in Modification of a Compilation or Review Report
Departure from GAAP
Going-Concern Uncertainty

29. Review with GAAP Departure
LO# 8
Review with GAAP Departure

30. Internal Auditing
LO# 9
Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations.
It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

31. Institute of Internal Auditors (IIA) Standards
LO# 9
Institute of Internal Auditors (IIA) Standards
The IIA oversees and sets standards for internal auditing internationally.
Standards and Ethics
Practice Advisories
Practice Aids

32. IIA Code of Ethics Principles Integrity Objectivity Confidentiality
LO# 9
IIA Code of Ethics
Principles
Integrity
Objectivity
Confidentiality
Competency

33. Internal Auditors’ Roles
LO# 9
Internal Auditors’ Roles
Evaluating Risks and Controls
Reviewing Compliance
Financial Auditing
Operational Auditing

34. Internal Audit Function
LO# 9

35. Interactions between Internal and External Auditors
LO# 9
Interactions between Internal and External Auditors
Before relying on the work of internal auditors, the external auditor must evaluate the internal auditors’ objectivity and competence.
Some of the work performed by internal auditors is directly relevant to the work of the independent auditor.

36. Five Principles of Trust Services
LO# 10
Security
Five Principles of Trust Services
Availability
Processing Integrity
Online Privacy
Confidentiality

37. relating to Electronic Commerce
LO# 11
WebTrust Services
CPA WebTrust
Assurance Services
relating to Electronic Commerce

38. relating to Information Systems
LO# 12
SysTrust Services
SysTrust
Assurance Services
relating to Information Systems

39. CPA PrimePlus Services Consulting/Facilitating Services
LO# 13
PrimePlus Services
CPA PrimePlus Services
Consulting/Facilitating Services
Direct Services
Assurance Services

40. End of Chapter 21