Assurance Services and

Auditing Research

Chapter 8

Assurance services

“Independent professional services that improve the quality of information, or its context, for decision makers”

Adds value to the user, not just the report

Three party contracts – the client, the assurer, and the third party to whom the accountant is providing assurance

Consulting services and standards

Attestation and audit services are special types of assurance services

In an attest engagement, the CPA reports on the reliability of a written assertion that is managements responsibility

Consulting is not part of assurance services Two party contact: client, consultant,

accountant CPA develops findings, conclusions,

and recommendations

Attest engagements and guidelines

Audit and attest services – Generally Accepted Audit Standards (GAAS), Statements on Auditing Standards (SAS) – Auditing standard boards (ASB)

Accounting and review services – Statements on Standards for Accounting and Review – Accounting and Review Services Committee (ARSC)

Accountant’s services on prospective financial information – Statements on Standards for Accountant’s Services on Prospective Financial Information – Auditing Standards Board

Attest engagements and guidelines

Other attest services – Statements on Standards for Attest Engagement – ASB, ARSC, and the management consulting services executive committee

Audit and attest services for public companies – Auditing and Related Professional Practice Standards – Public Company Accounting Oversight Board (PCAOB)

Attestation standards

General Standards Adequate technical training and

proficiency Adequate knowledge Services shall be performed only if

the subject matter is capable of being evaluated

Independence in mental attitude Due professional care

Attestation standards (contd.)

FieldworkAdequately planned, and assistants properly supervised

Sufficient evidence to provide a reasonable basis for conclusion

Attestation standards (contd.)

Standards of ReportingReport shall identify subject matter

Conclusion shall be reportedReservations shall be reportedReport shall state the use of the report is restricted to specified parties

Auditing standard-setting environment

Audits add credibility to financial information

Auditor conducts audit in conformity with GAAP and in conjunction with auditing standards

Attestation services and standards In the past, only audit opinions Now expanded to include opinions

on internal controls

Auditing standards

Auditing standards provided measures of the quality of performance

Audit procedures refer to the specific acts or steps to perform in an audit Procedures change, standards remain

constant 10 broad requirements referred to as

GAAS In addition, to GAAS, there are

Statements of Auditing Standards (SAS) interpret GAAS

Generally Accepted Auditing Standards

(PCAOB)

General standardsAdequate technical trainingIndependenceDue professional care

GAAS (contd.)

Field work Adequately planned and assistants

supervised Sufficient understanding of the

business and internal controls to plan the audit and determine the nature, timing and extent of procedures

Sufficient competent evident matter to form an opinion

GAAS (contd.)

Standards of reportingReport shall state if in accordance with GAAP

Shall report if not consistentInformative financial statement disclosures

Written expression

Auditing standard-setting process

Previously, set by ASB SOX transferred standard

setting responsibility to PCAOB for public company audit

Auditing standard-setting process

There is a standards hierarchyPrimary support

General applicationSpecial application to certain entities

Secondary authoritative support

Public Company Accounting Oversight Board (PCAOB)

Legal responsibility to establish GAAS, attestation, ethics, and quality control standards for accounting firms who audit public companies

Non-public companies still follow the AICPA’s mission: Develop auditing, attestation and quality

control standards for non-issuer engagements

Contribute to the development and issuance of high-quality national and international auditing and assurance standards

Respond to the needs for practical guidance in implementing professional standards

International Auditing

International Federation of Accountants (IFAC)

International Auditing Practices Committee (IAPC)

International Standards on Auditing (ISAs)

International Practice Statements (IAPs)

International Auditing and Assurance Standards Board (IAASB)

AICPA Professional Library

Professional standards, accounting trends and techniques, technical practice aids, auditing and accounting guides, and audit alerts

Home tab – lists the literature available in the database

Once select a certain literature, can query

Results tab – click on the link to find the result

Code of Professional Conduct

Minimum level of conduct Three sections-according to a

members practice-public, business, other

Principles, rules, interpretations Includes a conceptual

framework-threats and safeguards approach

Hierarchy of the AICPA’s Code of Professional Conduct

Level 1 – Principles provided framework for development

Level 2 – Rules Serve as the enforceable part of the Code

Level 3 – Interpretations of the Rules of Conduct Have been adopted by the professional ethics

division’s ethics committee Provide guidelines as to the scope and

application of rules

Auditing in the public sector

GAO – Government Auditing Standards – “Yellow book” Applicable to all governmental organizations Measure effectiveness of the expenditures, not

just identify the amounts spent Include compliance auditing Three levels of auditing

GAAS Government Auditing Standards (aka generally

accepted government auditing standards) Federal audit requirements – OMB Circular A-

133 Audits of States, Local Governments, and Non-Profit Organizations

Accounting Services

Compilation – a service presenting, in the form of financial statements, information that is the representation of management without expressing any assurance on the statements.

Review – a service performing inquiry and analytical procedures that provide the accountant with a reasonable basis for expressing limited assurance on the statements

Role of judgment in accounting and auditing research

Judgment in: substance of transaction, adequacy of disclosure, materiality thresholds

Auditor gathers information, evaluates and judges, then expresses an opinion

Many pronouncements provide only guidelines or alternatives, requiring judgment.

Critical thinking skills are crucial