Chapter 25
Other Assurance Services
There is wide flexibility in using this chapter. We rarely cover all of the material. Our primary objective is to make sure students are familiar with various types of auditor reports and services.
The following are topics covered in the chapter:
Chapter opening vignette
Review and compilation services
Review of interim financial information for public companies
Attestation engagements
WebTrust Services
SysTrust Services
Prospective financial statements
Agreed-upon procedures engagements
Other audits or limited assurance engagements
Chapter Opening Vignette – “Skepticism Applies to All Types of Engagements”
Auditors, like Sherlock Holmes, should develop a strong sense of suspicion about coincidences. This vignette illustrates this and provides a basis for discussing risk assessment and professional skepticism in a review service, rather than a full audit, context.
This vignette also illustrates an independent accountant withdrawing from an engagement. This presents a basis for discussing the notion of withdrawal: When should it be done, how is it done, what are the possible repercussions of withdrawing or not withdrawing?
Review and Compilation Services (page 810)
The primary emphasis in this section is the differences among compilations, SSARS reviews, and audits, plus reporting requirements for each.
First we use Figure 25-1 (page 810) as a frame of reference to discuss the main differences among compilations, reviews, and audits in terms of level of assurance and evidence. This can be tied back to assurance at the beginning of the course.
(See Figure 25-1)
T-25-1 can be used to summarize the differences among these engagements.
(See T-25-1)
Some or all of the following problems are appropriate after this discussion:
25-18 - multiple choice
25-21 - responsibility to external users for compilations
25-22 - required procedures for compilations and reviews
25-23 - responsibility for review services
25-24 - extent of procedures for review services
25-25 - nature of reports for review services
Review of Interim Financial Information for Public Companies (page 814)
We briefly cover the requirements for reviews of interim financial information for public companies. We focus on the differences between such reviews and reviews under SSARS. Review Question 25-9 and Problem 25-25 are useful for the discussion of reviews for public companies.
Attestation Engagements (page 815)
First we define an attestation engagement and level of assurance (Figure 25-1, page 810). Next we believe students should understand the difference in the purposes of and the nature of attestation standards and generally accepted auditing standards (Table 25-1, page 816). Finally, we emphasize the difference between the three types of attestation engagements: examinations, reviews and agreed-upon procedures (Figure 25-7, page 818).
(See Table 25-1 and Figures 25-1 and 25-7)
WebTrust Services (page 818)
We like to provide students with an overview of the WebTrust service to provide an example of an attestation service related to business-to-consumer and business-to-business e-commerce. Our objective is to help students obtain a basic understanding of the types of assurance CPAs can provide related to e-commerce. We refer to the five principles for Trust Services, which are highlighted in Table 25-2 (page 819). We ask students to describe why companies may choose to engage a CPA to provide a WebTrust seal of assurance related to online transactions. We also like to ask students why many large, well-known companies who offer online services for consumers may not engage CPAs to provide a WebTrust seal of assurance. This gives us an opportunity to discuss factors that lead to the demand for these services. We use Review Question 25-12 as a basis for this discussion.
(See Table 25-2)
SysTrust Services (page 820)
We follow our discussion of WebTrust with a brief overview of the SysTrust attestation service. We begin by distinguishing the objectives of the SysTrust and WebTrust engagements. Then we briefly overview the five Trust Services principles, which are summarized in Table 25-2 (page 819), and identify how they relate to a SysTrust engagement. We use Review Question 25-13 as a basis for this discussion. Discussion Question 25-26 is useful for distinguishing WebTrust and SysTrust services.
(See Table 25-2)
Prospective Financial Statements (page 820)
We try to spend some time covering this topic because of the importance of prospective financial statements for the assurance profession. First we distinguish between forecasts and projections. Next we discuss the requirements for an examination of forecasts and projections. Finally, we discuss the appropriate reports to issue. Discussion Question 25-27 provides a nice illustration of the use of forecasts.
Agreed-Upon Procedures Engagements (page 823)
We recommend that you briefly discuss the professional standards that deal with agreed-upon procedures engagements: SAS 75 and SSAE 10. You may wish to discuss these primary differences between an agreed-upon procedures engagement under the two standards:
SAS 75 deals with financial statement items, while SSAE 10 deals with nonfinancial statement subject matter.
Management must provide a written assertion for an SSAE 10 engagement, but not for an SAS 75 engagement.
Other Audits or Limited Assurance Engagements (page 823)
We introduce the following types of engagements:
Other comprehensive basis of accounting
Specified elements, accounts, or items
Debt compliance letters and similar reports
We then discuss reports on partial statements or on a basis other than GAAP to familiarize students with the audit of individual items on statements and situations other than where a full set of statements, in accordance with GAAP, is being audited. The following summary is useful as a point of departure.
(See T-25-2)
We find it useful to refer students to GAAS 7 through 10 on reporting, and emphasize:
The report must clearly indicate the character of the audit. (What is being audited and, in broad terms, what was done.)
The degree of responsibility the auditor takes
An expression of opinion on the information being audited, or a statement that an opinion can not be made.
One or more of the following problems are useful at this point:
25-20 - multiple choice
25-28 - debt compliance letter
CHAPTER 25
CROSS-REFERENCE OF LEARNING OBJECTIVES AND PROBLEM MATERIAL
Learning Objectives
Review
Questions
Multiple
Choice
Questions
Discussion
Questions and
Problems
Cases
25-1 Understand the level of assurance and evidence requirements for review and compilation services.
25-1, 25-2,
25-3, 25-4,
25-5, 25-6,
25-7, 25-8,
25-9
25-18
25-21, 25-22,
25-23, 25-24
25-2 Describe special engagements to review interim financial information for public companies.
25-9, 25-10
25-25
25-3 Distinguish AICPA attestation standards from auditing standards and know the type of engagements to which they apply.
25-11
25-19
25-4 Understand the nature of WebTrust assurance services.
25-12
25-26
25-5 Understand the nature of SysTrust assurance services.
25-13
25-6 Describe special engagements to attest to prospective financial statements.
25-14
25-19
25-26, 25-27
25-7 Describe agreed-upon procedures engagements.
25-8 Describe other audit and limited assurance engagements related to historical financial statements.
25-15, 25-16
25-17
25-20
25-28, 25-29,
25-30
COMPILATIONS, REVIEWS AND AUDITS
NATURE OF
REPORT
WHEN LIKELY
TO BE
USED
NATURE OF CPA's PROCEDURES
NATURE OF REPORT (SEE TEXT)
Compilation—
Full
Disclosure
Monthly, quarterly and annual statements; limited external use
Minimal—knowledge of client's business and read statements
for reasonableness
Compilation—
Omitted
Disclosures
Monthly, quarterly and annual statements; management use only
Minimal—
knowledge of client's business and read statements for reasonableness
Compilation—
Lacking
Independence
CPA owns part of company; management use only
Minimal—knowledge of client's business and read statements for reasonableness
Review—
SSARS
Private company; quarterly and annual
statements; external
use by creditors, but
no significant loans
Knowledge of business, analytical procedures, inquiries of management, and read for reasonableness
Includes a negative assurance
Review of
Interim
Financial
Information
Public company; quarterly reports to the SEC; extensive reliance by external users
Knowledge of business, analytical procedures, inquiries of management, read for reasonableness, and letter of representation
Includes a negative assurance
Audit
Annual statements; considerable variation in nature and extent of users
Extensive audit evidence
AUDIT OF PARTS OR TOTAL
FINANCIAL STATEMENTS
WHAT IS BEING
AUDITED
EXAMPLE
NATURE
OF REPORT
Individual amount on statements
Inventories only
Special report
AU -18
Individual statement
(GAAP)
Balance sheet only
Standard report,
modified wording
All statements except statement of cash flows
(GAAP)
Manufacturing company—
excludes statement of cash flows
Standard report, "except for" opinion qualification
All statements (GAAP)
Manufacturing company—
all statements and
footnotes
Standard report
Other comprehensive basis of accounting
Cash basis
Special report
See AU -10
Information accompanying basic financial statements
Manufacturing company—all statements plus supplemental information
Standard report plus report on supplemental information
(See AU 551)
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