[PPT]Chapter 1 – The Demand for Audit and Other Assurance...
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Transcript of [PPT]Chapter 1 – The Demand for Audit and Other Assurance...
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©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 5 - 5
Other Assurance ServicesOther Assurance ServicesChapter 25Chapter 25
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©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 25 - 25 - 22
Learning Objective 1Learning Objective 1
Understand the level of assurance and Understand the level of assurance and evidence requirements for review evidence requirements for review and compilation services.and compilation services.
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©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 25 - 25 - 33
The standards for compilations andreviews of financial statements arecalled Statements on Standardsfor Accounting and ReviewServices (SSARS).
Review and Compilation Review and Compilation ServicesServices
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©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 25 - 25 - 44
Relationship Between EvidenceRelationship Between EvidenceAccumulation and Assurance Accumulation and Assurance
AttainedAttained
Leve
l of
Assu
ranc
e At
tain
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 ServicesReview Services
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©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 25 - 25 - 66
Procedures SuggestedProcedures Suggestedfor Reviewsfor Reviews
Obtain industry
knowledge
Obtain a representation
letter
Perform analytical procedures
Make inquiries of
managementKnow the
client
Prepare documentation
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Form of Review ReportForm of Review Report
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Compilation ServicesCompilation 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.
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Requirements for Requirements for CompilationCompilation
Document services to beperformed and a description of the report
Know the industry accountingprinciples and practices
Know the client
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Determine whether the client’s information is satisfactory
Review the compiled financial statements for any obvious omissions or errors in math and GAAP
Requirements for Requirements for CompilationCompilation
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Form of Compilation ReportForm of Compilation Report
Full Disclosure
Compilation without
independence
No Disclosure
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Form of Compilation ReportForm of Compilation Report
Full Disclosure
No Disclosure
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Form of Compilation ReportForm of Compilation Report(without disclosures)(without disclosures)
Full Disclosure
No Disclosure
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Learning Objective 2Learning Objective 2
Describe special engagements to Describe special engagements to review interim financial information review interim financial information for publicfor publiccompanies.companies.
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Like reviews under SSARS, a public company interim review includes the five requirements forreview service engagements.
Review of Interim Financial Review of Interim Financial Information for Public Information for Public
CompaniesCompaniesThe 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 Review of Interim Financial Information for Public Information for Public
CompaniesCompaniesLike reviews under SSARS, a review for a publiccompany does not provide a basis for expressinga positive form opinion.
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Learning Objective 3Learning Objective 3
Distinguish AICPA attestation Distinguish AICPA attestation standards from auditing standards standards from auditing standards and know the type of engagements and know the type of engagements to which they apply.to which they apply.
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Attestation standards
Types of engagements
Levels of service
Attestation EngagementsAttestation Engagements
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Types of Engagements and Types of Engagements and Related ReportsRelated Reports
ExaminationReviewAgreed-uponprocedures
ExtensiveSignificant
Varying
HighModerate
Varying
PositiveNegative
Findings
GeneralGeneral
Limited
Type ofEngagement
Amount ofEvidence
Level ofAssurance
Form ofConclusionDistribution
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Learning Objective 4Learning Objective 4
Understand the nature of Understand the nature of WebTrustWebTrust and and SysTrustSysTrust assurance services. 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.
WebTrustWebTrust Services Services
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Five Five TrustTrust ServicesServices PrinciplesPrinciples
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 oe-commerce is collected, used, disclosed,and retained as committed or agreed
ConfidentialityInformation designated as confidentialis protected as committed or agreed
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In a SysTrust engagement, the SysTrustlicensed CPA evaluates a company’scomputer system using Trust Servicesprinciples and criteria.
SysTrustSysTrust Services Services
The service provides assurance to management, directors, or third parties about the reliability of information systems used to generate real-time information
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Learning Objective 5Learning Objective 5
Describe engagements to report on Describe engagements to report on internal controls at service internal controls at service organizations.organizations.
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Internal Control Reports at Internal Control Reports at Service OrganizationsService Organizations
Historically referred to as SAS 70 engagements
Two types of reports
Type I – report on the designof controls
Type II – report on the operating effectiveness
of controls
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Learning Objective 6Learning Objective 6
Describe special engagements to Describe special engagements to attest to prospective financial attest to prospective financial statements.statements.
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Prospective Financial Prospective Financial StatementsStatements
Forecasts and
ProjectionsUse of
prospective financial
statementsTypes of
engagements
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Examinations of Prospective Examinations of Prospective Financial StatementsFinancial 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
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Learning Objective 7Learning Objective 7
Describe agreed-upon procedures Describe agreed-upon procedures engagements.engagements.
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The audit is limited to certain specificaudit procedures.
Agreed-Upon Procedures Agreed-Upon Procedures EngagementsEngagements
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 8Learning Objective 8
Describe other audit and limited Describe other audit and limited assurance engagements related to assurance engagements related to historical financial statements.historical financial statements.
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Other ComprehensiveOther ComprehensiveBasis of AccountingBasis of Accounting
Cash or modified cash basis
Regulatory agency
basis
Tax basisDefinite set of criteria
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Auditors are often asked to audit and issuereports on specific aspects of financialstatements.
Specified Elements,Specified Elements,Accounts, or ItemsAccounts, or Items
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1.Materiality is defined by the item audited
Specified Elements,Specified Elements,Accounts, or ItemsAccounts, or Items
2.GAAS (first standard) 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 LettersDebt Compliance Lettersand Similar Reportsand 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 LettersDebt Compliance Lettersand Similar Reportsand Similar Reports
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©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 5 - 5
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