Transcript Objective of Compilation Engagements

Chapter 25
Other Assurance and
Nonassurance Services
Presentation Outline
I.
II.
Attestation Engagements
Compilation Engagements
III. Review Engagements
I. Attestation Engagements
A. The Appropriate Set of Standards
B. Levels of Service
C. Five Areas of Detailed Attestation
Standards
A. The Appropriate Set of Standards
Attestations that deal with providing
assurance on historical financial
statements, including one or more parts of
those statements, are addressed in auditing
standards.
 Reviews of historical financial statements
use SSARS.
 Other forms of attestation use attestation
standards.

B. Levels of Service
Examination – a direct statement is made as to whether
presentation of the assertions, taken as a whole, conforms
with the applicable criteria. (See Fig. 25-1 on p. 744)
 Review – form of negative assurance as to whether
anything came to the practitioner’s attention that the
assertions are not presented in all material respects in
conformity with the applicable criteria.
 Agreed-upon procedures – procedures to be performed
are agreed to by the practitioner, the responsible party
making the assertions, and the intended user of the
report. Distribution is limited to involved parties who
possess requisite knowledge about the procedures and the
level of assurance.

C. Five Areas of Detailed Audit
Standards
1. WebTrust Services
2. SysTrust Services
3. Prospective Financial Statements
4. Agreed-Upon Procedures
1. WebTrust Services
In a WebTrust assurance services engagement,
a client engages a CPA to provide reasonable
assurance that a company’s Web site complies
with certain Trust Services principles and criteria for
one or more aspects of e-commerce activities.
(See Table 25-2 on p. 745)
2. SysTrust Services
In a SysTrust engagement, the SysTrust
licensed accountant evaluates a company’s
computer system using Trust Services
principles and criteria.
3. Prospective Financial Statements
(Predicted or Expected Financial Statements)
Permissible engagements include examination,
compilation, or agreed-upon procedures. Two general
types of prospective financial statements:
 Forecasts – presents an entity’s expected financial
position, results of operations, and cash flows, to the
best of the responsible parties knowledge and belief.
May be for limited or general use.
 Projections - presents an entity’s expected financial
position, results of operations, and cash flows, to the
best of the responsible parties knowledge and belief,
given one or more hypothetical assumptions.
Generally restricted to limited use.
4. Agreed Upon Procedures
The primary appeal to practitioners of agreedupon procedures engagements is making
management or a third-party user specify
the procedures they want performed.
II. Compilation Engagements
A. Compilation Engagements and Reports
B. Contents of Compilation Report
C. The Effect of a Departure from GAAP on
a Compilation Report
D. The Effect of a Lack of Independence on a
Compilation Report
A. Compilation Engagements
CPA prepares financial statements but does not express
any assurance on them.
 When the CPA expects that a third-party will use the
financial statements, a compilation report must be
prepared.
 A CPA does not have the issue the report if a third party
is not involved. Such an arrangement must be clearly
set out in the engagement letter.
 May omit substantially all disclosures, but report must
be modified (See Figure 25-9 on p. 755)
 Each page should state “See Accountant’s Compilation
Report.”

B. Contents of Compilation Report
Compilation has been performed in accordance
with the SSARS issued by the AICPA.
 Compilation is limited to presenting in the form
of financial statements information that is the
representation of management.
 Financial statements have not been audited or
reviewed and, accordingly, the accountant does
not express an opinion or any other form of
assurance on them.
 See requirements on page 754.

C. The Effect of a Departure from
GAAP on a Compilation Report



Report should be
modified to disclose the
departure.
Dollar effect of departure
should be disclosed if it
has been determined.
Accountant is not
required to determine
dollar effect of departure.
D. The Effect of a Lack of Independence
on a Compilation Report
I am not
independent with
respect to XYZ
Company.
The accountant can issue
a compilation report
when he or she is not
independent as long
as the lack of
independence is
disclosed in the
compilation report.
III. Review Engagements
A. Review Engagements
B. Contents of Review Report
C. The Effect of a Departure from GAAP on
a Review Report
D. Circumstances that Preclude a Review
Report
A. Review Engagements

CPA expresses limited assurance that the financial
statements are in accordance with GAAP or another
comprehensive basis of accounting.
 CPA must be independent to perform a review.
 Suggested procedures include:


Obtain knowledge of the accounting principles and
practices of the client’s industry.
 Obtain knowledge of the client
 Make inquiries of management
 Perform analytical procedures
 Obtain letter of representation
Each page should state “See Accountant’s Review
Report.”
B. Contents of Review Report
Review was performed in accordance with SSARS.
 All information in the financial statements is the
representation of management.
 Review consists principally of inquiries of company
personnel and analytical procedures applied to
financial data.
 Review is substantially less in scope than an audit and,
accordingly, no opinion is expressed.
 Accountant is not aware of any material modifications
that should be made to the financial statements for
them to conform with GAAP, other than those
mentioned in the report.

C. The Effect of a Departure from GAAP
on a Review Report


Report should be
modified to disclose the
departure.
Dollar effect of departure
should be disclosed if it
has been determined by
client management.
D. Circumstances that Preclude a
Review Report
I believe that I
can still issue
a compilation
report.


If the accountant is
unable to perform the
inquiry and analytical
procedures necessary
or if those procedures
are restricted.
If the accountant is not
independent.
Summary Points
Compilation
Review
Characteristic Engagement Engagement
Audit
Engagement
Level of
Assurance
Inquiry
Procedures
None
Limited
assurance
Statements are
fairly presented
Inquiries if
information
appears
questionable
Inquiry,
analytical
procedures,
& other
Not required
Lack of
independence
precludes a
review report
Inquiry,
analytical, and
other audit
procedures
Lack of
independence
requires a
disclaimer for a
public company
Accountant’s
Independence
Report must
indicate lack of