Saint Paul School of Business and Law

Campetic, Palo, Leyte

Review Materials for Auditing

Theory

SPECIAL REPORT, REVIEW

ENGAGEMENTS AND OTHER RELATED
SERVICES
Special Reports: Client does not necessarily have to comply with GAAP
Auditor has to comply with GAAS and obtain reasonable degree of assurance.
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 auditors report
I.

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
The use of a non-GAAP method requires the auditor to modify the report to either a
`qualified` or `adverse` opinion unless the non-GAAP method is an OCBOA, where the
unqualified opinion on the OCBOA basis is appropriate.
2. Reports on OCBOA Financial Statements: Significant differences between the standard
auditor`s report and OCBOA FS:
a. Non-GAAP Titles (Introductory and Opinion Paragraphs)
i.
Don`t use GAAP terms
ii.
Examples:
Statement of assets and liabilities arising from cash transactions
Statement of revenue collected and expenses paid
Statement of income statutory basis
Statement of increases or decreases in funds arising from cash transactions
b. Scope paragraph:
i.
Same as standard report
c. Explanatory paragraph: OCBOA is...
i.
The basis of presentation, and referring to the footnote describing it
ii.
That the basis of presentation is non-GAAP basis
d. OCBOA Opinion Paragraph
i.
Expresses or disclaims auditor`s opinion whether FS are presented fairly, in all
material respects, in conformity with the described basis.
ii.
If it is fair on OCBOA basis
iii.
Explanatory paragraph and modifying language should be used if the FS are
not fair or if limited audit scope.
3. OCBOA Report: Prepared on a Basis to Comply with a Regulatory Agency = Restricted
Use

A17 AT (009)

Page 1 of 11

a. When FS is in conformity with requirements established by a governmental regulatory

agency, a restrictive paragraph is included limiting the use of report to management,
board of directors, and the regulatory agency.
II. SPECIAL REPORTS: Specified Elements, Accounts, or Items of a FS
1. Audit of specified elements, accounts, or items on FS may be performed either:
a. As a special engagement
b. In conjunction with an audit of FS
2. Example:
a. Rentals, royalties, profit sharing, income tax provisions, etc
3. Auditing Standards
a. GAAS should be followed with possible exception of the first report standard. This is
applicable only when specified elements, accounts, or items of a FS are intended to be in
conformity with GAAP
4. Piecemeal Opinions
a. Expressions of opinion to certain identified line items in FS, when the items are a major
portion of the FS
b. Piecemeal opinions should not be expressed when the auditor has expressed an adverse
opinion or disclaimed an opinion
i. However, an opinion on specified elements may be expressed if it does not
encompass so many items as to constitute a major portion of the FS. Such an opinion
should not accompany the disclaimer or adverse opinion.
5. General Rule:
a. Not allowed = Major item and adverse or disclaimer
b. Allowed = Minor item and not accompany adverse or disclaimer
6. Possible Restricted Use Paragraph
a. If element, account, or item is prepared to comply with a contract or agreement rather
than GAAP or OCBOA, then use of the report must be restricted to only involved parties.
III. SPECIAL REPORTS: Compliance with Aspects of Contractual Agreements or Regulatory
Requirements Related to Audited Financial Statements
1. Audit Requirement
a. Auditor must have audited the client`s FS and may only issue negative assurance on this
compliance
b. However, such assurance should not be given if FS were given an adverse or disclaimer
2. Negative Assurance = We are NOT lawyers!!!
a. Negative assurance may be in a separate report or an additional paragraph after the
opinion paragraph
b. The report will include:
i. A title using the word ``independent``
ii. Negative assurance no compliance
iii. Reference to the specific agreement
iv. A statement that the assurance is being given in connection with an audit of FS, which
was not directed to obtaining knowledge about compliance matters
v. Discussion of any significant interpretations made my management relating to the
contractual or regulatory agreement
vi. A restriction on the use of the report
vii. Signature of the firm and date of report
c. If the compliance report is issued as a separate report, the report would include:
i. A statement that the FS where audited according to GAAS, the date of the report, and
any departure from the standard report
IV. SPECIAL REPORT: Special-Purpose Financial Presentations to Comply with Contractual
Agreements
V. Or Regulatory Provisions
1. An auditor may be requested to report on:
a. An incomplete financial presentation that is prepared in conformity with GAAP or OCBOA
b. A special-purpose financial presentation that is not in conformity with GAAP or OCBOA
2. Incomplete Financial Presentation: If prepared with GAAP or OCBOA and is incomplete:
a. Restricted Use: Generally it is only for use of involved parties
b. Exception: Report filed with a regulatory agency and included in docs for general public
c. Example: schedule of gross profit defined by a regulatory body excludes certain costs
3. Non-GAAP (non-OCBOA) Financial Presentation:
A17 AT (009)

Page 2 of 11

a. Not in conformity with GAAP or OCBOA

b. Restricted Use: only for involved parties
c. Examples:
i. Loan agreement requiring the borrower to prepare consolidated FS in which inventory
is presented at a replacement cost, or an acquisition agreement requiring property,
plant, and equipment to be reported at market value.
General Rule: CPA`s report will be restricted when the FS are in compliance with a contract (as
opposed to GAAP or OCBOA)
4. Example: Special Report Incomplete FS that Otherwise Would Be in Conformity with GAAP
or OCBOA: See sample

VI. Financial Information Presented in Prescribed Forms or Schedules

1. Auditor may attest to fairness of FS in prescribed forms (i.e. loan apps or regulatory filings)
2. Auditor must pay attention to type and wording if info requested
3. Form Deficiencies: forms often prescribe the wording of auditor`s report. It may be necessary
to reword the form or attach separate report
VII.
Modifications to Special Reports in General
1. Auditor may modify unqualified report by adding an explanatory paragraph after opinion
paragraph. Reasons: lack of consistency, going concern uncertainties, other auditors, change
of prior opinion on comparative FS, and emphasis of matter
COMPILATION AND REVIEW OF FINANCIAL STATEMENTS = Unaudited/Disclaimer
I.

Levels of Service: CPAs can perform 2 levels of service for unaudited financial statements of nonpublic 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

II. Professional Standards

A. Philippine Standard on Review Engagements (PSRE)
1. Accountant should:
a. Have sufficient knowledge to identify applicable PSRE
b. Exercise professional judgment in applying PSRE
c. Be able to justify departures from PSRE
B. PSRE 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
A17 AT (009)

Page 3 of 11

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 (PSRE do NOT apply)
1. PSRE 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 PSRE 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. 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
a. Knowledge of accounting principles and practices of clients industry
b. If accountants dont have experience in that industry, they should gain required
knowledge
2. Understanding of Clients 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. P statement that compilation has been performed according to PSRS
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 PLARD when all you do is compile the financial statements.
2. Additional Requirements
A17 AT (009)

Page 4 of 11

a. Mark each page with See Accountants Compilation Report

b. SSARS does not require that compilation report be printed on accountants letterhead
3. 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
4. Reporting on Financial Statements that Omit Substantially all Disclosures
a. Compilation with Omission of All disclosures per clients request. Accountant may
compile if:
i. The accountants report indicates the omission by adding the middle
paragraph, AND
ii. 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
5. OCBOA Financial Statements If compilation is on OCBOA basis, must disclose
6. Departures from GAAP must disclose or withdraw
7. Reporting When Not Independent Disclosure Required in last paragraph
8. 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
b. Written communication required, compilation report or engagement letter (preferably
signed by management) stating services to be performed and limited use of FS
c. Engagement letter issued = accountant should reference each page of FS Restricted
Use
V. Review of Financial Statements: Non-public Companies = LIMITED ASSURANCE
A. Review Procedures should be Tailored (to specific engagement). Following factors may affect
procedures:
1. The nature and materiality of financial statement items
2. The likelihood of misstatement
3. Knowledge form current and previous engagements
4. Qualifications of the entitys accounting personnel
5. The extent to which an item is affected by managements judgment
6. Inadequacies in the entitys underlying financial data
B. Review Requirements: performance requirements:
U Understanding with client must be established
L Learn and/or obtain sufficient knowledge of the entitys business
I Inquiries should be addressed to appropriate individuals
A Analytical procedures should be performed
R Review --other procedures should be performed
C Client representation letter should be obtained from management
P Professional judgment should be used to evaluate results
A Accountant (CPA) should communicate results
1. Understanding with the Client Must be Established
a. Engagement letter recommended
b. Objectives of the engagement: to determine material modifications are necessary for
conformity with GAAP. Inquiries and analytical procedures provide support.
c. Managements Responsibilities: should be similar for financial info and financial
statements
2. Learn and/or Obtain Sufficient Knowledge of the Entitys Business
a. Knowledge of Accounting Principles and Practices of the Industry
A17 AT (009)

Page 5 of 11

3.

4.

5.

6.

7.

8.

b. Understanding of Clients Business (i.e. organization, operating characteristics, nature of

its assets, liabilities, equity, revenues, and expenses)
c. Not Required for Reviews:
i. Test of Internal Control Not Required
ii. Perform Audit Tests Not Required
iii. Assess Fraud Risk Not Required
d. Communicate with the Predecessor Accountant Successor auditor may, but not required
to.
Inquiries should be Addressed to Appropriate Individuals: Accountant should inquire within
(inside, not outside) the organization directed to members of management with
financial/accounting responsibilities, to assure that adequate responses are obtained.
Inquiries are of internal personnel, not external personnel.
Analytical Procedures should be Performed
a. Develop expectation and compare recorded amounts to that expectation
b. Analytical procedures in a review should detect unusual relationships and individual items
c. Procedures are:
i. Compare the current statements with prior period statements, or current ratios with
prior period ratios
ii. Compare actual statements with budgets or forecasts
iii. Compare financial and relevant nonfinancial information
iv. Compare ratios and indicators with those of other entities in industry
v. Compare relationships amount elements in the FS with corresponding prior period
relationships
Review Other Procedures
a. Accountant should read FS for conformity with GAAP (or OCBOA)
b. Obtain reports of other accountants who have audited/reviewed major components of
entity
Client Representation Letter from Management Must be Obtained Required
a. Letter should not be dated before the date of accountants report
b. Managements failure to provide representation letter = incomplete review
c. Contents of Letter Management should include:
i. Managements responsibility for FS and that they are fairly stated
ii. Managements full and truthful response to all inquiries
iii. Representations about the completeness of information
iv. Information concerning subsequent events
v. Acknowledgement of managements responsibility to prevent/detect fraud
vi. Knowledge of any material fraud or suspected fraud
d. Updating the Management Representation Letter. Accountant may request update when:
i. Significant amount of time passed between procedures and issuance of report
ii. A material subsequent event between completion of procedures and report
issuance
iii. Former client requests that accountant reissue a prior period report
iv. Updated letter should state:
a) Whether any previous representations should be modified
b) Whether any subsequent events requiring adjustments to or disclosure in FS
have occurred
Professional judgement to Evaluate Results
a. Incomplete Review
i. If review is incomplete, it prevents the issuance of a review report
b. Form and Content of Documentation
i. Designed to meet needs of that particular engagement
ii. Written documentation from other types of engagement may be used for support
iii. Oral explanations may be used to clarify documentation
iv. Documentation should include:
a) Significant findings, actions taken, and basis for conclusions
b) Inquiries made
c) Analytical procedures performed
d) Unusual matters and their disposition
e) Communications f) Management representation letter
NOT Included in review: Test of Internal Control and Audit Test Work
Accountant (CPA) Communicates Results
a. Reporting on a Review. Report should include:
i. A Statement that review is performed in accordance to AICPA
ii. M Statement that financial statement information is representation of management

A17 AT (009)

Page 6 of 11

I Statement that review consists principally of inquiries of company personnel

A Statement that review consists of analytical procedures applied to financial data
S Statement that review is substantially less in scope than audit
A D statement that no opinion is expressed: disclaimer of opinion is issued
Statement that accountant is not aware of any material modifications to be in
conformity with GAAP (other than those indicated in report) = LIMITED ASSURANCE
viii.Signature (manual, stamped, electronic, or typed) and date (when review procedures
were completed)
b. Miscellaneous
i. Each page of statements be marked See Accountants Review Report
ii. Date of report should be same as date the review was completed
iii. Uncertainties/Inconsistencies dont require modification if adequately disclosed in
notes
c. Accountants Independence= REQUIRED = Limited Assurance
iii.
iv.
v.
vi.
vii.

VI. Reporting on Departures from GAAP

A. Accountant should recommend to revise FS to conform with GAAP
B. If not revised, accountant should either modify report or withdraw.
C. Report Modification
1. Add separate paragraph to end of report to disclose the GAAP departure
2. Third paragraph would refer to explanatory paragraph.
D. Report Modification not Adequate
1. If disclosing GAAP departure is not adequate, accountant should withdraw.
An opinion, even if qualified or adverse, requires an audit. When compiling or reviewing and it
is a GAAP departure, report would be modified or accountant would withdraw. No opinions
expressed!
VII.
Reporting Fraud and Illegal Acts: if accountant becomes aware of such, report to appropriate
level of management
A. Inconsequential Matters: dont need to be communicated
B. Documentation: Oral or written communication. Oral communication must be documented.
C. Other Options: Withdraw or consult legal counsel if fraud or illegal acts involve owner of business
D. Confidentiality: Not disclose to third party except in limited circumstances (legal requirements,
subpoena, etc)
VIII. Restricted Use Reports
A. When FS based on criteria other than GAAP or OCBOA, report should be restricted
B. Report should clearly state its Restricted Use
IX. Change in Engagement From Audit to Compilation or Review: Change Must be Justified
A. Considerations: Before agreeing to change, accountant should:
1. Reason for the request, especially if scope limitations
2. Effort required to complete the audit
3. Estimated additional cost to complete the audit
4. If changed, report should not refer to original engagement, any auditing procedures
performed, or any scope limitation
B. Reasons for Change
1. Acceptable Reasons
a. Change in client requirements
b. Misunderstanding as to nature of the service to be rendered
c. Dont have to, but consider withdrawing for any of these reasons
2. Unacceptable Reasons
a. Audit would uncover errors or fraud
b. Client is attempting to have the FS mislead or deceive
3. Scope Limitations. The following are unacceptable reasons:
a. Client refuses to allow correspondence with legal counsel
b. Client refuses to provide a signed representation letter
c. Dont have to, but consider withdrawing for any of these reasons
LETTERS FOR UNDERWRITERS
I. Comfort Letter = Negative Assurance on unaudited interim FS)
A. Due Diligence
1. A due diligence defense may be used by the underwriter
A17 AT (009)

Page 7 of 11

2. Underwriters request comfort letters for reasonable investigation

B. Review Engagement Required: when comfort letter issued, CPA required to perform interim
review per GAAS
C. Attorneys Opinion or Representation Letter Required
D. Limitations Comments in comfort letter are limited to:
1. Financial information expressed in dollars, AND
2. AND, financial information derived from the accounting records
E. Restricted Use
II. Positive Assurance is Provided with Respect to:
A. CPAs independence
B. Compliance of FS with SEC Act, if FS are audited. (if not audited, give negative assurance)
III. Negative Assurance if Proved with Respect to:
A. Unaudited FS, unaudited condensed interim FS, and capsule financial info, assuming a review
was performed
1. If review not performed, procedures performed and findings should be listed
B. Changes in selected FS
C. Whether certain non-financial statement information included in registration statement complies to
form in all material respects with regulation S-K
IV. A List of Procedures Performed and Findings Obtained is Provided with Respect To:
A. Pro forma info and forecasts
B. Tables, statistics, and other financial info
V. The Auditor Should Not Comment or Provide Assurance on:
A. Market risk sensitive instruments
B. Qualitative disclosures
ATTEST ENGAGEMENTS (Auditing/Examining something other than historical FS)
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 clients 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. Managements Discussion and Analysis
C. Attestation Standards
1. Broader in scope than GAAS, and dont 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
A17 AT (009)

Page 8 of 11

D.

E.

F.

G.

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
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
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 practitioners 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
Conclusion: fall into three groups:
a. Examination: a positive opinion, high level of assurance based on variety of procedures,
like search, verification, inquiry, and analysis
b. Review (Negative Assurance): Moderate level of assurance based on inquiry and
analytical procedures
c. Agreed-Upon Procedures: No assurance, but procedures and findings are listed
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. 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
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:
A17 AT (009)

Page 9 of 11

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:
Client is responsible
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
7. List of procedures performed and findings
8. Practitioner was not engaged to conduct an examination of the subject matter, disclaim
opinion
9. Restricted use
F. Explanatory Language
1. Disclose stipulated facts, assumptions, or interpretations
2. Description of records, controls, or data
3. Explain practitioner has no responsibility to update report
4. Explain sampling risk
III. Financial Forecasts and Projections
A. Financial Forecast: General and limited based on expected conditions and expected
courses of action
B. Financial Projection: Limited use only based on hypothetical assumptions; the what if type
of scenario
C. Uses of Prospective Financial Statements
o General use-Financial forecast
o Limited use-Financial projection
D. Association with Prospective Financial Statements Practitioner is associated in one of three
ways: i) Compilation engagement, ii) Examination engagement (the report is generally to be
used by a third party), iii) Agree-Upon procedures engagement
Note that a review of prospective FS is not allowed.
1. Compilation of Prospective Financial Statements
a. Purpose: proper assembling of financial data based on responsible partys
assumptions:
i. There is no assurance of any kind that statements are according to AICPA
ii. The practitioner is not required to gather supporting evidence
iii. Practitioner may not issue a compilation report if the entity fails to disclose a
summary of significant assumptions
b. Contents of Compilation Report (will appear in practitioners compilation report:)
i. Indentify the responsible party and the FS
ii. Practitioner has compiled the prospective FS with attestation guideline by
AICPA
iii. Compilation is limited in scope and not express opinion
iv. Caveat that the prospective results may not be achieved
v. Practitioner assumes no responsibility to update the report
vi. vi. Signature of practitioners firm and date of report
Note: no statement that prospective FS are in conformity with AICPA guidelines
c. Compilation of a Financial Projection = LIMITED USE. The standard report slightly
change:
i.
Description of the purpose of projection at the end of first paragraph
ii.
Reference to hypothetical assumption in second paragraph
iii.
Paragraph restricting use of report
2. Examination of Prospective Financial Statements (more substantial in scope than
compilation)
A17 AT (009)

Page 10 of 11

a. Purpose: express an opinion as to whether:

i.
The statements are in conformity with AICPA guidelines
ii.
Underlying assumptions provide reasonable basis for prospective statements
b. Independence Required for examination engagements
c. Evidence Required
d. Content of Report Based on Examination
i.
Title including Independent, signature, and date of report
ii.
Identification of prospective FS
iii.
Identification of responsible party
iv.
Practitioners responsibility is to express opinion based on examination
v.
Examination was conducted according to attestation standards by AICPA
vi.
Practitioner believes that examination provides a reasonable basis for
opinion
vii.
Opinion that prospective FS are in conformity with AICPA and
underlying assumptions provide reasonable basis for the forecast or
projection
viii.
Caveat that prospective results may not be achieved
ix.
Practitioner assumes no responsibility to update report
x.
Forecast= General & Limited Use; Projection= Limited Use Only
e. Modifications to the Opinion Following issues require modifications:
i.
AICPA guidelines are not followed (qualified except for or adverse)
ii.
Significant assumptions not disclosed (adverse)
iii.
Basis not reasonable (adverse)
iv.
Scope limitation (disclaimer)
f. Sample Report Examination of a Financial Forecast see page A2-58
g. Examination of a Financial Projection standard report would change to include:
i.
Description of purpose of projection in first paragraph
ii.
Reference to hypothetical assumption in third paragraph
iii.
Paragraph restricting the use of report

A17 AT (009)

Page 11 of 11