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Assurance Services. Independent professional services that “improve the quality of information, or its context, for decision makers” Assurance service encompass attestation services but are broader
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Assurance Services Independent professional services that “improve the quality of information, or its context, for decision makers” Assurance service encompass attestation services but are broader Attestation, a portion of assurance services, are restricted to examination, review or agreed-upon procedures engagements Assurance services go beyond attestation, may involve analyzing data or putting them in a form to facilitate decision making
Demand for Assurance Services Reduce information risk for outside parties and enable the company to contract at more favorable terms Information technology has significantly changed expectations of information users New services being developed Continuous auditing Assurance on system reliability Performed in accordance with Statement on Standards for Attestation Services
Subject Matter Historical or prospective performance or condition Physical characteristics Historical events Analyses Systems or processes Behavior
Assertion Declaration about whether the subject matter is presented in accordance with certain criteria. Practitioners generally must obtain appropriate assertion about subject matter Report can be on either The assertion about the subject matter or The subject matter itself
Criteria Suitable Objective Permit reasonable consistent measurements Complete Relevant Available Publicly available Presented in a summary, the assertion or the practitioners’ report
Attestation Risk Risk that practitioners will unknowingly fail to appropriately modify their report on subject matter that is materially misstated Consists of Inherent risk Control risk Detection risk Materiality Difficult because subject matter may not be financial Determine likely needs of intended users
Types of Attestation Engagements Examinations Highest level of assurance Attestation risk at low level Reviews Limited or negative assurance Attestation risk at moderate level Agreed-upon procedures Restricted use reports
Assurance on Internal Control over Financial Reporting Practitioners can audit (AT 501) or perform agreed-upon procedures engagements (AT 201) for nonpublic companies Audits of internal control are a part of integrated audits Reviews are not performed for internal control engagements. Management must evaluate company’s internal control using a set of suitable criteria Example: COSO control criteria
Management Report on Internal Control ("Management's Assertion") Wilson Company maintains internal control over financial reporting, which is designed to provide reasonable assurance to the Company's management and board of directors regarding the preparation of reliable published financial statements. Internal control contains self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified. Even with effective internal control, no matter how well designed, has inherent limitations---including the possibility of the circumvention or overriding of controls---and therefore can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, internal control effectiveness may vary over time. The Company assessed its internal control as of December 31, 19X5, in relation to criteria for effective internal control over financial reporting described in Internal Control---Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the Company believes that, as of December 31, 19X5, its internal control over financial reporting met those criteria.
Objective and Steps of IC Reporting Objective: Form an opinion on the effectiveness of the entity's internal control Steps (originally presented in Chapter 7) Plan the engagement Use a top-down approach to identify controls to test Test and evaluate design effectiveness of internal control Test and evaluate operating effectiveness of internal control Form an opinion on the effectiveness of Internal control
Accountants’ Report on Internal Control--Introductory and Scope Paragraphs We have examined Wilson Company’s internal control over financial reporting as of December 31, 20X1, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Wilson Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assertion of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control. Our responsibility is to express an opinion on Wilson Company’s internal control over financial reporting based on our examination. We conducted our examination in accordance with attestation standards established by the American Institute of Certified Public Accountants. Those standards require that we plan and perform the examination to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our examination included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our examination also included performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion.
Accountants’ Report on Internal Control--Definition Paragraph An entity’s internal control over financial reporting is a process effected by those charged with governance, management and other personnel, designed to provide reasonable assurance regarding the preparation of reliable financial statements in accordance with accounting principles generally accepted in the United States of America. An entity’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the entity; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the entity are being made only in accordance with authorizations of management and those charged with governance; and (3) provide reasonable assurance regarding prevention, or timely detection and correction of unauthorized acquisition, use, or disposition of the entity’s assets that could have a material effect on the financial statements.
Accountants’ Report on Internal Control--Inherent Limitations, Opinion, and Audit of Financial Statements Paragraphs Because of inherent limitations of internal control, errors or irregularities may occur and not be detected. Also, projections of any evaluation of internal control over financial reporting to future periods are subject to the risk that internal control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Because of its inherent limitations, internal control over financial reporting may not prevent, or detect and correct misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, Wilson Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 20X1, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) We also have audited, in accordance with auditing standards generally accepted in the Untied States of America, the financial statements of Wilson Company and our report dated February 15, 20X2 expressed an unqualified opinion.
Prospective Financial Statements Financial Forecasts Information about the entity’s expected financial position, results of operations and cash flows Financial Projection Expected results, given one or more hypothetical assumptions CPAs engaged to examine or perform agreed-upon procedures but no review
Examinations of Prospective Financial Statements Practitioners gather evidence relating to the client’s procedures for preparation of the statements Evaluate the underlying assumptions Obtain a written representation letter from the client Evaluate whether statements are in conformity with AICPA guidelines
Report Report on subject matter States whether the statements are presented in conformity with AICPA guidelines Whether underlying assumptions provide a reasonable basis for the statements Does not vouch for the achievability of the forecast or projection
Compliance Types 1. Attesting to an entity’s compliance with specified requirements of laws, regulations, rules, contracts, or grants. 2. Attesting to the effectiveness of an entity’s internal control over compliance with specified requirements.
Management’s Discussion and Analysis Management required to provide narrative explanation of financial results as part of 10-K and 10-Q Practitioner may examine or review Objective to provide assurance on (1) the presentation includes, in all material respects, the required elements of the rules and regulations adopted by the SEC; (2) the historical financial amounts included in the presentation have been accurately derived, in all material respects, from the entity’s financial statements; and (3) the underlying information, determinations, estimates, and assumptions of the entity provide a reasonable basis for the disclosures contained in the presentation.
Trust Services Intended to address user and preparer needs regarding issues of security, availability, processing integrity, online privacy and confidentiality within e-commerce and other systems System consists of Infrastructure Software People Procedures data
Trust Services The practitioner (1) performs procedures to determine that management’s description of the system is fairly stated and (2) obtains evidence that the controls over the system are designed and operating effectively to meet the Trust Services Principles and Criteria—the suitable criteria required for an attest engagement
Principles and Criteria Principles 1. Security 2. Availability 3. Processing Integrity 4. Online privacy 5. Confidentiality Criteria for each principle 1. Policies 2. Communications 3. Procedures 4. Monitoring
Types of Trust Services Engagements Examination or agreed-upon procedures WebTrust Assurance on electronic commerce systems SysTrust Assurance on any system
Reporting on Trust Services Designed to incorporate a seal management process Seal (logo) included on a client’s website as electronic representation of the report Engagement must be updated at least annually to use the seal Initial reporting period must be at least 2 months Competition BBBOnLine program TRUSTe
ElderCare/PrimePlus Services Financial Goal setting, funding analysis, needs assessment Nonfinancial Interpersonal and relationship management Management of interaction between service providers and client Target market Older clients of CPA Children of older adults Other professionals that deal with older adults
CPA Performance View System that merges standard financial measures with leading indicators such as: Customer satisfaction. Employee training and satisfaction. Product quality. Sales calls and proposals delivered. Based on performance measurement theory like balanced scorecard approach
CPA Risk Advisory Services Help organization manage risk Approach (1) identifying and analyzing risks, (2) designing and implementing strategies related to risks, and (3) measuring, monitoring, and reporting on solutions.
Future Assurance Services Committees working on: Health care performance measurement. This service provides assurance about the effectiveness of health care services provided by health maintenance organizations, hospitals, doctors, and other providers. Continuous auditing provides assurance using a series of reports provided simultaneously or shortly after the related information is released.
