Auditing and Assurance Services

Seventeenth Edition, Global Edition

Chapter 3
Other Assurance Services

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Learning Objectives (1 of 2)
3.1 Understand the level of assurance and evidence
requirements for review, compilation, and preparation
services
3.2 Describe special engagements to review interim
financial information for public companies
3.3 Distinguish A I C P A attestation standards from auditing
standards and know the types of engagements to which
they apply

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Learning Objectives (2 of 2)
3.4 Describe engagements to report on internal controls at
service organizations (S O C reports) (Skip)
3.5 Understand special engagements to attest to
prospective financial statements
3.6 Define agreed-upon procedures engagements
3.7 Describe other audit and limited assurance
engagements related to historical financial statements
(Skip)

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Learning Objective 3.1
Understand the level of assurance and evidence
requirements for review, compilation, and preparation
services

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Figure 3.1 Relationship Between Evidence
Accumulation and Assurance Attained

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Review, Compilation, and
Preparation Services (1 of 4)
• Standards for Accounting and Review Services
(SSARS) are:
– The standards for preparation, compilation, and review
engagements of financial statements
– Issued by the Accounting and Review Services
Committee of the A I C P A

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Review, Compilation, and
Preparation Services (2 of 4)
• A review service (SSARS review) engagement allows the
accountant to express limited assurance that the financial
statements are in accordance with applicable accounting
standards
• The evidence for a review engagement consists
primarily of:
– Inquiries of management – see Textbook, p.73
– Analytical procedures – these identify relationships
and individual items that appear unusual. As unusual
trends are noted, auditor engages in further inquiries
wit client to obtain explanations for any unexpected
relationship
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Review, Compilation, and
Preparation Services (3 of 4)
• A compilation service engagement is defined in
SSARS as one in which accountants:
– Apply accounting and financial reporting expertise to
assist management in the preparation of financial
statement
– Issue a report to a client or third party without
providing any CPA assurance about those statements
– In addition, the CPA must disclose in the report if he is
not independent from the client

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Review, Compilation, and
Preparation Services (4 of 4)
• In a preparation service engagement, the C P A is
engaged by the client to prepare or assist in preparing
financial statements
• The C P A does not:
– Provide any assurance on the financial statements
– Issue a report
– Need to determine whether he or she is independent

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Figure 3.4 Compilation That Omits
Substantially All Disclosures

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Let’s Discuss (1 of 6)
• What is meant by the term level of assurance?
– How does the level of assurance differ for an audit of
historical financial statements, a review, a compilation,
and a preparation engagement?
 The degree of high level of comfort
• What is negative assurance?
– Why is it used in a review engagement report?
 Double negative – more reserved
 We don’t get the same eve of assurance when we
give the conclusion as the evidence is limited.

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Learning Objective 3.2
Describe special engagements to review interim financial
information for public companies

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Review of Interim Financial
Information for Public Companies
(1 of 2)
• The S E C requires that quarterly financial statements be
reviewed by the company’s external auditor prior to the
company’s filing of the Form 10-Q
– In HK, listed companies are required to file half-yearly
reviewed financials
• A public company interim review includes five
requirements for review service engagements. The
auditor must (1 of 2):
– (1) obtain knowledge of the accounting principles of
the client’s industry
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Review of Interim Financial
Information for Public Companies
(2 of 2)
• A public company interim review includes five
requirements for review service engagements. The
auditor must (2 of 2):
– (2) obtain knowledge of the client
– (3) make inquiries of management
– (4) perform analytical procedures
– (5) obtain a letter of representation

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Let’s Discuss (2 of 6)
• Distinguish among engagements to prepare, compile, and
review financial statements.
– What is the level of assurance for each?
 Prepare: no report no assurance
 Compile: yes report no assurance
 Review: limited assurance
• What procedures should the auditor use to obtain the
information necessary to give the level of assurance
required of reviews of financial statements?

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Learning Objective 3.3
Distinguish A I C P A attestation standards from auditing
standards and know the types of engagements to which
they apply

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Attestation Engagements (1 of 3)
• The purpose of an attestation engagement is to provide an
opinion, conclusion, or findings to users of information
regarding the reliability of information or an assertion
about a subject matter, measured against stated criteria
• The Auditing Standards Board of the A I C P A issues
Statements on Standards for Attestation Engagements (S
S A E)

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Attestation Engagements (2 of 3)
• In all services provided under the attestation
standards, practitioners are responsible for:
– Having the appropriate competence and capabilities to
perform the engagement
– Complying with relevant ethical requirements
– Maintaining professional skepticism

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Attestation Engagements (3 of 3)
• The Auditing Standards Board decided not to attempt to
define the potential boundaries of attestation
engagements
• The attestation standards define three levels of
engagements:
– Examinations
– Reviews
– Agreed-upon procedures

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Figure 3.7 Types of Engagements
and Related Reports

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Let’s Discuss (3 of 6)
• Explain why a review of interim financial statements for a public
company may provide a greater level of assurance than an SSARS
review (=general review). 5 steps VS 2 steps
• Explain the purpose of an attestation engagement and provide an
example of an assertion a C P A could attest to.
– Increase reliability of information for decision making; Ioan
agreement with bank
• You have been asked to provide assurance on information contained
in New Dominion’s Corporate Sustainability Report.
– What standards would you use to perform this engagement?
 Attestation standards; examination engagement

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Learning Objective 3.5
Understand special engagements to attest to prospective
financial statements

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Prospective Financial Statements
(1 of 4)

• Prospective financial statements refer to predicted or

expected financial statements in some future period
(income statement) or at some future date (balance sheet)
• A I C P A attestation standards define two general
types of prospective financial statements:
– Forecasts – expected financial results to the best of
the preparer’s knowledge and belief (it is likely to
happen in the future/ prediction)
– Projections – based on hypothetical assumptions

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Prospective Financial Statements
(2 of 4)

• Prospective financial statements are prepared for one

of two audiences:
– General use statements are prepared for use by any
third party
– Limited use statements are prepared solely for third
parties with whom the responsible party is dealing
directly

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Prospective Financial Statements
(3 of 4)
• The following types of attestation engagements may
be performed for prospective financial statements:
– An examination engagement in which the C P A
obtains satisfaction as to the completeness and
reasonableness of all the assumptions
– An agreed-upon procedures engagement in which the
C P A and all users of the statements agree on
specific, limited attestation procedures

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Prospective Financial Statements
(4 of 4)
• In an examination level engagement, the CPA:
– Evaluates the preparation of the prospective financial
statements
– Evaluates the support underlying the assumptions
– Evaluates the presentation of the prospective financial
statements for conformity with AICPA presentation
guidelines
– Issues an examination report

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Let’s Discuss (4 of 6)
• An audit client has engaged a third-party service
organization to host its payroll software package on
servers located at the service organization.
– What options do you have to obtain assurance about
the controls embedded in the payroll application?
• Explain what is meant by prospective financial statements
and distinguish between forecasts and projections.
– What four things are involved in an examination of
prospective financial statements?

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Learning Objective 3.6
Define agreed-upon procedures engagements

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Agreed-Upon Procedures
Engagements
• When the auditor and management or a third-party user
agree that the engagement will be limited to certain
specific procedures, it is referred to as an agreed-upon
procedures engagement
• Agreed-upon procedures engagements appeal to C P As
because management, or a third-party user, specifies the
procedures they want done and then the C P A issues a
report describing the procedures agreed upon and the
findings resulting from the procedures

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