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I. Applicability:
A. A CPA firm is required by the AICPA Code of Professional Conduct to adopt a system of quality control for its
auditing, attestation, and accounting and review services.
B. Statements on Quality Control Standards (SQCS) are issued by Auditing Standards Board and are applicable
to both audit and non-audit engagements.
II. Elements: The five interrelated elements of quality control are:
• A – Acceptance and Continuance of Clients and Engagements
• I – Independence, Integrity, and Objectivity
• C – Continuous Monitoring
• P – Personnel Management
• A – Assurance Regarding Engagement Performance
• AICPA is all about quality control standards.
A. Acceptance and Continuance of Clients and Engagements
1. Policies to decide to accept or continue client relationship and to perform a specific engagement
2. Policies for the likelihood of association with a client whose management lacks integrity is
minimized and that the firm:
a. Undertakes only those engagements that it can reasonably expect to complete with
professional competence
b. Appropriately considers the risks associated with providing professional services in the
particular circumstances
3. Examples:
a. Reviewing the FS and credit rating of the proposed client
b. Inquiring of third parties as to the reputation of the proposed client
c. Evaluating the firm’s ability to service the client properly
d. Periodically re-evaluating clients for continuance
B. Independence, Integrity, and Objectivity
1. Maintain public confidence in the profession
2. Policies that personnel maintain independence (in fact and appearance), perform all professional
responsibilities with integrity, and maintain objectivity in discharging professional responsibilities
3. Qualities are defined and described as follows:
a. Independence encompasses impartiality and freedom from any obligation to or interest in
the client
b. Integrity requires personnel to be honest and candid. Service and the public trust must not
be subordinated to personal gain advantage
c. Objectivity imposes the obligation to be impartial, intellectually honest, and free of
conflicts of interest
4. Examples include:
a. Maintaining records showing which personnel were previously employed by clients or have
relatives holding key positions with clients
b. Notifying personnel as to the names of the audit clients publicly held
c. Confirming with staff that prohibited relationships do not exist
d. Emphasizing independence of mental attitude in training and supervision
5. The SOX of 2002 contains certain provisions that must be followed to maintain independence:
a. Prohibits other services for audit clients (i.e. bookkeeping, financial information systems
design/implementation, appraisals, actuarial services, internal audit outsourcing services,
management/human resource functions, investment services, legal services)
i. Other non-audit services may be performed if they are pre-approved by the audit
committee and disclosed to investors in periodic report (i.e. tax services)
ii. Tax service and related fees must be communicated to audit committee in writing.
Potential effects of the services on the firm’s independence should be discussed
with audit committee and documented
I. Special Reports: Client does not necessarily have to comply with GAAP
o Auditor has to comply with GAAS and obtain reasonable degree of assurance.
o Auditing standards have restricted special reports to the following 5 areas:
i. OCBOA – Other comprehensive basis of accounting financial statements
• Ex: cash basis, tax basis
ii. Specified elements, accounts, or items in a financial statement
• Ex: audit accounts receivable only
iii. Compliance with contractual or regulatory requirements related to audited financial statements
iv. Financial presentations to comply with contractual agreements or regulatory provisions
v. Financial information presented in prescribed forms or schedules that require a prescribed form of
auditor’s report
A. Financial Statements Prepared in Conformity with an OCBOA
1. OCBOA Financial Statements = Non-GAAP, considered comprehensive basis of accounting
a. A cash receipts and disbursements system
b. A basis of accounting that the entity uses to file its income tax returns
c. A basis of accounting used to comply with the requirements of a governmental regulatory
agency having jurisdiction over the reporting entity
d. A definite set of criteria having substantial support that is applied to all material items, such
as price-level adjusted financial statements
I. Levels of Service: CPAs can perform 2 levels of service for unaudited financial statements of non-public company
A. Compilation: NO ASSURANCE
1. CPA presents in the form of FS info that is representation of management.
2. Does not perform any audit or review procedures
3. Does not assume any attest responsibilities
4. Does not express any assurance on FS
B. Review: LIMITED ASSURANCE
1. CPA may express limited (negative) assurance on unaudited FS
2. Limited assurance there are no material modifications needed to FS to conform with GAAP
3. Based on inquiry and analytical procedures by CPA
C. Performance of More Than One Service
1. If accountant performs more than one service (i.e. compilation and audit), accountant generally
should issue the report that is appropriate for the highest level of service
Becker Auditing – 2008 Edition Chapter 2 5
II. Professional Standards
A. Statements on Standards for Accounting and Review Services (SSARS)
1. Authoritative body of the AICPA designated to issue pronouncements with unaudited FS of non-
public entity. Known as = ``Statements on Standards for Accounting and Review Services`` or
``SSARS``
2. SSARS: Accountant should:
a. Have sufficient knowledge to identify applicable SSARS
b. Exercise professional judgment in applying SSARS
c. Be able to justify departures from SSARS
3. Other Guidance:
a. Accountant to consider other applicable interpretive publications and are recommendations to
proposed standards. They are:
i. SSARS interpretations and appendices
ii. AICPA Accounting and Audit guides
iii. AICPA Statements of Position
b. Other compilation and review publications have NO authoritative status but may be helpful:
i. AICPA Compilation and Review Alert
ii. Articles in professional journals
B. SSARS Applicability = Non-public entity
1. Applies when accountant ``submits`` unaudited FS of non-public co.
a. Submission is presenting FS to client or third party that accountant has prepared (manually or
computer)
b. Preparation is that accountant has created FS that would otherwise not exist
c. Non-public entity is:
i. Not publicly traded, OR
ii. Not filed with regulatory agency for going public, OR
iii. Not a subsidiary, corporate joint venture, or controlled by an entity described in i. or ii.
2. Applies to engagements where accountant is engaged to compile or issue compilation report on
specified elements, accounts, or items of a non-public entity`s FS, or pro-forma financials info on
non-public companies.
a. Issuance of report is not required if accountant prepares or assists in preparing information,
unless specifically engaged to compile such information
b. Accountant should consider whether it might be prudent to issue a compilation report to
clarify that no assurance is being provided, even if report not required
C. Financial Statement Association
1. Accountant should not consent to use of their name with unaudited FS unless they compiled or
reviewed them or FS are indicated that accountant has not compiled or reviewed them and
assumes no responsibility
D. Other Accounting Services (SSARS do NOT apply)
1. SSARS do not apply to other services like preparing one or few adjusting/correcting entries,
consulting on financial matters, preparing tax returns, rendering manual or automated bookkeeping
or data processing services, and processing financial data for clients of other accounting firms.
a. The auditor make many adjusting/correcting entries which is considered preparing for the FS,
and therefore SSARS applies. The auditor must make judgement when determining this.
III. Establishing an Understanding with the Client (Engagement Letter Recommended) – NOT required
A. Requirements
1. Compilation and review standards do not require accountants to have written engagement letter.
2. If engagement is to compile FS not to be used by third party and compilation report is not issued
then written engagement letter is required.
B. Matters to Communicate – Required to establish an understanding with the client:
1. Description of specific services to be performed
2. Description of any report expected to be rendered
3. Explanation of any limitations of the services, including:
a. Engagement cannot be relied upon to disclose errors, fraud, or illegal acts, AND
b. AND, entity will be informed of any information indicating that fraud or illegal act may have
occurred
4. Description of other accounting services, if any, to be performed
IV. Compilation of Financial Statements (Non-public Companies Only) – NO ASSURANCE
• Compilation engagement may involve compiling and reporting on only one financial statement
A. Compilation Requirements
1. Knowledge of Industry Accounting Principles and Practices
Becker Auditing – 2008 Edition Chapter 2 6
a. Knowledge of accounting principles and practices of client’s industry
b. If accountants don’t have experience in that industry, they should gain required knowledge
2. Understanding of Client’s Business
a. S – Staff qualifications
b. T – Transaction types and frequency
c. A – Accounting basis used to prepare the financial statements
d. F – Form of the accounting records
e. F – Financial statements’ form and content
3. Reading the Financial Statements
a. Never associated with false, fraudulent, or misleading FS
b. Before issuing report, accountant should read the compiled FS to see if:
i. Appropriate in form
ii. Free from material errors (arithmetic, clerical, GAAP related)
4. Fraud and Illegal Acts
a. If fraud/illegal act occurred, accountant should consider effect of the matter on compilation
report, and request management to consider the effect on FS
B. Financial Statements that may be Inaccurate or Incomplete
1. Accountants are not required, but may, make inquiries to verify info given by client. If they discover
info is incorrect, they should obtain revised info from client. If client refuses, then withdraw.
C. Reporting on a Compilation
1. Overview: Independence not required – NO ASSURANCE: Report should include:
a. A – statement that compilation has been performed according to SSARS issued by AICPA
b. L – statement that compilation is limited to presenting info that management represents
c. A – statement that accountant has not audited the FS
d. R – statement that accountant has not reviewed the FS
e. D – disclaimer of opinion and statement that accountant gives no assurance on FS
f. Signature (manual, stamped, electronic, or typed) and a date (usually date of compiled)
• You are “A LARD” when all you do is compile the financial statements.
2. Additional Requirements
a. Mark each page with “See Accountant’s Compilation Report”
b. SSARS does not require that compilation report be printed on accountant’s letterhead
3. Sample Report – Standard Compilation Report: see sample – page A2-19
4. Prescribed Forms that call for a GAAP Departure
a. Use alternative form of standard report
b. Additional paragraph added departing from GAAP and stating FS are not designed for those
who are not informed about the resulting differences
5. Reporting on Financial Statements that Omit Substantially all Disclosures
a. Compilation with Omission of All disclosures per client’s request. Accountant may compile if:
i. The accountant’s report indicates the omission by adding the middle paragraph, AND
ii. AND, reason for omission is not intended to mislead the FS
• Compiled FS that omit GAAP disclosures are acceptable if:
Reason for omission was not to deceive user
Compilation report warns user of missing disclosures
“Restricted Use” NOT required
b. Example: Compilation w/ Additional Paragraph Omit Disclosures – see sample – pg A2-20
c. Compilation with Limited Disclosure – notes should indicate “Selected Info – GAAP departure
6. OCBOA Financial Statements – If compilation is on OCBOA basis, must disclose
7. Departures from GAAP – must disclose or withdraw
8. Reporting When Not Independent – Disclosure Required in last paragraph
9. Compilations of Personal Financial Statements: accountant may submit unaudited FS that are
GAAP departures, and will be exempt from SSARS if:
a. Client agrees, accountant states in report that personal FS will only be used to develop
financial plan, and not to obtain credit.
b. Accountant believes that client would not use report to obtain credit
D. Exception to Reporting Requirement
1. Unaudited Compiled Financial Statements Reasonably Expected to be Used by Third Parties
a. Compilation report required
b. Reporting requirements discussed above in IV.C.
2. Unaudited Compiled Financial Statements Not Expected to be Used by Third Parties
a. Accountant may use engagement letter instead of compilation report = Plain Paper Report
I. Introduction
A. Definition
1. Attest engagements may result in reports related to:
a. Compliance with laws and regulations
b. Compliance with contracts
c. Internal control
d. Computer systems and software
e. Information supplemental to financial statements
f. Prospective information
g. Performance, physical characteristics, historical events, analyses, etc.
2. Trust Services: address risks and opportunities related to information technology. Five principles
guide performance: security, availability, processing integrity, online privacy, and confidentiality.
a. Web Trust Engagements
i. Assurance related to e-commerce
ii. CPA assesses client’s website for integrity, information protection, and disclosure
b. SysTrust Engagements
i. Assurance with reliability of any defined electronic system
B. Statements on Standards for Attestation Engagements (SSAE) by AICPA address major attestation services:
1. Agreed-upon procedures
2. Financial forecasts and projections
3. Pro forma financial statements
4. Internal control over financial reporting
5. Compliance
6. Management’s Discussion and Analysis
• The following standards apply to services a CPA may provide:
o Audit engagements: SAS (Statements on Auditing Standards); PCAOB standards for issuers
o Compilation and review engagements: SSARS (Statements on Standards for Accounting and
Review Services)
o Attest engagements: SSAE (Statements on Standards for Attestation Engagements)
C. Statements on Standards for Attestation Engagements Do Not Apply to:
1. Audits
2. Compilations and reviews of non-public companies under SSARS
3. Return preparation (income tax, franchise, other)
4. Advocating for the client (litigation services)
5. Providing consulting/advisory services
6. Operational audits, normally performed by internal auditors.
D. Attestation Standards
1. Broader in scope than GAAS, and don’t supersede any existing standards (SAS, SSARS)
2. Natural extension of GAAS, but differ conceptually in 3 ways:\
a. No reference is made to financial statements
b. No reference is made to GAAP
c. Attestation standards provide levels of assurance below that provided by a GAAS audit
3. Include hierarchy similar to GAAS hierarchy:
a. Departures from presumptively mandatory requirements must be justified
b. Interpretive publications should be considered
c. Other attestation publications have no authoritative status, but may be helpful
4. The eleven attestation standards include:
a. Five general standards:
T – Training and Proficiency
I – Independence
P – Performance/due professional care in planning and performance
P – Professional, adequate knowledge of subject matter
Y – Your belief that subject matter is capable of evaluation against suitable criteria
b. Two fieldwork standards (note: internal control omitted)
P – Planning and supervision
A – Appropriate, sufficient evidence to provide a reasonable basis for conclusion
Becker Auditing – 2008 Edition Chapter 2 14
c. Four reporting standards:
S – Identify the Subject matter and character of engagement
S – Disclose Significant reservations
E – Express conclusions about subject matter
R – Restrict use of the report to specified parties when:
i. The criteria are appropriate for only limited number of parties
ii. Reporting on subject matter and written assertion has not been provided
iii. Reporting on an agreed-upon procedures engagement
• An easy way to remember the attestation standards is “TIPPY-PASSER”
E. Additional Reporting Requirements
1. The report may be issued on the assertion itself or on subject matter to which the assertion relates
a. A written assertion is generally obtained
b. If material misstatements or deviations from criteria, modify the report
2. If reporting on the assertion, it should accompany the practitioner’s report or the assertion should
be clearly stated in the report.
3. No restriction on use required.
4. Scope Restrictions = Consider withdrawing
a. Examinations: Restrictions on scope of examination engagement may result in qualified,
disclaimer, or withdrawal
b. Review: restrictions on scope of review engagement result in withdrawal
F. Conclusion: fall into three groups:
1. Examination: a positive opinion, high level of assurance based on variety of procedures, like
search, verification, inquiry, and analysis
2. Review (“Negative Assurance”): Moderate level of assurance based on inquiry and analytical
procedures
3. Agreed-Upon Procedures: No assurance, but procedures and findings are listed
G. Written Assertion
1. Generally obtained in examination and review engagements. If no written assertion is provided by
management, outcome depends on whether the client is the responsible party
a. If client is responsible: failure to provide a written assertion constitutes a scope limitation
i. Modify report based on scope limitation and restrict use.
ii. Review engagement with scope limitation is incomplete, practitioner should withdraw
2. Client is not responsible: report may be issued if procedures are performed and evidence obtained.
Form of report may vary, and should be restricted
H. Other Requirements
1. Documentation requirements for attestation similar to audit or review engagement
2. Understanding with client should be established, preferably through written communication
3. Obtain representation letter from responsible party
4. Inquire regarding subsequent events
II. Agreed-Upon Procedures Engagements (mutual fund performance)
A. Practitioner is engaged to issue a report of findings based on specific agreed-upon procedures
B. Attestation standards apply to all agreed-upon procedures
C. Written assertion generally is not required
D. Conditions: procedures may be performed if the following conditions exist:
• I – Independence of the Practitioner
• A – Agreement of the Parties (agree on procedures, criteria, and limitations)
• M – Measurability and Consistency
• S – Sufficiency of the Procedures
• U – Use of the report is restricted to the specified parties
• R – Responsibility for the subject matter is one of the following:
o Client is responsible
o Client is able to provide evidence that a third party is responsible
• “I-AM-SURE” you can perform these agreed-upon procedures.
E. Reporting: Required Elements
1. Title including “Independent”, signature, and date
2. Identification of specified parties, subject matter, character of engagement, and responsible party
3. Subject matter is the responsibility of responsible party
4. Procedures performed were agreed to by specific parties identified
5. Sufficiency of procedures is solely the responsibility of specified parties
6. Engagement was conducted according to attestation standards by AICPA