Auditing & Assurance Services, 6e

1. Auditing & Assurance Services, 6e

2. Module A Other Public Accounting Services Mod A-2

3. Learning Objectives • Explain and provide examples of attestation engagements. • Describe reviews and compilations of unaudited financial statements and prepare appropriate reports given specific factual circumstances. • Explain auditors’ responsibilities related to reporting on interim financial information. • Define, explain, and give examples of other special reports provided by auditors, including specified elements of financial statements, special purpose frameworks and application of requirements of appropriate financial reporting frameworks. • Explain and provide examples of assurance services engagements. Mod A-3

4. Attestation Engagements • Report on subject matter or assertion about subject matter. • Responsibility of another party • Responsible party—acknowledge responsibility Mod A-4

5. Types of Attestation Engagements—Levels of Assurance • Examination • Similar to an audit • High level of assurance • Review • Moderate (“negative”) level of assurance • Not allowed on certain engagements • Agreed upon procedures • Assurance depends on procedures Mod A-5

6. Attestation Standards • Statements on Standards for Attestation Engagements (SSAEs) from the Auditing Standards Board (ASB) of the AICPA • Similar to fundamental auditing principles • Practitioner’s knowledge about subject matter • Suitable criteria • Evaluation of internal control not required • Restricted distribution Mod A-6

7. Agreed-Upon Procedures Engagements • Consists of performing procedures normally associated with an audit or special engagement • Inventory observation • Confirmation of receivables • Summarize customer comment cards • Scope less than in an audit (responsibility of user) • Accountant reports procedures and findings • No opinion or negative assurance provided • Must restrict distribution of report to users who established scope of engagement Mod A-7

8. Financial Forecasts and Projections (AT 301) • Prospective Financial Information (PFI) • Financial information representing the financial position, results of operations, and cash flows for some period of time in the future. • Types of PFI • Financial projection: PFI based on the occurrence of one or more hypothetical events that change existing business structure • Financial forecast: PFI based on expected conditionsand courses of action (e.g., no new distribution center). • The company may be negotiating directly with a single user who has requested prospective financial information for use in economic decisions. • This is referred to as limited use. • Any PFI can be used for limited purposes. • The company may be preparing prospective financial statements that it intends to present to a large number of users, none of whom it is negotiating with at the current time. • This type of situation is referred to as general use. Mod A-8

9. Reporting on Pro Forma Financial Information (AT 401) • Reporting "AS IF" a transaction had occurred by a specific date (retrospectively). • Basic engagement objectives • Management's assumptions on significant effects of transactions are reasonable • Management's assumptions are properly reflected in pro forma adjustments • The adjustments are properly made in the pro forma results Mod A-9

10. Examination of an Entity’s Internal Control over Financial Reporting (AT 501) • Necessary Conditions • Management accepts responsibility • Management’s evaluation of control is based on suitable and available criteria • Management’s evaluation of control is supported by sufficient evidence • Management presents its assertion in a written report that accompanies the auditors’ report Mod A-10

11. Examples dividend limitations loan limitations prescribed debt/equity ratios limitations on geographic operations Examination made in conjunction with F/S audit Compliance Attestation (AT 601) Mod A-11

12. Mod A-12

13. Management Discussion and Analysis (AT 701) • Management Discussion and Analysis (MD&A) accompanies audited financial statements in the annual report. • Auditors are required to read the MD&A to ensure that information is consistent with the audited financial statements. • Auditors may accept an engagement to perform an examination or review of the MD&A. Mod A-13

14. Service Organizations (AT 801) • Third-parties often process transactions for other entities. Many companies use third-parties to • process payroll. • handle dividend distribution. • handle investments (banks, brokerage houses). • The controls exist at the third-party provider • The auditors for the users of these services must ensure that those controls at the service provider are adequate. • Providers engage auditors to issue a special report concerning the controls. • Types of Reports • Type 1—Description of controls placed in operation • Type 2—operating effectiveness (required for AS 5) • Included with Service Organization Reports (SOCs) Mod A-14

15. Unaudited Financial Statements • Reviews—moderate (negative) assurance • Compilations—no assurance • Statements on Standards for Accounting and Review Services (SSARs) from the AICPA’s Accounting and Review Services Committee Mod A-15

16. Review Engagements • Review engagement procedures: • Written engagement letter • Understanding of the client’s business. • Analytical procedures. • Inquiry of management • Written management representations • Audit documentation must include: • Analytical procedures • Procedures used in response to results of analytical procedures • Inquiries • Unusual matters considered in the engagement • Written representations Mod A-16

17. Review Reports • Reports should include • Statement that information is representation of management • A description of the scope of a review engagement • Level of assurance provided --Moderateassurance. • The date of completion should be used as the date of the accountant's review report. • Each page of the Financial Statements reviewed should include: “SEE ACCOUNTANTS' REVIEW REPORT". Mod A-17

18. Mod A-18

19. Compilation Engagements • Do not have to include footnotes. • Accountants do not have to be independent. • No assurance provided. • The date of completion=the date of the accountant's report. • Each page of the compiled financial statements should include: “SEE ACCOUNTANTS' COMPILATION REPORT". Mod A-19

20. Mod A-20

21. Other Issues • Reviews, compilations and fraud • Comparative financial statements • Different levels of service • Prescribed forms • Predecessor accountants • Additional paragraphs • Personal financial plans Mod A-21

22. Mod A-22

23. Review of Interim Financial Information • Financial information that covers a period ending on a date other than the entity’s fiscal year end. • SEC companies are required to have a review of the interim financial information filed with the SEC. • Need to gain sufficient knowledge of the entity’s business and internal control. • May have a report on interim financial information • Separate from the audited financial statements. • Presented as a supplement to audited financial statements. Mod A-23

24. Mod A-24

25. Special Reports • Special reports refers to auditors' reports issued in connection with the following: • Specified elements, accounts, or items of a financial statement • Financial statements that are prepared in conformity with a special purpose framework (SPF) • Reporting on the requirements of appropriate financial reporting frameworks Mod A-25

26. Reports on Elements of Financial Statements (AU 805) • Independent auditors may be requested to express an opinion on one or more specified elements, accounts, or items of a financial statement. • GAAS audit performed. • Report similar to audit report • Instead of financial statements, specified elements, accounts, or items are audited. • Auditors express an opinion on whether the account, element, or item is fairly stated in accordance with the appropriate framework. • If adverse opinion or disclaimer is issued for the financial statements taken as a whole, the auditors may not accept engagement (i.e., the auditors may not reduce scope of service). Mod A-26

27. Special Purpose Frameworks (SPFs) (AU 800) • Types of bases that may be used • Statements conforming to regulatory agency accounting rules • Basis used for income tax purposes • Cash basis or Modified cash basis • Some other method required for contractual purposes • A GAAS audit is still performed • Limited distribution Mod A-27

28. Assurance Services • Assurance Services are independent professional services that improve the quality of information, or its context, for decision makers. • Extensible Business Reporting Language (XBRL) • Enhanced Business Reporting • Trust Services • WebTrust • SysTrust • Sustainability Mod A-28