Module A Assurance and  Other Public Accounting Services “ There’s no business like show business, but there are  several ...
Module Topics <ul><li>Assurance Engagements </li></ul><ul><li>Attestation Engagements </li></ul><ul><li>Unaudited Financia...
The Relationships Among Auditing, Attestation, and Assurance Services <ul><li>Assurance Services </li></ul><ul><li>Any Inf...
Levels of Service <ul><li>Reports on Historical Financial Statements </li></ul><ul><ul><li>Audit  (Positive assurance)  (A...
Assurance Services <ul><li>Assurance Services  are independent professional services that improve the quality of informati...
CPA Trust   Services <ul><li>WebTrust  – Reduces concerns of Internet users. </li></ul><ul><ul><li>The company exists  </l...
CPA Trust Services <ul><li>Trust Service Principles </li></ul><ul><li>Security.   Website must disclose and adhere to spec...
Attestation Engagements <ul><li>Practitioner reports on subject matter that is the responsibility of another party. </li><...
Types of Attestation Engagements <ul><li>Examination </li></ul><ul><ul><li>Similar to an audit </li></ul></ul><ul><ul><li>...
Audit and Attestation Standards: General Standards <ul><li>Adequate technical training </li></ul><ul><li>Adequate domain k...
Audit and Attestation Standards: Standards of Fieldwork <ul><li>Planning and supervision </li></ul><ul><li>[Not applicable...
Audit and Attestation Standards: Reporting Standards <ul><li>Identify assertion </li></ul><ul><li>State conclusion in acco...
Agreed Upon Procedures Engagements (AT 201) <ul><li>Consists of performing procedures normally associated with an audit </...
Financial Forecasts and Projections (AT 301) <ul><li>PROSPECTIVE FINANCIAL INFORMATION (PFI) </li></ul><ul><ul><li>Financi...
Reporting on Proforma Financial Information (AT 401) <ul><li>PROFORMA FINANCIAL INFORMATION  </li></ul><ul><li>&quot;AS IF...
Reporting on an Entity’s Internal Control over Financial Reporting  (AT 501, new ED and AS # 2) <ul><li>Presentation of Ma...
<ul><li>Criteria for engagement performance </li></ul><ul><li>Management accepts responsibility for the effectiveness of i...
<ul><li>Basic Content of Reports </li></ul><ul><li>Accountant has examined management's assertion/AICPA or PCAOB Standards...
<ul><li>1) A  control deficiency  a control does not </li></ul><ul><li>allow management or employees to prevent or detect ...
Compliance Attestation (AT 601) <ul><li>EXAMPLES:  Dividend limitations, loan limitations, prescribed debt/equity ratios, ...
Management Discussion and Analysis (AT 701) <ul><li>Management Discussion and Analysis (MD&A) accompanies audited financia...
Review of Financial Statements (SSARS 1) <ul><li>Review engagements are performed according to Statements on Standards for...
EXAMPLE   REVIEW REPORT
Reporting for Compilation   Engagements <ul><li>Compilation engagements - performed according to Statements of Standards f...
EXAMPLE COMPILATION REPORT
Review of Interim Financial Information (SAS 100) <ul><li>Financial information that covers a period ending on a date othe...
Special   Reports <ul><li>Special Reports refers to auditors' reports issued in connection with the following: </li></ul><...
Specified Elements, Accounts or Items <ul><li>GAAS audit is performed </li></ul><ul><li>Report based on GAAP </li></ul><ul...
Other Comprehensive Basis of Accounting (OCBOA) <ul><li>Types of Bases that may be used </li></ul><ul><li>Basis used to co...
Other   Comprehensive   Bases   of   Accounting :  Reporting <ul><li>Report Modifications  </li></ul><ul><li>Introductory ...
Service Organizations <ul><li>Third-parties that process transactions for other entities </li></ul><ul><li>Many companies ...
<ul><li>GOVERNMENTAL AUDITING </li></ul><ul><li>( AU 801 - SAS 74) </li></ul><ul><li>Government Accountability Office (GAO...
GAS - Basically the same as GAAS with additional “ Independence” - Personal, External, &  Organizational “ Professional Ju...
<ul><li>Single Audit Act (amended 1996)  Prior to 1984, federal agencies that provided financial assistance to state and l...
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Module A

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Module A

  1. 1. Module A Assurance and Other Public Accounting Services “ There’s no business like show business, but there are several businesses like accounting.” – David Letterman
  2. 2. Module Topics <ul><li>Assurance Engagements </li></ul><ul><li>Attestation Engagements </li></ul><ul><li>Unaudited Financial Statements </li></ul><ul><ul><li>Reviews </li></ul></ul><ul><ul><li>Compilations </li></ul></ul><ul><li>Interim Financial Information </li></ul><ul><li>Special Reports </li></ul>
  3. 3. The Relationships Among Auditing, Attestation, and Assurance Services <ul><li>Assurance Services </li></ul><ul><li>Any Information </li></ul><ul><li>Auditing </li></ul><ul><li>Financial Statements </li></ul>Attestation Services Apply Attestation Standards
  4. 4. Levels of Service <ul><li>Reports on Historical Financial Statements </li></ul><ul><ul><li>Audit (Positive assurance) (AU Standards) </li></ul></ul><ul><ul><li>Review (Negative assurance) (AR Standards) </li></ul></ul><ul><ul><li>Compilation (Disclaimer of opinion -- No assurance) (AR Standards) </li></ul></ul><ul><li>Attestation Standards on Other Information </li></ul><ul><ul><li>Examination (Positive assurance) (AT Standards) </li></ul></ul><ul><ul><li>Review (Negative assurance) (AT Standards) </li></ul></ul><ul><ul><li>Agreed-upon Procedures (Results) (AT Standards) </li></ul></ul>
  5. 5. Assurance Services <ul><li>Assurance Services are independent professional services that improve the quality of information, or its context, for decision makers. </li></ul><ul><li>What factors are driving the demand for Assurance Services? </li></ul><ul><ul><li>Information technology </li></ul></ul><ul><ul><li>Competition </li></ul></ul><ul><ul><li>Globalization </li></ul></ul><ul><ul><li>Education </li></ul></ul><ul><ul><li>Corporate structure changes </li></ul></ul><ul><ul><li>Aging of U.S. population </li></ul></ul>
  6. 6. CPA Trust Services <ul><li>WebTrust – Reduces concerns of Internet users. </li></ul><ul><ul><li>The company exists </li></ul></ul><ul><ul><li>Reliability of information regarding key business practices </li></ul></ul><ul><li>SysTrust – Assurance of a client’s computer system. </li></ul><ul><li>Both provide assurance concerning the Principles of </li></ul><ul><ul><li>Security over information </li></ul></ul><ul><ul><li>Processing Integrity </li></ul></ul><ul><ul><li>Privacy of information </li></ul></ul><ul><ul><li>Confidentiality of information </li></ul></ul><ul><ul><li>System availability </li></ul></ul>
  7. 7. CPA Trust Services <ul><li>Trust Service Principles </li></ul><ul><li>Security. Website must disclose and adhere to specific security practices </li></ul><ul><li>Availability. Website must disclose </li></ul><ul><ul><li>Its hours of operation and establish effective controls to provide reasonable assurance that it is available . </li></ul></ul><ul><li>Processing Integrity . </li></ul><ul><ul><li>Completeness, </li></ul></ul><ul><ul><li>Accuracy, </li></ul></ul><ul><ul><li>Timeliness, and </li></ul></ul><ul><ul><li>Authorization of system processing </li></ul></ul><ul><li>Privacy . Website must disclose and adhere to its privacy practices . </li></ul><ul><li>Confidentiality . Information is safeguarded from unauthorized users. </li></ul><ul><li>( http://www.cpawebtrust.org ) </li></ul>
  8. 8. Attestation Engagements <ul><li>Practitioner reports on subject matter that is the responsibility of another party. </li></ul><ul><li>Types of Attestation Engagements </li></ul><ul><ul><li>Agreed Upon Procedures Engagements (AT 201) </li></ul></ul><ul><ul><li>Financial Forecasts and Projections (AT 301) </li></ul></ul><ul><ul><li>Reporting on Proforma Financial Information (AT 401) </li></ul></ul><ul><ul><li>Reporting on an Entity’s Internal Control over Financial Reporting (AT 501) </li></ul></ul><ul><ul><li>Compliance Attestation (AT 601) </li></ul></ul><ul><ul><li>Management’s Discussion and Analysis (AT 701) </li></ul></ul>
  9. 9. Types of Attestation Engagements <ul><li>Examination </li></ul><ul><ul><li>Similar to an audit </li></ul></ul><ul><ul><li>High level of assurance </li></ul></ul><ul><li>Review </li></ul><ul><ul><li>Moderate level of assurance </li></ul></ul><ul><ul><li>Not allowed on certain engagements </li></ul></ul><ul><li>Agreed upon procedures </li></ul><ul><ul><li>No assurance but results of procedures </li></ul></ul>
  10. 10. Audit and Attestation Standards: General Standards <ul><li>Adequate technical training </li></ul><ul><li>Adequate domain knowledge </li></ul><ul><li>Verifiable assertion </li></ul><ul><li>Independence </li></ul><ul><li>Due professional care </li></ul><ul><li>Adequate technical training </li></ul><ul><li>[Implied by CPA] </li></ul><ul><li>[Implied by GAAP] </li></ul><ul><li>Independence </li></ul><ul><li>Due professional care </li></ul>Attestation Audit
  11. 11. Audit and Attestation Standards: Standards of Fieldwork <ul><li>Planning and supervision </li></ul><ul><li>[Not applicable] </li></ul><ul><li>Sufficient competent evidence </li></ul>Attestation Audit <ul><li>Planning and supervision </li></ul><ul><li>Internal control </li></ul><ul><li>Sufficient competent evidence </li></ul>
  12. 12. Audit and Attestation Standards: Reporting Standards <ul><li>Identify assertion </li></ul><ul><li>State conclusion in accordance with criteria </li></ul><ul><li>[Not applicable] </li></ul><ul><li>[Not applicable] </li></ul><ul><li>State reservations </li></ul><ul><li>Extent of use </li></ul><ul><li>[Implied by GAAP] </li></ul><ul><li>State conclusion in accordance with GAAP </li></ul><ul><li>Consistency </li></ul><ul><li>Adequate disclosures </li></ul><ul><li>State an opinion of the “whole” or nature of problems. </li></ul><ul><li>[Not applicable] </li></ul>Attestation Audit
  13. 13. Agreed Upon Procedures Engagements (AT 201) <ul><li>Consists of performing procedures normally associated with an audit </li></ul><ul><ul><li>Inventory observation </li></ul></ul><ul><ul><li>Confirmation of receivables </li></ul></ul><ul><li>Scope less than in an audit </li></ul><ul><li>Accountant reports procedures and findings </li></ul><ul><ul><li>No opinion or negative assurance provided </li></ul></ul><ul><li>Must restrict use of report to users who established scope of engagement (Limited use report) </li></ul>
  14. 14. Financial Forecasts and Projections (AT 301) <ul><li>PROSPECTIVE FINANCIAL INFORMATION (PFI) </li></ul><ul><ul><li>Financial information representing the financial position, results of operations, and cash flows for some period of time in the future. </li></ul></ul><ul><li>Types of PFI </li></ul><ul><ul><li>FINANCIAL PROJECTION: PFI based on the occurrence of one or more hypothetical events that change existing business structure </li></ul></ul><ul><ul><li>FINANCIAL FORECAST: PFI based on expected conditions and courses of action. </li></ul></ul><ul><li>No Review Engagements for PFIs. </li></ul><ul><li>Limited vs General Use (Only Examination of Financial Forecast is General Use). </li></ul>
  15. 15. Reporting on Proforma Financial Information (AT 401) <ul><li>PROFORMA FINANCIAL INFORMATION </li></ul><ul><li>&quot;AS IF&quot; a transaction had occurred by a specific date. </li></ul><ul><li>Any service can be performed (Examination, Review, or Agreed Upon Procedures) </li></ul>
  16. 16. Reporting on an Entity’s Internal Control over Financial Reporting (AT 501, new ED and AS # 2) <ul><li>Presentation of Management's Assertion </li></ul><ul><li>A separate report (Statement) that will accompany the accountant's report. </li></ul><ul><li>A representation letter addressed to the accountant. </li></ul><ul><li>Types of Assertions </li></ul><ul><li>Suitability of design of internal control </li></ul><ul><li>Operating effectiveness of internal control </li></ul>
  17. 17. <ul><li>Criteria for engagement performance </li></ul><ul><li>Management accepts responsibility for the effectiveness of its internal control </li></ul><ul><li>Management evaluates its internal control using reasonable criteria (control criteria) </li></ul><ul><li>Sufficient evidence can be obtained </li></ul><ul><li>Management presents its written assertion based upon the control criteria </li></ul>Reporting on an Entity’s Internal Control over Financial Reporting
  18. 18. <ul><li>Basic Content of Reports </li></ul><ul><li>Accountant has examined management's assertion/AICPA or PCAOB Standards </li></ul><ul><li>Scope of auditor’s procedures </li></ul><ul><li>Inherent limitations of internal controls </li></ul><ul><li>Internal control conditions can change </li></ul><ul><li>Opinion (Adverse if material weakness ) </li></ul>Reporting on an Entity’s Internal Control over Financial Reporting
  19. 19. <ul><li>1) A control deficiency a control does not </li></ul><ul><li>allow management or employees to prevent or detect misstatements on a timely basis. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul>Reporting on an Entity’s Internal Control over Financial Reporting
  20. 20. Compliance Attestation (AT 601) <ul><li>EXAMPLES: Dividend limitations, loan limitations, prescribed debt/equity ratios, limitations on geographic operations </li></ul><ul><li>Effect on financial statements (Will long-term debt need to be reclassified?) </li></ul><ul><li>Cannot do Review Engagement </li></ul>
  21. 21. Management Discussion and Analysis (AT 701) <ul><li>Management Discussion and Analysis (MD&A) accompanies audited financial statements in the annual report </li></ul><ul><li>Auditors are required to read the MD&A to ensure that information is consistent with the audited financial statements </li></ul><ul><li>Auditors may accept an engagement to perform an audit or review of the MD&A </li></ul>
  22. 22. Review of Financial Statements (SSARS 1) <ul><li>Review engagements are performed according to Statements on Standards for Accounting and Review Services </li></ul><ul><li>Must have an understanding of the client’s business </li></ul><ul><li>Work is limited to inquiry and analytical procedures </li></ul>
  23. 23. EXAMPLE REVIEW REPORT
  24. 24. Reporting for Compilation Engagements <ul><li>Compilation engagements - performed according to Statements of Standards for Accounting and Review Services (SSARs) issued by the AICPA ( AICPA GUIDELINES ) </li></ul><ul><li>Does not have to include footnotes </li></ul><ul><li>Accountant does not have to be independent </li></ul><ul><li>Level of assurance -- the CPA does not provide any assurance . </li></ul><ul><li>The date of completion should be used as the date of the accountant's report. </li></ul><ul><li>Each page of the Financial Statements compiled by the accountant should include: </li></ul><ul><li>&quot;UNAUDITED -- SEE ACCOUNTANT'S COMPILATION REPORT&quot;. </li></ul>
  25. 25. EXAMPLE COMPILATION REPORT
  26. 26. Review of Interim Financial Information (SAS 100) <ul><li>Financial information that covers a period ending on a date other than the entities fiscal year end </li></ul><ul><li>SEC companies are required to have a review of the interim financial information filed with the SEC </li></ul><ul><li>Need to gain sufficient knowledge of the entity’s business and internal control </li></ul><ul><li>May have a report on interim financial information </li></ul><ul><ul><li>separate from the audit financial statements </li></ul></ul><ul><ul><li>Presented as a supplement to audited financial statements </li></ul></ul>
  27. 27. Special Reports <ul><li>Special Reports refers to auditors' reports issued in connection with the following: </li></ul><ul><ul><li>Specified elements, accounts, or items of a financial statement </li></ul></ul><ul><ul><li>Financial statements that are prepared in conformity with a comprehensive basis of accounting other than generally accepted accounting principles </li></ul></ul>
  28. 28. Specified Elements, Accounts or Items <ul><li>GAAS audit is performed </li></ul><ul><li>Report based on GAAP </li></ul><ul><li>If financial statements receive disclaimer or adverse opinion—may not report on element. </li></ul>
  29. 29. Other Comprehensive Basis of Accounting (OCBOA) <ul><li>Types of Bases that may be used </li></ul><ul><li>Basis used to comply with regulatory requirements </li></ul><ul><li>Basis used for income tax purposes </li></ul><ul><li>Cash receipts and disbursements basis </li></ul><ul><li>Modified cash basis </li></ul><ul><li>Any basis having &quot;definite set of criteria&quot; and &quot;substantial support” </li></ul><ul><li>A GAAS audit is still performed . </li></ul>
  30. 30. Other Comprehensive Bases of Accounting : Reporting <ul><li>Report Modifications </li></ul><ul><li>Introductory Paragraph </li></ul><ul><ul><li>Names of financial statements may differ </li></ul></ul><ul><ul><li>Responsibilities are unchanged </li></ul></ul><ul><li>Scope Paragraph </li></ul><ul><ul><li>No changes necessary </li></ul></ul><ul><ul><li>GAAS audit still performed </li></ul></ul><ul><li>Middle Paragraph (since GAAP Departure) </li></ul><ul><ul><li>Identify basis of accounting used by client </li></ul></ul><ul><ul><li>Indicate that basis of accounting is not GAAP </li></ul></ul><ul><li>Opinion Paragraph </li></ul><ul><ul><li>Information from financial statements may differ </li></ul></ul><ul><ul><li>Discuss correspondence of financial statements with other basis </li></ul></ul><ul><li>Limited distribution </li></ul>
  31. 31. Service Organizations <ul><li>Third-parties that process transactions for other entities </li></ul><ul><li>Many companies use third-parties to </li></ul><ul><li>Process payroll </li></ul><ul><li>Handle dividend distribution </li></ul><ul><li>Banks or brokerages to handle investments </li></ul><ul><li>The controls exist at the third-party provider </li></ul><ul><li>The auditors for the users of these services must ensure that those controls at the service provider are adequate </li></ul><ul><li>Providers engage auditors to issue a special report concerning the controls </li></ul>
  32. 32. <ul><li>GOVERNMENTAL AUDITING </li></ul><ul><li>( AU 801 - SAS 74) </li></ul><ul><li>Government Accountability Office (GAO) establishes auditing standards and issues Government Auditing Standards (The Yellow Book) </li></ul><ul><li>Types of Audits </li></ul><ul><ul><li> Financial audits - Financial statement and financial related </li></ul></ul><ul><li>Financial statement must include written: </li></ul><ul><ul><ul><li>Opinion on the financial statements </li></ul></ul></ul><ul><ul><ul><li>Report on compliance with laws and regulations </li></ul></ul></ul><ul><ul><ul><li>Report on I/C (Reportable conditions) </li></ul></ul></ul><ul><ul><li> Attestation engagements - examinations, reviews and agreed-upon procedures. </li></ul></ul><ul><ul><li> Performance audits - Economy and efficiency and program results </li></ul></ul><ul><li>In general, the auditor accepts a greater scope and more responsibility for a governmental audit </li></ul>
  33. 33. 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
  34. 34. <ul><li>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. </li></ul><ul><li>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. </li></ul><ul><ul><li>Audit “Major Programs” based on risk </li></ul></ul><ul><ul><li>Provide I/C and compliance tests of at least 50% </li></ul></ul><ul><ul><li>Test both “common” and “programmatic” laws and regs </li></ul></ul><ul><ul><li>Report to cognizant agency and send reports to clearing house </li></ul></ul>

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