OTHER ASSURANCE

ENGAGEMENTS

CHAPTER 12
( Text book Chap 25)
 INTRODUCTION

• Another type of assurance services offered by CPA

involving historical financial statements (FS) – reasonable
assurance and limited assurance
• Assurance services for several types of engagements that
do not involve historical FS, for e.g: forecasted FS,
environmental report, CG processes
• Less formal than audit report
• No legal requirements is required (non-audit services)
 GENERAL PRINCIPLES

• Some non-public listed companies have their FS reviewed by a

CPA instead of having them audited
• Either for internal purposes or to provide to creditors/
banks/lenders under loan agreement
• Relevant standards:
 Statements on Standards for Accounting & Review Services
(SSARS) – by AICPA
 International Standard on Assurance Engagements (ISAE3000)
– by ICAEW
 GENERAL PRINCIPLES (CONT)

• According to SSARS, the CPA need to obtain evidence

from the following :
1. Obtain knowledge of client’s industry
2. Obtain knowledge of the client
3. Make inquiries of management
4. Perform analytical procedures
5. Obtain letter of representation
 GENERAL PRINCIPLES (CONT)

• According to ISAE 3000, assurance engagement is an

engagement in which a practitioner aims to obtain
sufficient appropriate evidence in order to express a
conclusion designed to enhance the degree of confidence of
the intended user
• The level of assurance may be reasonable or limited (but
can never be an absolute assurance)
 REASONABLE VS LIMITED
ASSURANCE

REASONABLE LIMITED ASSURANCE

ASSURANCE An assurance engagement
An assurance engagement in which the practitioner
in which the practitioner reduces engagement risk to
reduces engagement risk a level that is acceptable in
to an acceptably low level the circumstances of the
in the circumstances of the engagement but where that
engagement as the basis risk is greater than for a
for the practitioner's reasonable assurance
conclusion engagement
 TERM OF OTHER ASSURANCE
ENGAGEMENTS

• The importance of engagement letter for review of FS (no

detailed regulatory framework, so there will be much
greater risk of misunderstanding)
• Terms of agreement are agreed between the client and the
CPA firm (practitioner), unlike audit engagement where
these are determined by law and professional standards
 COMPILATION SERVICES

• In a compilation engagement, the accountant is engaged to

compile information, e.g:
Preparing financial statements
Preparing tax returns.
• The information to be compiled does not have to be
financial information.
• The CPA firm does not express any assurance on the
statements.
 AGREED - UPON PROCEDURES
ENGAGEMENTS

• An auditor is engaged to perform agreed-upon procedures to

carry out those procedures of an audit nature to which the auditor
and the entity and any appropriate third parties have agreed and
to report on fact findings.
• The recipients of the report must form their own opinion and
conclusions from the report by the auditor.
• The report is restricted to those parties that have agreed to the
procedures to be performed since others, unaware of the reasons
for the procedures may misinterpret the results.
 AGREED-UPON PROCEDURES
(EXAMPLE)

“Saloil is an oil and gas company interested in granting its common stock
to its employees as a reward for their loyalty. The number of shares
granted to each employee is directly proportional to the years of service
of each employee. The company has hired an audit firm to verify the date
of joining of each employee and calculate the years of service for each
employee. It is an agreed-upon procedures engagement in which the audit
firm has to verify the date of joining, calculate the number of years of
service and present the details to the company. The report would be
available to the management of Saloil only and it cannot be openly
distributed to users who did not agree to the procedures”
 PROSPECTIVE FINANCIAL
INFORMATION

• Prospective financial information (PFI) refers to predicted or

expected FS in some future period
• Forecast  prospective FS that present an entity’s expected
financial position using one or more assumptions
• Issues to consider in PFI:
 General or limited use (report to management or any 3rd party that
the management is directly dealing with for e.g. banks)
 Nature of assumptions (whether best estimates or hypothetical?)
 A caveat that there could be difference due to unforeseen
circumstances
 Provide moderate/limited assurance
 PROSPECTIVE FINANCIAL
INFORMATION (EXAMPLE)

“We have examined the forecast in accordance with the International

Standard on Assurance Engagements applicable to the examination of
prospective financial information. Management is responsible for the
forecast including the assumptions set out in Note X on which it is based.
Based on our examination of the evidence supporting the assumptions,
nothing has come to our attention which causes us to believe that these
assumptions do not provide a reasonable basis for the forecast. Further, in
our opinion the forecast is properly prepared on the basis of the
assumptions and is presented in accordance with…
Actual results are likely to be different from the forecast since anticipated
events frequently do not occur as expected and the variation may be
material”