Chapter 20 - Other Assurance and Non-Assurance Services Flashcards
Describe the review engagement process.
- “Plausibility” of information is assessed, relying upon inquiry, analytical procedures, and discussion during the engagement.
- A review generally does not involve substantive tests such as independent confirmation, nor does it involve tests of controls.
- Limited assurance is expressed in the form of negative assurance.
- The public accountant will still perform acceptance and continuance procedures in a review engagement.
How is materiality used in review engagements?
The practitioner determines materiality based upon the financial statements as a whole and applies that materiality in designing procedures and evaluating results.
Because a review engagement is based upon inquiry and analytical review, there is no need to determine performance materiality.
What is the objective of a compilation engagement?
To compile unaudited financial information into financial statement format based upon the information provided by the client.
What is the criteria for accepting a compilation engagement?
- The accountant must have no reason to believe that the statements are false or misleading
- The client clearly understands the nature and scope of the engagement, including its limitations.
What are the requirements for preparing compilation engagements?
- The compilation services should be performed and the report prepared by individuals who have adequate technical training and proficiency in accounting, and who completed their work with due care.
- Each page of the statements should include either the “Notice to Reader” heading itself or the statement “Unaudited—See Notice to Reader.”
- Since a compilation engagement is not an assurance engagement, the public accountant (PA) is not required to be independent.
Compare the levels of assurance for audits, reviews, and compilations.
Audit - HIGH ASSURANCE
- positive assurance (“In our opinion…”)
Review - MEDIUM ASSURANCE
- negative assurance (“Nothing has come to our attention.”)
Compilation - NO ASSURANCE
- “No attempt to verify accuracy or completeness of information.”
What is the key objective of the review of interim financial statements?
The key objective of this type of review is for the auditor to obtain a basis for reporting to the audit committee as to whether the auditor is aware of any material modification that should be made to the interim financial statements
What is an attestation engagement?
A special form of assurance engagement, such as a financial statement audit, in which the auditor evaluates the information provided by one party, using suitable criteria, and issues a report about the reliability of this information to another party.
What is a direct engagement?
A special form of assurance engagement, in which the auditor directly measures and evaluates the underlying subject matter against the criteria, and issues a report that includes the subject matter information and a conclusion as to whether the subject matter conforms to the applicable criteria.
What are the main concerns when providing assurance of non-financial information?
These types of engagements require the practitioner to exercise considerable professional judgment.
It can also be quite difficult to determine suitable criteria since the underlying subject matter is often qualitative in nature, rather than quantitative, and involves complex systems and processes.
What is a compliance audit?
In a compliance audit, public accountants provide assurance on an entity’s compliance with a particular statute, regulation, and agreement.
What is a specified procedures engagement?
The procedures are agreed upon by the public accountant (PA), the responsible party making the assertions, and the intended users of the report; there is no opinion or conclusion provided by the PA.
If reviews provide less assurance than audits, and compilations provide no assurance, why is there a demand for these types of services?
- They cost less
- Although compilations do not provide any assurance, users often would like the added credibility that a professional accountant (there is no requirement to be a public accountant) adds the information.
Why is it so difficult to determine materiality for assurance engagements involving non-financial information?
Due to the subject matter and the variety of users, there is no clear consensus on what is “material.”
It is partially due to the subject matter itself, which is usually more qualitative in nature; often there is not a clear set of criteria or the criteria is not based upon a rigorous standard-setting process; and the variety of users and their reason for relying upon the report all make it much more difficult to determine what is “material.”
If the PA does not issue an opinion or conclusion based upon the audit findings, why would a user request a specified audit procedures engagement?
Although the practitioner does not issue an opinion or conclusion, audit procedures are performed and the findings are included in the report—which can provide assurance to the users regarding their specific use of the information.
