AUDIT RELATED SERVICES & OTHER SERVICES

Dr. Supiah Salleh

Lesson Outcome

Compare and contrast the different types

of audit related services
Explain how audit related services differ
from financial statement audit
Types of assurance engagements

Attestation engagements
Prospective financial statements
Agreed upon procedures engagements
Review and compilation services
Review of interim financial info for public
companies
Attestation Engagements

Assurance services = independent

professional services that improve the
quality of information for decision makers.
One category of assurance service is
attestation services
Attestation engagement = the audit
reports on the reliability of information or
an assertion made by another party.
E.g. bank that requests an auditor to report in
writing whether an audit client has adhered to
all requirements of a loan agreement.
Attestation Engagements

The person performing attestation need to have adequate

knowledge of the subject matter to be attest.
Eg. If need to attest a companys compliance with
environmental protection laws, practitioner need a
thorough knowledge of the laws and methods that
companies use to assure compliance.
The subject matter to be attested should be capable of
evaluation against criteria that are suitable and available
to users
Specific attestation standards have been developed
Prospective financial statements, pro forma financial info, reports on
internal control over financial reporting for private companies,
compliance with laws and regulations, agreed upon procedures and
management discussion & analysis
Malaysian scenario
In Malaysia, specific ISAs have defined four levels of
engagement
The examination of prospective financial information
(ISA 810)
Engagements to review financial statements (ISA 910)
Engagements to perform agreed-upon (ISA 920)
Engagements to compile financial information (ISA
930)
Examination = auditor provides conclusion in a positive
form.
Practitioner makes a direct statement as to whether the presentation
of the assertions, conforms to applicable criteria.
The distribution of audit report on examination is unrestricted by the
client after it is issued
Malaysian scenario
Review = auditor provides conclusion in the form of a
negative assurance.
The report states whether any information that the practitioner is
aware of where such assertions are not presented in all material
respects in conformity with applicable criteria
Review report is unrestricted in its distribution
Review engagements are prohibited if there is specified attestation
standards have been issued
Agreed-upon procedures = procedures to be performed
are agreed upon by the practitioner, responsible party
making the assertions and specific person who are
intended users of audit reports
Reports are limited in distribution to only the involved parties who
have knowledge about the procedures and level of assurance
Report should indicate what procedures management and
practitioner agreed to what the practitioner found when performing
such procedures
WebTrust & SysTrust Services

WebTrust service = audit to provide

reasonable assurance that a companys
website complies with certain Trust
Services principles and criteria (table 25-
2)
SysTrust service = provide assurance
that a system is reliable (IT, security,
availability, and accuracy of computer
systems)
Prospective Financial Statements (1)
2 types of prospective FS
Forecasts = are prospective FS that present an
entitys expected financial position, results of
operation, cash flows to the best of the responsible
partys knowledge and belief
Are commonly required by banks as a part of loan
applications
Projections = prospective FS that present an entitys
financial position, results of operation, cash flows, to
the best of the responsible partys knowledge and
belief, given one or more hypothetical assumptions.
Eg. Preparation of projected FS assuming that the
company is able to increase price of its primary product by
10%
Prospective Financial Statements (2)
Use for general or limited use.
General = use by any third party. Eg. Inclusion
of a financial forecast in a prospectus for the
sale of hospital bonds
Limited = use by third parties with whom the
responsible party is negotiating directly. Eg
inclusion of a financial projection in a bank loan
application doc.
Projections is restricted to limited use only.
Because limited users are in a position to obtain
a better understanding of the prospective
statements & related circumstances
Prospective Financial Statements (3)
Types of engagement for prospective FS examination,
compilation or an agreed-upon procedures engagement
Examination of prospective FS
Practitioner is NOT attesting the accuracy of the
prospective FS
The focus is on examining the underlying assumptions and
the preparation and presentation of forecast or projection
4 elements of an examination:
Evaluate the preparation of prospective FS
Evaluate the support underlying the assumptions
Evaluate the presentation of the prospective FS for conformity
Issue an examination report
Auditors are only collecting evidence about the
completeness and reasonableness of underlying
assumptions disclosed in prospective FS
Agreed-upon procedures (1)

Def: auditor and mgmt or a 3rd party user agreed that the
audit will be limited to certain specific audit procedures
Eg. Perform agreed-upon procedures on the gross
sales account for a lease agreement. Usually
performed for retail stores when the store leases from
the building owner on the basis of a percent of gross
sales.
Are also carried out on non-financial statement subject
matter
Eg. For a mutual fund in calculating the internal rate of return, beta
risk for measuring volatility, & other relevant info. Important to
investors.
Here, auditor provides a report of the factual findings of agreed upon
procedures & NO ASSURANCE is expressed
Agreed-upon procedures (2)
Procedures & evidence
Inquiry and analysis
Re-computation, comparison and other clerical accuracy checks
observation
Inspection
Obtaining confirmation
Report the findings
Identify specific information that the agreed-upon procedures have
been performed
List the specific procedures performed
Describe the auditors factual findings details of errors and
exceptions found
A statement that the report is restricted to those parties that have
agreed to the procedures performed
Review and Compilation Services
Partnership or sole proprietors may have their FS
reviewed or compiled by an auditor instead of having
them audited
Companys mgmt may believe that an audit is
unnecessary because of the active involvement of
owners and the company may not have significant
amount of debt or other regulatory requirement
Review provide limited assurance
Compilation provides no expressed assurance
Less evidence is required for these services and they can
be provided at a lower fee than an audit
Because these services provide less assurance, it is
important the accountant establish understanding with
client in written engagement letter
Review services (1)

Def: objective of a review of FS is to enable

auditor to provide a statement of negative
assurance
Negative assurance states whether anything
has come to the auditors attention that can
cause the auditor to believe that the FS are not
prepared in all material respects in accordance
with approved acctg stds
Review services is designed to allow accountant
to express limited assurance that the FS are in
accordance with approved acctg standards
Review services (2)
Procedures:
Evidence for a review is usually inquiries of mgmt and
analytical procedures
Review does not include obtaining understanding of
internal control, tests of controls, substantive tests of
transactions or specific tests of balances like
confirmation of receivables or physical examine
inventory
Recommended procedures:
Obtain knowledge of acctg principles & practices of clients
industry
Obtain knowledge of the client
Make inquiries of mgmt
Perform analytical procedures
Obtain letter of representation
Review services (3)
Form of report figure 25-9 & 25-10
3 main aspect of report
First paragraph is similar to an audit report except for its
reference to a review service than an audit
2nd para review consists primarily of inquiries and
analytical procedures. It also mention that a review is
substantially less in scope than an audit and no opinion
is expressed.
3rd para express limited assurance in the form of a
negative assurance we are not aware of any material
modifications that should be made to the financial
statements.
If client failed to follow acctg std in a review
engagement, a modification report is needed
 Review vs Audit
Review Audit

1. The objective is to state whether anything has 1. The objective is to express an opinion whether
come to the auditors attention that causes him to the financial statements give a true and fair view.
believe that the financial statements do not
present a true and fair view.

2. Provides negative assurance on engagement. 2. Provides positive assurance on engagement.

3. Provides limited assurance (lower than 3. Provides reasonable but not absolute
assurance provide by audit). assurance.

4. Auditors to comply with auditing standards 4. Auditors apply approved standards on auditing
applicable to review engagements. as performance criteria.

5. Perform primarily procedures such as inquiry 5. Perform auditing procedures such as

and analytical procedures. confirmation, inquiry, physical examination,
inspection, computation and observation.

6. Does not ordinarily involve an assessment of 6. Require an understanding of internal control.

accounting and internal control.

7. Auditor provides a review report. 7. Auditor issues an auditors report.

Compilation services (1)

Def: accountant presents to a client or 3rd party FS

that the accountant has prepared
The audit firm does not express any assurance on the
statements
Many audit firm prepare monthly, quarterly or annual FS
for their clients
These FS are usually for internal use by mgmt, although
they can be provided to external users
If the FS will be used by 3rd party the chartered
accountant is required to issue a compilation report
The accountant is not required to be independent to
perform a compilation & the FS can be issued without
additional disclosures
Compilation services (2)

Accountant must do the following:

Establish an understanding with client about the nature and
limitations of the services to be performed and a description
of the report
Possess knowledge about acctg principles and practices of
the clientss industry
Know the client; nature of business transactions, acctg
records, and employees
Make inquiries to determine whether clients information is
satisfactory
Read the compiled FS and be alert fro any obvious
omissions or errors in arithmetic & approved acctg standards
Compilation services (3)

Form of Report:
Compilation with full disclosure : disclosures in accordance
with approved acctg stds the same for audited FS or
reviews. Refer Figure 25-11
Compilation that omits substantially all disclosures : report
indicates the lace of disclosures and the absence of
disclosures is not with the intent to mislead users. This type
of statement is expected to be used for mgmt purposes only.
Refer Figure 25-12
Compilation that departs from approved acctg standards :
accountant has to draw attention to this fact. Refer Figure
25-13
Compilation without independence : in the compilation report
should include in last para we are not independent with
respect to ABC Sdn Bhd
 Compilation vs Review
Compilation Review
Objective Presenting in the form of performing inquiry and
financial statements, analytical procedures that
information that is the provide the accountant with
representation of a reasonable basis for
management, without expressing limited
undertaking to express any assurance that there are no
assurance on the material modifications that
statements should be made to the
statements in order for
them to be in conformity
with GAAP

Level of Low level / no assurance Limited assurance

assurance
Review of Interim Financial
Information for Public Companies (1)
Bursa Malaysia require FS to be reviewed
by the companys external auditor prior to
the companys submission to Bursa
Bursa Malaysia also require a foot note in
the annual audited FS disclosing quarterly
sales, gross profit, income, and EPS for the
past 2 years.
Usually, the footnote in the annual
statements is labeled unaudited but at a
minimum the audit firm must perform
review procedures on the footnote
Review of Interim Financial
Information for Public Companies (1)
Audit firm performs inquiry procedures to ensure
the statements complied with FRS 134 Interim
Financial Reporting.
The review of interim information for public
companies are not specifically dealt with by any
assurance std, but auditors generally rely on ISA
910 Engagements to Reviews Financial Statement
A review on interim fin info does not provide a
basis for expressing a positive-form opinion
There are no tests of the acctg records,
independent confirmation or physical examinations
Review of Interim Financial
Information for Public Companies (2)
Some differences between the 2 types of review
Because annual audit is performed for a client who
has a review of interim info, auditor must obtain
sufficient infor about clients internal control for both
annual and interim fin info
Auditors knowledge of the results of the audit
procedures is used in considering the scope and
result of the inquiries & analytical procedures
Under review engagements auditor inquire about
actions of directors and shareholders meetings; under
review of interim information, auditor reads the
minutes of those meetings
Auditor must obtain evidence that the interim fin info
agrees or reconciles with acctg records.
Review of Interim Financial
Information for Public Companies (3)
The standard report in figure 25-14
Each page of the interim financial info should be
marked as un-audited
If auditor finds that there has been a departure
from approved acctg standards, the report
should be modified
 Audit vs Review vs Agreed-upon
Type of Auditing Review of financial Agreed-upon
service information procedures
Objective Express opinion on FS To enable the To carry out
prepared practitioner to express procedures of an audit
conclusion whether nature to which the
anything has come to auditor and the entity
his attention and and any appropriate
resulting in the FS not third parties have
prepared in all material agreed.
respects in accordance
with an identified
financial reporting
framework.
(i.e express negative
assurance)

Level of Reasonable Limited/moderate No assurance

assurance
Level of lower Higher Higher
engagement
risk
Report Positive form in our Negative form nothing Factual findings
prepared opinion has come to our
attention
Tutorial - individual

1. Explain the meaning of negative assurance in a review

engagement and explain why it is used.
2. Explain the important aspects of the form of report for
a review engagement service engagement.
3. What is the objective of an agreed-upon engagement,
and how does it differ from review engagement?
4. Explain 5 procedures used in an agreed-upon
engagement .
5. Describe the contents of the report to be issued upon
completion of an engagement to perform agreed-upon
services.
6. Distinguish between compilation and review
engagement and the level of assurance.