1. Electronic Presentations in Microsoft ® PowerPoint ® Prepared by Brad MacDonald SIAST © 2009 McGraw-Hill Ryerson Limited

2. Learning Objectives Chapter Overview Chapter 16 Other Public Accounting Services and Reports Tous droits réservés McGraw Hill Ryerson.

3. Learning Objectives Chapter Overview Slide 3 1.Prepare reports for review and compilation of unaudited financial statements, given specific facts. 2.Write a report on a review of interim financial information. 3.Describe the various reports on internal control and their connection with public reporting and reporting to a client’s audit committee. Learning Objectives Tous droits réservés McGraw Hill Ryerson.

4. Learning Objectives Chapter Overview Slide 4 4.Define the various financial presentations and levels of service involved in association with prospectuses, MD&A, and financial statements for use in other countries. Learning Objectives 5.Describe the umbrella standards for assurance engagements, and relate them to an acceptable reporting framework. 6.Explain public sector auditing concepts. 7.Explain environmental auditing issues. Tous droits réservés McGraw Hill Ryerson.

5. Learning Objectives Chapter Overview Slide 5 Unaudited Financial Statements Other Review and Compilation Topics Interim Financial Information Special Reports Public and Restricted Reports on Internal Control Audit Reports on Internal Control Financial Statements for Use in Other Countries The Assurance Framework Economy, Efficiency and Effectiveness Audits Environmental Audits Chapter Overview Tous droits réservés McGraw Hill Ryerson.

6. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 6 Unaudited Financial Statements Small business wants some level of assurance but without full GAAS and high cost. –“Big GAAS-Little GAAS” –Small clients want to receive some level of assurance even though a GAAS audit is not performed. Review engagements. Compilation engagements. Tous droits réservés McGraw Hill Ryerson.

7. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 7 Review Services Review services apply specifically to accountant’s work on unaudited financial statements. –Reviews are distinguishable from audits in that the scope of a review is less than that of an audit and therefore the level of assurance provided is lower. Tous droits réservés McGraw Hill Ryerson.

8. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 8 Review Services A review consists primarily of: –enquiry, analytical procedures, and discussion, –related to information supplied by the enterprise, and –with the limited objective of assessing whether the information being reported on is plausible. “Plausible” is used in the sense of appearing to be worthy of belief. Tous droits réservés McGraw Hill Ryerson.

9. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 9 Review Engagement Standards General standard: –The review should be performed and the review engagement report prepared by a person or persons having adequate technical training and proficiency in conducting reviews, with due care and with an objective state of mind. Tous droits réservés McGraw Hill Ryerson.

10. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 10 Review Engagement Standards Review standards i.The work should be adequately planned and properly executed. If assistants are employed, they should be properly supervised. ii.The public accountant should possess or acquire sufficient knowledge of the business carried on by the enterprise so that intelligent enquiry and assessment of information obtained can be made. Tous droits réservés McGraw Hill Ryerson.

11. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 11 Review Engagement Standards iii.The public accountant should perform a review with the limited objective of assessing whether the information being reported on is plausible in the circumstances within the framework of appropriate criteria. Such a review should consist of the following: a)enquiry, analytical procedures, and discussion; and b)additional or more extensive procedures when the public accountant's knowledge of the business carried on by the enterprise and the results of the enquiry, and analytical procedures and discussion cause him or her to doubt the plausibility of such information. Tous droits réservés McGraw Hill Ryerson.

12. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 12 Review Engagement Reporting Standards i.The review engagement report should indicate the scope of the review. The nature of the review engagement should be made evident and be clearly distinguished from an audit. Tous droits réservés McGraw Hill Ryerson.

13. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 13 Review Engagement Reporting Standards ii.The report should indicate, based on the review: a.whether anything has come to the public accountant's attention that causes him or her to believe that the information being reported on is not, in all material respects, in accordance with appropriate criteria; or b.that no assurance can be provided. The report should provide an explanation of the nature of any reservations contained therein and, if readily determinable, their effect. Tous droits réservés McGraw Hill Ryerson.

14. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 14 Review Engagements: Procedures Review work primarily consists of enquiry and analytical procedures. –Obtain knowledge of clients business. –Make enquiries concerning control systems. –Perform analytical procedures which could include: enquiring concerning matters discussed at meetings, if any, of shareholders and directors and committees thereof that may affect the financial statements. Tous droits réservés McGraw Hill Ryerson.

15. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 15 Review Engagements: Procedures Review work is primarily consisting of enquiry and analytical procedures. –Read financial statements for indications they are in accordance with GAAP. –Obtain reports from other accountants who audit or review significant components. –Enquire of officers and directors regarding: conformity to GAAP, consistency of accounting principles, and changes in client business. Tous droits réservés McGraw Hill Ryerson.

16. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 16 Review Engagements: Procedures Review work is primarily consisting of enquiry and analytical procedures: –Perform other procedures, prepare written papers, and obtain management representation letter. Firms may do additional procedures, although there are no formal requirements to do so. Tous droits réservés McGraw Hill Ryerson.

17. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 17 Report: Review Review does not provide a basis for expressing an opinion on the financial statements. –Each page of the financial statements should be conspicuously marked “unaudited.” –It should provide negative assurance, and no expression of an opinion is made. Tous droits réservés McGraw Hill Ryerson.

18. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 18 Report: Review Review report includes the following statements: –Scope of the review Review consists primarily of enquiries and analytical procedures applied to financial data. Review does not constitute an audit. –Accountant is not aware of any material modifications that should be made or disclosure of departures from GAAP (negative assurance). Tous droits réservés McGraw Hill Ryerson.

19. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 19 Review Engagement Report REVIEW ENGAGEMENT REPORT To (person engaging the public accountant) I have reviewed the balance sheet of Client Limited as at......, 20... and the statements of income, retained earnings, and changes in financial position for the year then ended. My review was made in accordance with generally accepted standards for review engagements and accordingly consisted primarily of enquiry, analytical procedures and discussion related to information supplied to me by the company. Tous droits réservés McGraw Hill Ryerson.

20. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 20 Review Engagement Report A review does not constitute an audit and consequently I do not express an audit opinion on these financial statements. Based on my review, nothing has come to my attention that causes me to believe that these financial statements are not, in all material respects, in accordance with Canadian generally accepted accounting principles. City(signed)................. DatePUBLIC ACCOUNTANT Tous droits réservés McGraw Hill Ryerson.

21. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 21 Compilation Services A compilation engagement is one in which a public accountant receives information from a client and arranges it into the form of a financial statement. –The public accountant is concerned that the assembly of information is arithmetically correct; however, the public accountant does not attempt to verify the accuracy or completeness of the information provided. Tous droits réservés McGraw Hill Ryerson.

22. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 22 Compilation Services –Unlike an audit or a review engagement, no expression of assurance is contemplated in a compilation engagement. –Compilation is a synonym for the older term “write-up” work. Tous droits réservés McGraw Hill Ryerson.

23. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 23 Compilation Services No assurance credibility is provided –This limits the public accountant for action to be taken. –Accountant has a responsibility not to be associated with misleading statements. May withdraw from the engagement. –Each page of the statement should be marked “Unaudited – See Notice to Reader.” Tous droits réservés McGraw Hill Ryerson.

24. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 24 Notice to Reader NOTICE TO READER I have compiled this statement from information provided by the management (proprietor) of (name of client). I have not audited, reviewed or otherwise attempted to verify the accuracy or completeness of such information. Readers are cautioned that this statement may not be appropriate for their purposes. City(printed or signed)........................... DatePUBLIC ACCOUNTANT Tous droits réservés McGraw Hill Ryerson.

25. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 25 Other Review and Compilation Topics Prescribed forms –Industry trade associations, banks, government agencies, and regulatory agencies often use prescribed forms (standard reprinted documents) to specify the content and measurement of accounting information required for special purposes. –Such forms may not request disclosure required by GAAP or may specify measurements that do not conform to GAAP. –The notice to reader control contains the caution that the financial statements may not be appropriate for the purposes of the reader. Tous droits réservés McGraw Hill Ryerson.

26. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 26 Other Review and Compilation Topics Personal Financial Plans: –Personal financial planning has become a big source of business for PA firms. –Ordinarily, an accountant associated with such statements would need to give the standard compilation report (disclaimer). Tous droits réservés McGraw Hill Ryerson.

27. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 27 Other Review and Compilation Topics A note on GAAP departures and review engagement reports: –An accountant’s report of known GAAP departures must be treated carefully in review reports. –As in audit reports, the accountant can and should add an explanatory paragraph pointing out known departures from GAAP, including omitted disclosures. Tous droits réservés McGraw Hill Ryerson.

28. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 28 Interim Financial Information Accounting principles do not require interim financial information as a basic and necessary element of financial statements conforming to GAAP. –When interim information is presented it should, however, conform to GAAP. –Interim financial statements that might be prepared include buy/sell situations for a business, or to fulfill reporting requirements of regulatory authorities. Tous droits réservés McGraw Hill Ryerson.

29. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 29 Interim Financial Information A common review engagement is the review of interim financial statements. –Assess whether accounting principles have been applied on a consistent basis. Ensure statements are not misleading relative to the annual statements. –Procedures presume that the accountant has knowledge of the business from the annual audit. Tous droits réservés McGraw Hill Ryerson.

30. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 30 Nature of Review Procedures Review procedures consist mainly of enquiry and analytical procedures. –The Handbook, paragraph 8200.02 suggests checklists including several procedures. Timing of review procedures: –Review procedures should be performed at or near the date of the interim information. Tous droits réservés McGraw Hill Ryerson.

31. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 31 Nature of Review Procedures Extent of review procedures: –The accountant needs to acquire a sufficient knowledge of the client’s business, just as if the engagement were a regular audit. Reporting on a review of interim information: –Only negative assurance is provided. –Interim financial statements should be marked “Unaudited.” Tous droits réservés McGraw Hill Ryerson.

32. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 32 Special Reports – Additional Topics Auditors perform additional services in the capacity of an auditor that require reports: –Specified elements accounts or items: rents, royalties, profit participations Section 5805 –Compliance with regulatory or contractual agreements: restrictive covenants, regulations Section 5815 Tous droits réservés McGraw Hill Ryerson.

33. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 33 Special Reports – Additional Topics Auditors perform additional services in the capacity of an auditor that require reports. –Applying agreed-upon procedures Perform a specific set of procedures to examine a particular element Section 9100 Limited scope, not all auditing standards apply Tous droits réservés McGraw Hill Ryerson.

34. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 34 Public and Restricted Reports Several different kinds of public and restricted use reports on control have evolved in practice. –Guidance is provided for some restricted use reports. Public reports have little authoritative guidance in Canada. –The scope of controls to be covered in a public report is an issue. Accounting / operational / management Tous droits réservés McGraw Hill Ryerson.

35. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 35 Public and Restricted Reports In order to evaluate controls, a systems criteria for control is required. –CICA issued Guidance on Criteria of Control (COCO). 20 control criteria are identified. –COCO committee has also issued Guidance for Directors – Governance. –Sarbanes-Oxley requires companies to issue audited reports on control. Tous droits réservés McGraw Hill Ryerson.

36. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 36 Audit Reports on Internal Control SOX added an internal control statement to the financial statements, as in exhibit 16-14. –The auditor verifies the accuracy of the internal controls statement. –The auditor’s report is provided in exhibit 16-15. Tous droits réservés McGraw Hill Ryerson.

37. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 37 Other Communication on Control and Other Matters Auditing standards require auditors to report any reportable matters they encounter. –Report is to be addressed to the board or audit committee. –Reportable matters include significant control deficiencies. –The auditor may also communicate other matters, including control matters to management in a management letter. This is considered as part of the audit, and not as a separate consulting engagement. Tous droits réservés McGraw Hill Ryerson.

38. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 38 Prospectuses When a client makes a new public offering of securities it must prepare a prospectus. –Auditors involvement with prospectuses can be quite extensive. If the prospectus is issued near year-end, the involvement can be minimal, outside a specified period the auditor will need to become involved with interim reports and other financial information. Tous droits réservés McGraw Hill Ryerson.

39. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 39 CICA’s Management Discussion and Analysis Guidance With the increasing interest in corporate governance, the profession is getting more involved in broader corporate disclosures. –Guidance for management discussion and analysis (MD&A) has been prepared, but no standards have yet been issued. Tous droits réservés McGraw Hill Ryerson.

40. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 40 Financial Statements for Use in Other Countries Canadian auditors are often asked to report on financial statements that are intended for use in other countries. –For Foreign-GAAP financial statements used only outside Canada: use the Canadian style report modified to refer to GAAP of another country, or use the report form used by auditors in that country. Tous droits réservés McGraw Hill Ryerson.

41. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 41 Financial Statements for Use in Other Countries –For Foreign-GAAP financial statements that have more than limited distribution in Canada: use the standard CICA report, qualified or adverse for GAAP departures with a separate paragraph for conformity to foreign GAAP, or use two reports, one Canadian GAAP, one foreign GAAP. Tous droits réservés McGraw Hill Ryerson.

42. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 42 Financial Statements for Use in Other Countries –For two sets of financial statements, foreign GAAP and Canadian GAAP. On each, report as if no other statement was produced, add a note to the report that another statement has been issued. Tous droits réservés McGraw Hill Ryerson.

43. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 43 Assurance Framework The Assurance Framework: –Accountability relationship: When one party is answerable to another party about a subject matter. –Assurance engagements only exist where there is an accountability relationship. Attestation engagements: There is a written assertion by the accountable party. Direct reporting engagements: There is no written assertion. Tous droits réservés McGraw Hill Ryerson.

44. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 44 Assurance Framework Novel aspects of assurance framework deal with criteria, significance, and engagement risk. –Suitable criteria include: relevance, reliability, neutrality, understandability, and completeness; and appropriate communication of extent of involvement with the information. Tous droits réservés McGraw Hill Ryerson.

45. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 45 Assurance Framework –Significance can be viewed as an extension of materiality. –Engagement risk implicitly includes risk of reporting significant items that are not, in fact, significant. Tous droits réservés McGraw Hill Ryerson.

46. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 46 Suitable Criteria and the Fair Presentation Framework An acceptable reporting framework or suitable criteria is one that is required by law or regulation, or meets particular objectives for the entity. –Could be special purpose or general purpose. –Can also be categorized as compliance or fair presentation frameworks. Tous droits réservés McGraw Hill Ryerson.

47. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 47 Audits of Public Sector and Not- for Profit Financial Statements Most public sector organizations have their own standards. –Issue an opinion on presentation in accordance with GAAP or other basis of accounting “appropriate to public sector or not-for-profit organization.” Tous droits réservés McGraw Hill Ryerson.

48. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 48 Public Sector Auditing Public sector auditors include the Office of the Auditor General (OAG) headed bye the Auditor General of Canada. –OAG is highest level of auditor for the federal government. –Provinces have similar offices. –Many federal and provincial agencies have their own internal auditors. Tous droits réservés McGraw Hill Ryerson.

49. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 49 Compliance Auditing Compliance auditing involves testing and reporting on an entity’s compliance with laws and regulations. –Federal and provincial governments follow CICA Public Sector Standards (PS) in conducting their audits. –Public sector auditors hold independence as a goal. Tous droits réservés McGraw Hill Ryerson.

50. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 50 Scope of Service Services provided by internal auditors include: –Audits of financial reports and accounting control systems. –Reviews of control systems that ensure compliance with company policies. –Appraisals of the economy and efficiency of operations. –Reviews of effectiveness in achieving results. Tous droits réservés McGraw Hill Ryerson.

51. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 51 Scope of Service Government auditors provide the following services. –Financial Statement Audits –Compliance Audits –Value-for-Money Audits Tous droits réservés McGraw Hill Ryerson.

52. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 52 Economy, Efficiency and Effectiveness Audits Economy and efficiency measures are fairly straightforward. –Economy is related to price variances and efficiency is related to the efficiency variances of standard variance analysis. Effectiveness is more difficult to define and evaluate. –The Canadian Comprehensive Auditing Foundation (CCAF) enumerated 12 attributes of effectiveness to be examined. Tous droits réservés McGraw Hill Ryerson.

53. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 53 Attributes of Effectiveness Management direction: –How well integrated are the organization’s objectives with management’s decision making? Relevance: –Does the program serve the intended purpose? Appropriateness: –Is the program’s structure appropriate? Achievement of results: –Has the program realized its goals and objectives? Tous droits réservés McGraw Hill Ryerson.

54. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 54 Attributes of Effectiveness Acceptance: –How well have customers received the services of the program? Secondary impacts: –Has the organization caused any other results? Costs and productivity: –How efficient has the organization been? Responsiveness: –Has the organization adapted well to changes? Tous droits réservés McGraw Hill Ryerson.

55. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 55 Attributes of Effectiveness Financial results: –Has the organization accounted properly for revenues, expenses, assets and liabilities? Working environment: –Is the work environment appropriate? Protection of asses: –Does the organization safeguard valuable assets? Monitoring and reporting: –Does the organization know where it stands? Tous droits réservés McGraw Hill Ryerson.

56. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 56 Value for Money Audits Value for Money (VFM) audits are the public sector equivalent of economy, efficiency and effectiveness audits. –An audit mandate will specify what is required of the auditors. The amount of discretion the auditor has in determining objectives and scope varies. –VFM mandates may require different types of reports. Tous droits réservés McGraw Hill Ryerson.

57. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 57 Differences Between Traditional Auditing and VFM Auditing 1.In traditional audits, the objective is to render an opinion on the financial statements. –In VFM audits, the mandate may provide the auditor with discretion to establish the audit objectives and scope. 2.In VFM audits, the objectives and scope vary from one audit to another. 3.In VFM audits, much of the audit focuses on matters that are not necessarily financial. 4.There is no body of standards like GAAP to refer to in VFM auditing. Tous droits réservés McGraw Hill Ryerson.

58. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 58 Differences Between Traditional Auditing and VFM Auditing 5.The nature and sources of evidence may differ between VFM auditing and traditional auditing. 6.VFM auditing will tend to make greater use of a multidisciplinary team. 7.VFM audits may not relate to a standard time period, such as year end. 8.There are no standard audit reports for VFM auditing. Tous droits réservés McGraw Hill Ryerson.

59. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 59 Differences Between Traditional Auditing and VFM Auditing 9.VFM audits use the concept of “significance” rather than materiality. –Significance is based on consideration of: financial magnitude, Importance, economic, social and environmental impact, and previous VFM recommendations. 10.The concepts of audit risk, inherent risk, and control risk take on unique meanings in a VFM audit. Tous droits réservés McGraw Hill Ryerson.

60. Learning Objectives Chapter Overview Learning objective 1 2 3 4 5 6 7 Slide 60 Environmental Audits An environmental audit evaluates a company’s operations and performance in terms of conformity with laws and regulations. –It also identifies any risks of noncompliance. –Environmental audits have similar characteristics to value-for-money audits. Tous droits réservés McGraw Hill Ryerson.