Chapter 25

Other Assurance and Nonassurance Services

Presentation OutlineI. Attestation Engagements

II. Compilation EngagementsIII. Review Engagements

I. Attestation EngagementsA. The Appropriate Set of Standards

B. Levels of ServiceC. Five Areas of Detailed Attestation

Standards

A. The Appropriate Set of Standards

Attestations that deal with providing assurance on historical financial

statements, including one or more parts of those statements, are addressed in auditing

standards. Reviews of historical financial statements

use SSARS. Other forms of attestation use attestation

standards.

B. Levels of Service Examination – a direct statement is made as to whether

presentation of the assertions, taken as a whole, conforms with the applicable criteria. (See Fig. 25-1 on p. 744)

Review – form of negative assurance as to whether anything came to the practitioner’s attention that the assertions are not presented in all material respects in

conformity with the applicable criteria. Agreed-upon procedures – procedures to be performed

are agreed to by the practitioner, the responsible party making the assertions, and the intended user of the

report. Distribution is limited to involved parties who possess requisite knowledge about the procedures and

the level of assurance.

C. Five Areas of Detailed Audit Standards

1. WebTrust Services2. SysTrust Services

3. Prospective Financial Statements4. Agreed-Upon Procedures

1. WebTrust ServicesIn a WebTrust assurance services engagement,a client engages a CPA to provide reasonableassurance that a company’s Web site complies

with certain Trust Services principles and criteria for one or more aspects of e-commerce activities.

(See Table 25-2 on p. 745)

2. SysTrust Services

In a SysTrust engagement, the SysTrust licensed accountant evaluates a company’s

computer system using Trust Servicesprinciples and criteria.

3. Prospective Financial Statements (Predicted or Expected Financial Statements)Permissible engagements include examination,

compilation, or agreed-upon procedures. Two general types of prospective financial statements:

Forecasts – presents an entity’s expected financial position, results of operations, and cash flows, to the best of the responsible parties knowledge and belief.

May be for limited or general use. Projections - presents an entity’s expected financial

position, results of operations, and cash flows, to the best of the responsible parties knowledge and belief,

given one or more hypothetical assumptions. Generally restricted to limited use.

4. Agreed Upon Procedures

The primary appeal to practitioners of agreed-upon procedures engagements is making management or a third-party user specify

the procedures they want performed.

II. Compilation EngagementsA. Compilation Engagements and Reports

B. Contents of Compilation ReportC. The Effect of a Departure from GAAP on

a Compilation ReportD. The Effect of a Lack of Independence on a

Compilation Report

A. Compilation Engagements CPA prepares financial statements but does not express

any assurance on them. When the CPA expects that a third-party will use the

financial statements, a compilation report must be prepared.

A CPA does not have the issue the report if a third party is not involved. Such an arrangement must be clearly

set out in the engagement letter. May omit substantially all disclosures, but report must

be modified (See Figure 25-9 on p. 755) Each page should state “See Accountant’s Compilation

Report.”

B. Contents of Compilation Report Compilation has been performed in accordance

with the SSARS issued by the AICPA. Compilation is limited to presenting in the form

of financial statements information that is the representation of management.

Financial statements have not been audited or reviewed and, accordingly, the accountant does

not express an opinion or any other form of assurance on them.

See requirements on page 754.

C. The Effect of a Departure from GAAP on a Compilation Report

Report should be modified to disclose the departure.

Dollar effect of departure should be disclosed if it has been determined.

Accountant is not required to determine dollar effect of departure.

D. The Effect of a Lack of Independence on a Compilation Report

The accountant can issue a compilation report when he or she is not independent as long

as the lack of independence is disclosed in the

compilation report.

I am not independent with respect to XYZ

Company.

III. Review EngagementsA. Review Engagements

B. Contents of Review ReportC. The Effect of a Departure from GAAP on

a Review ReportD. Circumstances that Preclude a Review

Report

A. Review Engagements CPA expresses limited assurance that the financial

statements are in accordance with GAAP or another comprehensive basis of accounting.

CPA must be independent to perform a review. Suggested procedures include:

Obtain knowledge of the accounting principles and practices of the client’s industry.

Obtain knowledge of the client Make inquiries of management Perform analytical procedures Obtain letter of representation

Each page should state “See Accountant’s Review Report.”

B. Contents of Review Report Review was performed in accordance with SSARS.

All information in the financial statements is the representation of management.

Review consists principally of inquiries of company personnel and analytical procedures applied to

financial data. Review is substantially less in scope than an audit and,

accordingly, no opinion is expressed. Accountant is not aware of any material modifications

that should be made to the financial statements for them to conform with GAAP, other than those

mentioned in the report.

C. The Effect of a Departure from GAAP on a Review Report

Report should be modified to disclose the departure.

Dollar effect of departure should be disclosed if it has been determined by client management.

D. Circumstances that Preclude a Review Report

If the accountant is unable to perform the inquiry and analytical procedures necessary or if those procedures are restricted.

If the accountant is not independent.

I believe that I can still issue a compilation

report.

Summary Points

CharacteristicCompilation Engagement

Review Engagement

Audit Engagement

Level of AssuranceInquiry Procedures

Accountant’sIndependence

NoneLimited

assuranceStatements are fairly presented

Inquiries if information

appears questionable

Inquiry, analytical

procedures, & other

Inquiry, analytical, and

other audit procedures

Not required

Report must indicate lack of

Lack of independence

requires a disclaimer for a public company

Lack of independence precludes a

review report