Chapter 25 slide present audit
Transcript of Chapter 25 slide present audit
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Other Assurance Services
Chapter 25
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Learning Objective 1
Understand the level of assuranceand evidence requirements forreview and compilation services.
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The standards for compilations andreviews of financial statements arecalled Statements on Standardsfor Accounting and ReviewServices (SSARS).
Review and Compilation Services
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Relationship Between EvidenceAccumulation and Assurance Attained
Leve
l of
Ass
uran
ce A
ttain
ed
None(Compilation)
Moderate(Review)
High(Audit)
Minimal(Compilation)
Significant(Review)
Extensive(Audit)
Amount of Evidence Accumulated
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A review service (SSARS review) engagementis designed to allow the accountant to expresslimited assurance that the financial statementsare in accordance with GAAP.
Review Services
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Procedures Suggestedfor Reviews 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
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1. Discover the company’s procedures forrecording, classifying, and summarizingtransactions and disclosing informationin the statements.
2. Inquire into actions taken at meetings ofstockholders and the board of directors.
3. Ask if each account on the financialstatements was prepared in conformitywith GAAP.
Make Inquires of Management
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Compilation Services
A compilation service engagement is defined in SSARS as one in which accountants presentto a client or third party, financial statements thatthe accountant has prepared.
The CPA firm does not express any assurance on the statements.
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Possess knowledge about the accountingprinciples and practices of the client’s industry
Know the client, including the nature of itsbusiness transactions, accounting records,and content of its financial statements
Requirements for Compilation
Establish an understanding with the client aboutthe nature and limitations of the services to beperformed and a description of the report
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Make inquiries to determine whetherthe client’s information is satisfactory
Read the compiled financial statementsand be alert for any obvious omissionsor errors in arithmetic and GAAP
Requirements for Compilation
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1. Compilation with full disclosure
2. Compilation that omits substantially all disclosures
Form of Compilation Report
3. Compilation without independence
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Learning Objective 2
Describe special engagementsto review interim financialinformation for publiccompanies.
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Like reviews under SSARS, a public company interim review includes five requirements forreview service engagements.
Review of Interim Financial Information for Public Companies
The SEC requires quarterly financial statementsto be reviewed by the company’s external auditorprior to the company’s filing of the Form 10-Q.
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The review is conducted according to thestandards of the PCAOB and there is noreference to the SSARS in a review report.
Review of Interim Financial Information for Public Companies
Like reviews under SSARS, a review for a publiccompany does not provide a basis for expressinga positive form opinion.
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Learning Objective 3
Distinguish AICPA attestationstandards from auditing stan-dards and know the type ofengagements to which they apply.
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Attestation standards
Types of attestation engagements
Levels of service
Attestation Engagements
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Types of Engagements and Related Reports
Examination
Review
Agreed-uponprocedures
Extensive
Significant
Varying
High
Moderate
Varying
Positive
Negative
Findings
General
General
Limited
Type ofEngagement
Amount ofEvidence
Level ofAssurance
Form ofConclusion Distribution
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Learning Objective 4
Understand the nature ofWebTrust assurance services.
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In a WebTrust attestation engagement, aclient engages a CPA to provide reasonableassurance that a company’s Web site complieswith certain Trust Services principles and criteriafor one or more aspects of e-commerce activities.
WebTrust Services
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WebTrust Services
The WebTrust service is a specific servicedeveloped under the broader Trust Servicesprinciples and criteria jointly issued in 2003by the AICPA and CICA.
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Five Trust Services Principles
Security The system is protected againstunauthorized access
Availability The system is available for operationand use as committed or agreed
Processingintegrity
System processing is complete,accurate, timely, and authorized
Onlineprivacy
Personal information obtained as a result ofe-commerce is collected, used, disclosed,and retained as committed or agreed
Confidentiality Information designated as confidentialis protected as committed or agreed
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Learning Objective 5
Understand the nature ofSysTrust assurance services.
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In a SysTrust engagement, the SysTrustlicensed CPA evaluates a company’scomputer system using Trust Servicesprinciples and criteria.
SysTrust Services
The report may address a single Trust Services principle or any combinationof principles.
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Learning Objective 6
Describe special engagementsto attest to prospective financial statements.
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Prospective Financial Statements
Forecasts and projections
Use of prospective financial statements
Types of engagements
Examination of prospective financial statements
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Learning Objective 7
Describe agreed-upon proceduresengagements.
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The audit is limited to certain specificaudit procedures.
Agreed-Upon Procedures Engagements
These are referred to as proceduresand findings engagements.
The SASs deal with financial statementitems, whereas the SSAEs deal withnonfinancial statement matters.
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Learning Objective 8
Describe other audit and limitedassurance engagements relatedto historical financial statements.
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Other Audits or Limited Assurance Engagements
Other comprehensive basis of accounting
Specified elements, accounts, or items
Debt compliance letters and similar reports
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Other ComprehensiveBasis of Accounting Cash or modified cash basis
Basis used to comply with therequirements of a regulatory agency
Income tax basis
A definite set of criteria havingsubstantial support
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Auditors are often asked to audit and issuereports in specific aspects of financialstatements.
Specified Elements,Accounts, or Items
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1. Materiality is defined in terms of the elements,accounts, or items being audited rather thanfor the overall statements.
Specified Elements,Accounts, or Items
2. The first standard of reporting under GAAS does not apply.
Two differences in these types of audits:
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The engagement and report should belimited to compliance matters theauditor is qualified to evaluate.
The auditor should provide a debtcompliance letter only for a clientfor whom the auditor has done anaudit of the overall financial statements.
Debt Compliance Lettersand Similar Reports
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The auditor’s opinion is in the form of anegative assurance, stating that nothingcame to the auditor’s attention that wouldlead the auditor to believe there wasnoncompliance.
Debt Compliance Lettersand Similar Reports
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End of Chapter 25