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Module A Module A Presentation Transcript

  • Module A Assurance and Other Public Accounting Services “ There’s no business like show business, but there are several businesses like accounting.” – David Letterman
  • Module Topics
    • Assurance Engagements
    • Attestation Engagements
    • Unaudited Financial Statements
      • Reviews
      • Compilations
    • Interim Financial Information
    • Special Reports
  • The Relationships Among Auditing, Attestation, and Assurance Services
    • Assurance Services
    • Any Information
    • Auditing
    • Financial Statements
    Attestation Services Apply Attestation Standards
  • Levels of Service
    • Reports on Historical Financial Statements
      • Audit (Positive assurance) (AU Standards)
      • Review (Negative assurance) (AR Standards)
      • Compilation (Disclaimer of opinion -- No assurance) (AR Standards)
    • Attestation Standards on Other Information
      • Examination (Positive assurance) (AT Standards)
      • Review (Negative assurance) (AT Standards)
      • Agreed-upon Procedures (Results) (AT Standards)
  • Assurance Services
    • Assurance Services are independent professional services that improve the quality of information, or its context, for decision makers.
    • What factors are driving the demand for Assurance Services?
      • Information technology
      • Competition
      • Globalization
      • Education
      • Corporate structure changes
      • Aging of U.S. population
  • CPA Trust Services
    • WebTrust – Reduces concerns of Internet users.
      • The company exists
      • Reliability of information regarding key business practices
    • SysTrust – Assurance of a client’s computer system.
    • Both provide assurance concerning the Principles of
      • Security over information
      • Processing Integrity
      • Privacy of information
      • Confidentiality of information
      • System availability
  • CPA Trust Services
    • Trust Service Principles
    • Security. Website must disclose and adhere to specific security practices
    • Availability. Website must disclose
      • Its hours of operation and establish effective controls to provide reasonable assurance that it is available .
    • Processing Integrity .
      • Completeness,
      • Accuracy,
      • Timeliness, and
      • Authorization of system processing
    • Privacy . Website must disclose and adhere to its privacy practices .
    • Confidentiality . Information is safeguarded from unauthorized users.
    • ( )
  • Attestation Engagements
    • Practitioner reports on subject matter that is the responsibility of another party.
    • Types of Attestation Engagements
      • Agreed Upon Procedures Engagements (AT 201)
      • Financial Forecasts and Projections (AT 301)
      • Reporting on Proforma Financial Information (AT 401)
      • Reporting on an Entity’s Internal Control over Financial Reporting (AT 501)
      • Compliance Attestation (AT 601)
      • Management’s Discussion and Analysis (AT 701)
  • Types of Attestation Engagements
    • Examination
      • Similar to an audit
      • High level of assurance
    • Review
      • Moderate level of assurance
      • Not allowed on certain engagements
    • Agreed upon procedures
      • No assurance but results of procedures
  • Audit and Attestation Standards: General Standards
    • Adequate technical training
    • Adequate domain knowledge
    • Verifiable assertion
    • Independence
    • Due professional care
    • Adequate technical training
    • [Implied by CPA]
    • [Implied by GAAP]
    • Independence
    • Due professional care
    Attestation Audit
  • Audit and Attestation Standards: Standards of Fieldwork
    • Planning and supervision
    • [Not applicable]
    • Sufficient competent evidence
    Attestation Audit
    • Planning and supervision
    • Internal control
    • Sufficient competent evidence
  • Audit and Attestation Standards: Reporting Standards
    • Identify assertion
    • State conclusion in accordance with criteria
    • [Not applicable]
    • [Not applicable]
    • State reservations
    • Extent of use
    • [Implied by GAAP]
    • State conclusion in accordance with GAAP
    • Consistency
    • Adequate disclosures
    • State an opinion of the “whole” or nature of problems.
    • [Not applicable]
    Attestation Audit
  • Agreed Upon Procedures Engagements (AT 201)
    • Consists of performing procedures normally associated with an audit
      • Inventory observation
      • Confirmation of receivables
    • Scope less than in an audit
    • Accountant reports procedures and findings
      • No opinion or negative assurance provided
    • Must restrict use of report to users who established scope of engagement (Limited use report)
  • Financial Forecasts and Projections (AT 301)
      • 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 conditions and courses of action.
    • No Review Engagements for PFIs.
    • Limited vs General Use (Only Examination of Financial Forecast is General Use).
  • Reporting on Proforma Financial Information (AT 401)
    • "AS IF" a transaction had occurred by a specific date.
    • Any service can be performed (Examination, Review, or Agreed Upon Procedures)
  • Reporting on an Entity’s Internal Control over Financial Reporting (AT 501, new ED and AS # 2)
    • Presentation of Management's Assertion
    • A separate report (Statement) that will accompany the accountant's report.
    • A representation letter addressed to the accountant.
    • Types of Assertions
    • Suitability of design of internal control
    • Operating effectiveness of internal control
    • Criteria for engagement performance
    • Management accepts responsibility for the effectiveness of its internal control
    • Management evaluates its internal control using reasonable criteria (control criteria)
    • Sufficient evidence can be obtained
    • Management presents its written assertion based upon the control criteria
    Reporting on an Entity’s Internal Control over Financial Reporting
    • Basic Content of Reports
    • Accountant has examined management's assertion/AICPA or PCAOB Standards
    • Scope of auditor’s procedures
    • Inherent limitations of internal controls
    • Internal control conditions can change
    • Opinion (Adverse if material weakness )
    Reporting on an Entity’s Internal Control over Financial Reporting
    • 1) A control deficiency a control does not
    • allow management or employees to prevent or detect misstatements on a timely basis.
    • 2) A significant deficiency is control deficiency that adversely affects the company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with GAAP.
    • 3) A material weakness is a significant deficiency that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.
    Reporting on an Entity’s Internal Control over Financial Reporting
  • Compliance Attestation (AT 601)
    • EXAMPLES: Dividend limitations, loan limitations, prescribed debt/equity ratios, limitations on geographic operations
    • Effect on financial statements (Will long-term debt need to be reclassified?)
    • Cannot do Review Engagement
  • 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 audit or review of the MD&A
  • Review of Financial Statements (SSARS 1)
    • Review engagements are performed according to Statements on Standards for Accounting and Review Services
    • Must have an understanding of the client’s business
    • Work is limited to inquiry and analytical procedures
  • Reporting for Compilation Engagements
    • Compilation engagements - performed according to Statements of Standards for Accounting and Review Services (SSARs) issued by the AICPA ( AICPA GUIDELINES )
    • Does not have to include footnotes
    • Accountant does not have to be independent
    • Level of assurance -- the CPA does not provide any assurance .
    • The date of completion should be used as the date of the accountant's report.
    • Each page of the Financial Statements compiled by the accountant should include:
  • Review of Interim Financial Information (SAS 100)
    • Financial information that covers a period ending on a date other than the entities 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 audit financial statements
      • Presented as a supplement to audited financial statements
  • 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 comprehensive basis of accounting other than generally accepted accounting principles
  • Specified Elements, Accounts or Items
    • GAAS audit is performed
    • Report based on GAAP
    • If financial statements receive disclaimer or adverse opinion—may not report on element.
  • Other Comprehensive Basis of Accounting (OCBOA)
    • Types of Bases that may be used
    • Basis used to comply with regulatory requirements
    • Basis used for income tax purposes
    • Cash receipts and disbursements basis
    • Modified cash basis
    • Any basis having "definite set of criteria" and "substantial support”
    • A GAAS audit is still performed .
  • Other Comprehensive Bases of Accounting : Reporting
    • Report Modifications
    • Introductory Paragraph
      • Names of financial statements may differ
      • Responsibilities are unchanged
    • Scope Paragraph
      • No changes necessary
      • GAAS audit still performed
    • Middle Paragraph (since GAAP Departure)
      • Identify basis of accounting used by client
      • Indicate that basis of accounting is not GAAP
    • Opinion Paragraph
      • Information from financial statements may differ
      • Discuss correspondence of financial statements with other basis
    • Limited distribution
  • Service Organizations
    • Third-parties that process transactions for other entities
    • Many companies use third-parties to
    • Process payroll
    • Handle dividend distribution
    • Banks or brokerages to handle investments
    • 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
    • ( AU 801 - SAS 74)
    • Government Accountability Office (GAO) establishes auditing standards and issues Government Auditing Standards (The Yellow Book)
    • Types of Audits
      •  Financial audits - Financial statement and financial related
    • Financial statement must include written:
        • Opinion on the financial statements
        • Report on compliance with laws and regulations
        • Report on I/C (Reportable conditions)
      •  Attestation engagements - examinations, reviews and agreed-upon procedures.
      •  Performance audits - Economy and efficiency and program results
    • In general, the auditor accepts a greater scope and more responsibility for a governmental audit
  • GAS - Basically the same as GAAS with additional “ Independence” - Personal, External, & Organizational “ Professional Judgment” - Use it “ Competence” - Audit team should be competent “ Quality Control” - Quality review every 3 years “ Auditor Communication” - To necessary parties “ Follow Up” - On results of previous engagements “ Detecting Contract Violations and Abuse” - Required “ Audit Documentation” - Allow another auditor to judge evidence “ Compliance with GAGAS” - State in report “ Reporting” - Internal control & compliance with laws & regs “ Views of Officials” - Report “ Privileged Information” - State if there was any “ Report Issuance” - Distribute to appropriate officials
    • Single Audit Act (amended 1996) Prior to 1984, federal agencies that provided financial assistance to state and local governments audited specific grants, contracts, subsidies, etc.
    • The Act requires a “single audit” for entities expending federal dollars of (Old $300,000) $500,000 or more. OMB Circular 133 and Compliance Supplements define the required auditing.
      • Audit “Major Programs” based on risk
      • Provide I/C and compliance tests of at least 50%
      • Test both “common” and “programmatic” laws and regs
      • Report to cognizant agency and send reports to clearing house