Professional Documents
Culture Documents
ANALYSIS APPROACH
5th edition
Larry F. Konrath
Electronic Presentation
by Harold
O. Wilson
1
Chapter 15
2
KEY CONCEPTS OVERVIEW
The broadness of Assurance Services
Positive assurance vs. limited assurance
vs. no assurance
Non-audit assurance service (e.g.,
agreed-upon procedures, prospective
financial statements, etc.)
Compilation & Review Services (SSARS)
Eleven attestation standards
3
Learning Objectives
Define assurance services vs. auditing
and attestation
Differentiate among audits, compilations,
and reviews, related assurance levels
Identify eleven attestation standards vs.
ten auditing standards
Apply the SSARS
Describe the newer assurance services of
the future
4
The CHANGING NATURE of
the ASSURANCE FUNCTION
A VIVIDLY CLEAR
UNDERSTANDING of
SERVICES
and the
ENGAGEMENT
LETTER!
6
RELATIONSHIPS
ASSURANCE NON-ASSURANCE
SERVICES SERVICES
ATTESTATIONS NON-ATTESTATIONS
Other assurances
7
The AICPA’s “Elliott
Committee” foresees…
11
NEW TYPES OF ASSURANCE
SERVICES
WebTrust
SysTrust
Performance measures
Risk assessments
ElderCare
Discussions follow!
12
DISTINCTIONS
(areas NOT limited to CPAs)
14
AGREED-UPON
PROCEDURES
15
Notes on AGREED-UPON
PROCEDURES
Procedures are insufficient for CPA’s
opinions; non-CPAs sometimes state
limited assurance.
Two types of AUP engagements:
(a) Financial statement related, or
(b) Nonfinancial statement assertions.
17
LETTERS for
UNDERWRITERS
18
Comfort Letter subjects:
Independence
Compliance with SEC financial
accounting requirements
Unaudited financial, pro forma data, various
statistics, management discussions, etc..
Procedures (inquiry and analytical procedures
by the CPA) are described.
Negative assurance is expressed re registration
statement compliance.
19
REVIEW of
INTERIM FINANCIAL DATA
21
UNAUDITED FINANCIAL
STATEMENTS (Public Entity)
Disclaimer of Opinion
“UNAUDITED” on each page
CPA “associated” if name used OR CPA
assisted in preparing the financials
Known departures from GAAP require
either (1) revision by client, OR
(2) withdrawal from engagement.
22
FAQs?
Is an accountant required to be
independent to perform a Compilation?
…a Review?
Is a Review a “stepped up” compilation,
OR is it a “scaled down” audit?
25
However, there are compilation
procedures to follow:
Develop some knowledge about the industry,
the client’s system, chart of accounts, basic
bookkeeping, procedures, and personnel.
Read the financials to ascertain freedom from
obvious errors, e.g., inadequacy of footnotes.
Issue a Compilation Report (disclaiming an
opinion); known problems are noted!
27
Review procedures include…
Inquires on accounting principles, methods,
changes, internal auditors’ work, etc.
Inquires on accounting procedures, systems
Analytical procedures, hunting the unusual
Inquires as to minutes, meetings, decisions
Inquiry as to subsequent events
Reading of financials, focusing on appearance
of conformity with GAAP
Note: The most costly of audit procedures are
not parts of reviews.
28
REVIEWS: Avoid the
appearance of “auditing!”
Perform only “...inquiry and analytical
procedures that provide … a reasonable
basis for expressing negative assurance …
[about GAAP or OCBOA].”
Concerns: Unusual matters, practices,
procedures, plans, personnel, changes,
subsequent events.
Becoming aware of errors or misstatements may
prompt additional inquiry, AJEs, or withdrawal.
29
ASSURANCE SERVICES
& ATTESTATION STANDARDS
Assertion: Any declaration, or set of
related declarations taken as a whole,
by a party responsible for it.
Attestation: Written communication
that expresses a conclusion about the
reliability of a written assertion that is
the responsibility of another party.
-AICPA
30
Statements on Standards for
Attestation Engagements (SSAE)
• Apply to non-financial-statement
assurances.
• Eleven (11) standards!
• Embraces both positive and
limited assurances.
31
Preconditions for
Attestation Engagements
Adequate training, proficiency
Adequate knowledge of subject
Reasonable measurement &
disclosure criteria
Assertions capable of consistent
estimation or measurement
Independence of the practitioner.
32
Notes on SSAE
No requirement to understand internal
controls exists.
GAAP is not the standard; thus,
is uninvolved.
Nature of engagement (often diverse)
must be identified.
CPA must state applicable distribution
restrictions.
33
COMPLIANCE
ATTESTATION
Management’s assertions about meeting
requirements (laws, regulations, rules,
contracts), or effectiveness of internal controls
over compliance procedures.
Examples: Dept. of Education, EPA, FDIC,
MBAA, SEC and MD&A
MD&A reporting may be included here, IF
the CPA was the principal auditor!
SSAE is inapplicable to engagements under
Governmental Auditing Standards!
34
Notes on COMPLIANCE
ATTESTATION
Typically, agreed-upon procedures are
involved.
Internal control effectiveness differs from
the focus in financial statement audits
(e.g., EPA rules are unique).
The CPA’s procedures may be unique!
36
REPORTING ON
INTERNAL CONTROL
Indirect attestation: CPA opinion on
management’s assertions about controls.
Direct attestation: CPA opinion on the
effectiveness of a client’s internal controls.
The unrestricted report is as of a specific date,
and addresses internal control as a whole.
Weaknesses are communicated.
More extensive than a usual audit!
37
PROSPECTIVE FINANCIAL
STATEMENTS (third parties)
38
PROSPECTIVE FINANCIAL
STATEMENTS (third parties)
41
PERSONAL FINANCIAL
STATEMENTS
42
THE FUTURE:
e-commerce & WebTrust
Business via the internet is booming and
will increase; paperwork will decrease!
Risks increase due to anonymity; possible
unauthorized data access opens more
opportunities for CPA firms.
44
PERFORMANCE-MEASUREMENT
ENGAGEMENTS
Planning and defining relevant
criteria, reliable evidence of goal
attainments.
Examples: Customer satisfaction,
product & service quality, morale.
CPA must examine entity objectives, and
evaluate the performance measures, then
express assurance as to reliability.
CPAs use agreed-upon procedures focusing
on client’s monitoring systems, etc.
45
ElderCare:
Health Care
Assurances
46
CRITICAL KEY TERMS
Assurance services Negative assurance
Attestation standards Positive assurance
Comfort letter Projection
Direct attestation Prospective financial
ElderCare statements
Forecast Review
Indirect attestation Risk assessment
Limited assurance SSARS
WebTrust SysTrust
47
End of Chapter 15
48