AT - ASSURANCE ENGAGEMENTS AND RELATED SERVICES Flashcards
What are the 4 types of services normally performed in connection with the entity’s FS?
- Audit
- Review
- Compilation
- Agreed-upon Procedures
What is a Review of FS?
Review of FS is more common in small private companies. Its objective is to enable an auditor to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the auditor’s attention that causes the auditor to believe that the financial statements are not prepared, in all material respects, in accordance with an identified financial reporting framework.
Review only PROVIDES A MODERATE LEVEL OF ASSURANCE IN THE FORM OF A NEGATIVE ASSURANCE (“NOTHING CAME TO MY ATTENTION…”)
What procedures are usually done in a review of FS?
A review of FS usually consists of:
- Inquiry
- Analytical Procedures
If the auditor has reason to believe that the information subject to review may be MATERIALLY MISSTATED, the auditor should carry out additional or more extensive procedures as are necessary to be able to express a negative assurance or to confirm that a negative report is required.
Discuss the modification of a review report due to material misstatements.
If during the review of the FS, there are indications that the FS contains material misstatements, the REVIEW REPORT SHOULD DESCRIBE THOSE MATTERS THAT IMPAIR FAIR PRESENTATION AND QUANTIFICATION OF THE EFFECTS IF POSSIBLE and either:
a. Express a QUALIFICATION OF THE NEGATIVE ASSURANCE
b. Give an ADVERSE STATEMENT if the misstatement is material and pervasive.
Discuss the modification of a review report due to scope limitation.
If there has been a material scope limitation, the report should describe the limitation and either:
a. Express a QUALIFICATION OF THE NEGATIVE ASSURANCE
b. If the effect of the limitation is material and pervasive, the auditor concludes that NO LEVEL ASSURANCE CAN BE PROVIDED.
What is a compilation of financial statements?
Compilation of financial statements involves professional accountants’ assistance in the preparation and presentation of financial statements.
The objective of a compilation engagement is for the accountant to USE ACCOUNTING EXPERTISE to COLLECT, CLASSIFY, AND SUMMARIZE FINANCIAL INFORMATION.
Compilation of FS does NOT PROVIDE/EXPRESS ANY ASSURANCE ON THE FINANCIAL STATEMENTS. However, users of the compiled financial information derives some benefit as a result of the accountant’s involvement because the SERVICE HAS BEEN PERFORMED WITH PROFESSIONAL COMPETENCE AND DUE CARE.
What are the instances wherein the accountant engaged to perform compilation of FS should withdraw from the engagement?
If the accountant becomes aware that information supplied by management is incorrect,incomplete, or unsatisfactory, he should request management to PROVIDE ADDITIONAL INFORMATION and consider performing:
a. inquiries of management
b. assess internal controls
c. verify matters and explanations
- If management REFUSES TO PROVIDE ADDITIONAL INFORMATION, THE ACCOUNTANT SHOULD WITHDRAW FROM THE ENGAGEMENT, informing the entity of the reasons for the withdrawal.
- If the accountant becomes aware of misstatements, the accountant should try to agree appropriate amendments with the entity, and if such amendments are not made, the accountant should WITHDRAW FROM THE ENGAGEMENT.
Discuss the modification of the compilation report.
If there are material misstatements in the FS, the accountant should disclose the nature of the misstatement in a separate paragraph of the report, BUT THE EFFECTS DO NOT HAVE TO BE QUANTIFIED.
If the accountant feels that the modification is not sufficient to describe the significant departure and the client is NOT WILLING TO CORRECT THESE DEFICIENCIES, the accountant MAY WITHDRAW FROM THE ENGAGEMENT.
Discuss scope limitation in a compilation report.
Scope limitations will usually cause the accountant to withdraw from the engagement.
What are agreed-upon procedures?
Agreed-upon procedures engagement has for its purpose the carrying out of procedures of an audit nature by the auditor on matters agreed to by the auditor, the entity, and 3 parties and reporting on the factual findings. This type of engagement can only be accepted provided:
- Client takes full responsibility for the adequacy of the procedures to be performed
- Distribution of the report is limited only to those parties who have agreed about the procedures to be performed.
NO ASSURANCE IS EXPRESSED for this type of engagement, and the users of the report assess the results for themselves.
What procedures are usually done in an agreed-upon procedure?
- Inquiry
- Analysis
- Recomputation and comparison
- Observation
- Inspection
- Confirmation
Is independence required in a review engagement?
Yes.
What are assurance engagements?
Assurance engagements are intended to enhance the credibility of information about a subject matter by evaluating whether the subject matter conforms in all material respects with a suitable criteria.
What are the types of assurance engagements?
- Reasonable assurance engagement (Audit)
2. Limited assurance engagement (review)
What are the elements of an assurance engagement?
- Three party relationship
- Appropriate subject matter
- Suitable criteria
- Sufficient appropriate evidence
- Written assurance report.
