This committee has authority equivalent to the Auditing Standards Board for services involving unaudited financial statements of nonpublic companies.
Since review and compilation services provide less assurance than audits, the accountant should establish an understanding with the client about the services to be provided through a written engagement letter.
The accountant can study AICPA industry guides or other sources to obtain industry knowledge.
The level of knowledge about he client should be less than the amount of knowledge for an audit; however, the information should be about the nature of the client's business, its accounting records, and the principles and practices used by the client.
Management inquiries should include a description of procedures for recording classifying and summarizing transactions
Inquire into actions taken at meetings of stockholders and the board of directors.
Ask if each account on the financial statements was prepared in conformity with GAAP.
Do you have knowledge of actual or suspected fraud?
A written engagement letter should be used to document the objectives of the engagement type and limitations of the services to be provided and a description of the report.
Know the client including the nature of its business transactions, accounting records, and content of its financial statements.
Full disclosure is the same as for GAAP statements or some other accounting standard.
No disclosure reports are typically used for management purposes.
When the accountant lacks independence an additional paragraph must be added as the last paragraph of the report.
Industry knowledge
Client knowledge
Inquiries of management
Performa analytical procedures
Obtain a rep letter
The AICPA has issued 11 attestation standards that parallel the 10 generally accepted auditing standards.
To provide additional guidance for doing attestation engagements, the Auditing Standards Board of the AICPA issues Statements on Standards for Attestation Engagements (SSAE).
In general auditing standards apply to attestations that deal with providing assurance on historical financial statements including one or more parts of those statements.
The ASB decided not to attempt to define the potential boundaries of attestation engagements except in conceptual terms because new services are likely to arise.
Three levels of service are examinations, reviews, and agreed-upon procedures.
An examination results in a positive conclusion.
A review provides a negative assurance conclusion that nothing came to the CPA’s attention that the assertions are not presented in all material respects in conformity with the applicable criteria.
In an agreed upon procedures engagement, all procedures the CPA will perform are agreed-upon by the CPA, the responsible party making the assertions and the specific persons who are the intended users of the report.
The Webtrust service is a specific service developed under the broader trust services principles and criteria jointly issued by the AICPA and CICA. The CPA firm assesses whether the company’s Web site complies with the five trust services principles.
Type I addresses suitability of the design of controls
Type II tests the operating effectiveness of the controls at the service organization
Forecasts are prospective financial statements that present an entity’s expected financial position, operating results and cash flows.
Projections are prospective financial statements that present an entity’s financial position, operating results and cash flows to the best of the responsible party’s knowledge and belief, given one or more hypothetical assumptions.
Prospective financial statements are prepared for one of two audiences: general use statements for any third party and limited use statements solely for third parties with whom the responsible party is dealing directly.
Types of engagements include an examination , a compilation, and an agreed-upon procedures engagement
AICPA attestation standards clearly state that CPAs are not attesting to the accuracy of the prospective financial statements. Instead, they examine the underlying assumptions and the preparation and presentation of the forecast or projection.
For examinations, there are four elements.
With cash basis accounting only cash receipts and disbursements are recorded. Under modified cash basis, the cash basis is followed except for certain items such as fixed assets and depreciation.
Common examples of the regulatory agency basis include the uniform system of accounts required of railroads, utilities, and some insurance companies.
Tax basis uses the same measurement rules used for filing tax returns even though tax rules are not GAAP.
An example of a definite set of criteria is the price level basis of accounting.
A common example is a report on the audit of sales of a retail store in a shopping center to be used as a basis for rental payments.
Materiality is defined in terms of the elements, accounts, or items being audited rather than for the overall statements. The effect is to require more evidence than if the item being verified is one of many parts of the statements.
The first standard of reporting under GAAS does not apply because the presentation of elements accounts or terms is not a financial statement prepared in accordance with applicable accounting standards.
Auditors may issue reports on debt compliance and similar engagements as separate reports or by adding a paragraph after the opinion paragraph as part of a report that expresses their opinion on the financial statements.