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25-1
Chapter 25
Other Assurance Services
Concept Checks
P. 807
1. Preparation is defined in SSARS as a service where the CPA is engaged by
the client to prepare or assist in preparing financial statements, but the CPA
provided to, a third party.
Compilation is defined in SSARS as a service, the objective of which is
to assist management in presenting financial information in the form of
financial reporting framework.
Review is defined by SSARS as a service, the objective of which
is to obtain limited assurance that there are no material modifications that
obtain a limited level of assurance.
There is no level of assurance provided in a preparation or
compilation engagement. Reviews provide limited assurance, but
considerably less than a typical audit.
2. The following types of procedures are emphasized for review services:
Obtain agreement on engagement terms with management or
Obtain knowledge of the accounting principles and practices of
Obtain knowledge of the client. The information should be about
the nature of the client’s business transactions, its accounting
Make inquiries of management. The objective of these inquiries is
to determine whether the financial statements are fairly presented,
25-2
Concept Check, P. 807 (continued)
Inquire as to the accounting standards framework used and
the company’s procedures for recording, classifying, and
Inquire of persons having responsibility for financial and
accounting matters whether the financial statements have
been prepared in conformity with accounting standards.
Perform analytical procedures. The analytical procedures are meant
to identify relationships and individual items that appear to be
Read the financial statements. The accountant should read the
Reconcile the financial statements to the underlying accounting
Obtain a letter of representation. The accountant is required to
Prepare documentation. The accountant should prepare
P. 817
1. Attestation standards provide a general framework for and set reasonable
boundaries around the attestation function. They provide guidance to
services where no specific guidance exists.
25-3
Concept Check, P. 817 (continued)
accordance with accounting standards.
2. An SOC 1 report, Report on Controls at a Service Organization Relevant to
User Entities’ Internal Control Over Financial Reporting, is intended to meet
auditors, who are referred to as user auditors. There are two types of reports
on controls at the service organization relevant to user entities’ internal
control over financial reporting:
1. Report on management’s description of a service organization’s system
report).
2. Report on management’s description of a service organization’s system
and the suitability of the design and operating effectiveness of controls
(referred to as a Type 2 report).
An SOC 2 report, Report on Controls at a Service Organization Relevant
to Security, Availability, Processing Integrity, Confidentiality, or Privacy, is
intended to meet the needs of a broad range of users who need information
and assurance about controls at a service organization that affect the
security, availability, and processing integrity of the systems the service
An SOC 3 report, Trust Services Report for Service Organizations, is
similar to an SOC 2 report except that the SOC 3 report is intended for wide
distribution to current or potential users of the service organization. SOC 3
25-4
Review Questions
25-1 Levels of assurance represent the degree of certainty the practitioner
has attained, and wishes to convey, that the conclusions stated in his or her
report are correct.
Audits of historical financial statements prepared in accordance with
accounting standards are one type of examination. They are governed by
auditing standards. An audit results in a conclusion that is in a positive form. In
In a review, the practitioner provides a conclusion in the form of a
The level of assurance is limited.
A compilation is defined in SSARS as presenting, in the form of financial
statements, information that is the representation of management without
undertaking to express any assurance on the statements. A preparation
engagement is defined in SSARS as a service where the CPA is engaged by
third party.
25-2 A negative assurance states, along with factual statements, that nothing
came to the accountant’s attention that would lead the accountant to believe
that the financial statements were not prepared in accordance with accounting
a compilation.
25-3 One of three forms of compilation can be provided to clients:
Compilation With Full Disclosure Compilation of this type requires
disclosures in accordance with accounting standards, the same as
for audited statements.
client, as defined by the Code of Professional Conduct. However,
the CPA firm must state its lack of independence in the report.
25-5
Copyright © 2017 Pearson Education, Inc.
25-4 The following are required by SSARS for compilation engagements.
The preparer of the statements must:
Establish an understanding with the client in a written engagement
letter about the objectives of the nature of the engagement.
Possess knowledge of the accounting principles and practices of
the client’s industry.
financial statements.
Make inquiries to determine whether the client’s information is
satisfactory.
Read the compiled financial statements and be alert for any obvious
omissions or errors in arithmetic and generally accepted accounting
principles.
unsatisfactory.
Disclose in the report any omissions or departures from accounting
standards of which the accountant is aware. This requirement does
not apply to a compilation that omits substantially all disclosures.
Prepare documentation to provide a clear understanding of the
the applicable financial reporting framework.
25-5 For a compilation, the accountant does not have to make inquiries or
perform other procedures to verify information supplied by the entity beyond
those identified in the answer to Review Question 25-4. But if the accountant
25-6 Preparation is defined in SSARS as a service where the CPA is
engaged by the client to prepare or assist in preparing financial statements, but
the CPA does not provide any assurance on the financial statements or issue a
report, even if the financial statements are expected to be used by, or provided
25-6
25-6 (continued)
financial statements.
25-7 For review services, if a client fails to follow applicable accounting
standards, a modification of the report is needed. The accountant is not
required to determine the effect of a departure if management has not done so, but
25-8 Compilations and reviews under SSARS can only be issued for
nonpublic companies for which an audit has not been performed. They may be
for monthly, quarterly, or annual statements.
Reviews are issued on quarterly information of publicly held companies
the same.
25-9 The review procedures are essentially the same for public company
and SSARS reviews. Some additional procedures are required for public
company reviews that are beyond the scope of SSARS as follows:
interim financial information.
The auditor’s knowledge of the results of the audit procedures
performed during the annual audit will affect the scope of the
procedures performed during the review of interim financial
information.
subsequent years.
Under SSARS, the auditor makes inquiries about actions of directors
and stockholder meetings; for public companies, the auditor reads
the minutes of those meetings.
25-7
Copyright © 2017 Pearson Education, Inc.
25-10 In response to a request to provide assurance on information contained
in New Dominion’s Corporate Sustainability Report, the accountant would conduct
the engagement in accordance with Statements on Standards for Attestation
Engagements (SSAEs). The accountant would most likely be engaged to
conduct an examination level attestation engagement whereby the accountant
would issue an opinion on the presentation of management’s assertions about
compliance with specific sustainability criteria.
25-11 The five Trust Services principles include the following:
against authorized access (both physical and logical).
3. Processing Integrity – Processing integrity, ensuring that system
processing is complete, accurate, timely, and authorized.
4. Online Privacy – Online privacy practices, ensuring that personal
25-12 In a Type 1 SOC 1 report, the accountant provides an opinion
about the fairness of the description of the service organization’s system
25-13 The service organization would engage the accountant to issue an SOC
3 report, Trust Services Report for Service Organizations. The SOC 3 report is
intended for wide distribution to current or potential users of the service
25-14 One option would be for you to visit the service organization to obtain
evidence about the design and operating effectiveness of internal controls at
the service organization. However, a more efficient option may be for the
service organization to engage its auditor to provide a Type 1 report that
provides an opinion about the fairness of the description of the service
25-8
25-15 A prospective financial statement is a predicted or expected financial
statement in some future period or at some future date. There are two general
types of prospective financial statements: forecasts and projections. A forecast
is a prospective financial statement that presents an entity’s expected financial
one or more hypothetical assumptions.
An examination of prospective financial statements involves:
Evaluating the preparation of the prospective financial statements.
Evaluating the support underlying assumptions.
Evaluating the presentation of the prospective financial statements
for conformity with AICPA presentation guidelines.
Issuing an examination report.
Multiple Choice Questions From CPA Examinations
25-17 a. (2) b. (2) c. (1)
25-18 a. (1) b. (4)
25-19 a. (1) b. (1)
25-20 a. (1) b. (4) c. (4)
Discussion Questions and Problems
by the profession.
25-9
25-21 (continued)
to be finalized.
25-22 a. The primary procedures performed in a review engagement consist
of performing analytical procedures and inquiries of management.
But, in addition to those procedures, the accountant should also
perform the following:
of the client’s industry.
Obtain knowledge of the client’s business
Obtain a letter of representation
Perform additional procedures if the accountant becomes
2. Inquire about whether management has documentation
in the contract of the real estate taxes not being the
responsibility of the client until next year and ask to review
3. Ask management to provide invoices from most recent
purchases of pipes for construction and estimate the inventory
whether receivables are older.
5. Make inquiries of the client’s legal counsel to obtain their
views of the likely outcome of the lawsuit.
25-10
25-23
PROCEDURE
a.
REQUIRED ON A
COMPILATION
ENGAGEMENT
b.
REQUIRED ON A
REVIEW
ENGAGEMENT
1.
X
X
2.
X
X
3.
X
X
4.
X
5.
X
X
6.
7.
8.
X
9.
X
X
10.
X
X = Required procedure
reconciled with the master file records, and the possible inclusion
of consignment shipments as sales.
b. In reviews, no procedures such as tests of controls, substantive tests
c. Inquiries would ordinarily be made of the chief financial officer in a
