Chapter 14 Other Assurance And Non-Assurance Engagements

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Slide 14.1Principles of Auditing: An Introduction toInternational Standards on AuditingChapter 14 – Other Assuranceand Non-Assurance EngagementsRick Hayes, Hans Gortemakerand Philip WallageHayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.2What services does an independent audit firmoffer their clients?Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.3Audit services start hereIFAC Code of Ethics for Professional AccountantsServices covered by IAASB PronouncementsISQCs 1–99 International Standards on Quality ControlInternational Framework forAssurance EngagementsAudits and reviews ofhistoricalfinancial information (1)Assurance engagementsother than(1)Related 700–4999Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.4Not all engagements performed by practitionersare assurance engagementsFrequently performed engagements that are notcovered by the Assurance Framework are: Engagements covered by International Standardsfor Related Services (ISRS), such as agreed-uponprocedures and compilations. The preparation of tax returns where no conclusionconveying assurance is expressed. Consulting (or advisory) engagements, such asmanagement and tax consulting.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.5Special area engagementsSpecial area engagements are based on historicalfinancial information, but are not based on thefinancial statements as a whole or on IFRS or therequisite national standard.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.6Special areas engagements (Continued)Special areas engagements reports include any ofthe following:1. Reports on Financial Statements Prepared in Accordancewith the special purpose framework (ISA 800)2. Reports on Audits of Single Financial Statements andSpecific Elements, Accounts or Items of FinancialStatement (ISA 805)3. Reports on Summarised Financial Statements (ISA 810).Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.7Reports on financial statements prepared inaccordance with the special purpose framework(ISA 800)Examples:Reports based on: a tax basis of accounting; the cash receipts and disbursements basis of accounting; information that an entity may be requested to preparefor creditors; the financial reporting provisions established by a or thefinancial reporting provisions of a contract.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.8Reports on audits of single financial statementsand specific elements, accounts or items offinancial statement (ISA 805)The auditor may be requested to express an opinion onone or more elements of financial statements(for example: accounts receivable, inventory, an employee’sbonus calculation or a provision for income taxes).This type of engagement may be done as a separateengagement or in conjunction with an audit of the entity’sfinancial statements.The auditor would express an opinion only as to whetherthat specific element audited is prepared in accordancewith the accounting standards.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.9Reports on summarised financial statements(ISA 810)An auditor should only take an engagement to report onsummarised financial statements if he has expressed anaudit opinion on the financial statements from which thesummary is made.Summarised financial statements are much less detailedthan annual audited financial statements. Therefore, thesummarised nature of the information reported needs to beclearly indicated.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.10Review engagements (ISRE 2400)The objective of a review of financial statements is toenable an auditor to state (based on limitedprocedures) ‘nothing has come to the auditor’sattention that causes the auditor to believe that thefinancial statements do not give a true and fair view(or are not presented fairly, in all material respects) inaccordance with (an identified financial reportingframework).’This way of expressing an opinion is called negativeassurance.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.11Review engagements (ISRE 2400)(Continued)Where reviews of financial statements differ mostfrom a financial statement audit is in the limitedprocedures performed (limited in inquiry ofmanagement and analytical procedures) and thereview report. Reviews are limited assuranceengagements.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.12Review: limited audit procedures Inquiry consists of seeking information ofknowledgeable persons inside or outside the entity. Analytical procedures consist of the analysis ofsignificant ratios and trends including the resultinginvestigation of fluctuations and relationships thatare inconsistent with other relevant informationor deviate from predictable amounts. Inspection consists of examining records,documents or tangible assets.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.13Assurance engagements on subject matters otherthan historical financial information (ISAEs)The ISAE standards are divided into two parts:1. ISAEs 3000–3399 which are topics that apply to allassurance engagements2. ISAEs 3400–3699 which are subject specific standards.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.14ISAEs 3000–3399:Apply to all assurance engagementsCurrently standard ISAE 3000 is the onlystandard that applies to all subject matters(ISAEs 3000–3399). This standard establishesa framework for assurance engagements otherthan audits or reviews of historical financialinformation.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.15ISAEs 3000–3399:Apply to all assurance engagements(Continued)The assurance report regarding ISAE engagements should contain the ation and description of the subject matter information.Identification of the criteria.Where appropriate, a description of any significant, inherent limitation associated with theevaluation or measurement of the subject matter against the criteria.(f) When the criteria used to evaluate or measure the subject matter are available only to specificintended users, or are relevant only to a specific purpose, a statement restricting the use of theassurance report to those intended users or that purpose.(g) A statement to identify the responsible party and to describe the responsible party’s and thepractitioner’s responsibilities.(h) A statement that the engagement was performed in accordance with ISAEs.(i) A summary of the work performed.(j) The practitioner’s conclusion.(k) The assurance report date.(l) The name of the firm or the practitioner, and a specific location.Although currently not mentioned in ISAE 3000, the report will also contain the practitioner’s signature.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.16Reasonable and limited assuranceengagements Reasonable assurance engagement objective is areduction in assurance engagement risk to an acceptablylow level in the circumstances of the engagement as thebasis for a positive form of expression of thepractitioner’s conclusion. Limited assurance engagement objective is a reduction inassurance engagement risk to a level that is acceptable inthe circumstances of the engagement, but where that riskis greater than for a reasonable assurance engagement,as the basis for a negative form of expression of thepractitioner’s conclusion.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.17ISAEs 3400–3699: Subject specificstandardsThe subject matters currently covered by IAASB’spronouncements are: ISAE 3400 The Examination of Prospective FinancialInformation ISAE 3402 Assurance Reports on Controls at aService Organisation ISAE 3410 Assurance Engagements on GreenhouseGas Statements ISAE 3420 Assurance Engagements to Report on theCompilation of Pro Forma Financial InformationIncluded in a Prospectus.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.18Examples of existing standards that may beconsidered in systems and processes, non-financialinformation or behaviour assurance engagements are: Sarbanes–Oxley Section 404 internal control auditstandard Global Reporting Initiative (GRI) SustainabilityReporting Guidelines SA 8000 standards for social accountability towardsemployees.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.19The examination of prospective financialinformation (ISAE 3400) ‘Prospective financial information’ means financialinformation based on assumptions about eventsthat may occur in the future. Prospective financialinformation can be in the form of a forecast, aprojection or a combination of both. A ‘forecast’ is prospective financial information preparedon the basis of management’s assumptions as to futureevents (best-estimate assumptions). A ‘projection’ means prospective financial informationprepared on the basis of hypothetical assumptions aboutfuture events and management actions which may ormay not take place, such as a possible merger of twocompanies (‘what-if’ scenario).Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.20Internal control reporting and SOX 404reportingA company must issue an internal control reportcontaining these statements: Management’s responsibility for establishing andmaintaining adequate internal control. The framework used by management to evaluate theeffectiveness of internal control over financialreporting. Management’s assessment of the effectiveness ofthe company’s internal control over financial reporting. The report is reviewed by an external auditor.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.21Auditor standards for internal control reports The PCAOB rules require that public accountingfirms describe in the audit report the scope of itstesting of the company’s internal control structureand procedures performed in its internal controlevaluation under SOX section 404(b). In the audit report, the registered public accountingfirm also must describe, at a minimum, materialweaknesses in company internal controls and anymaterial non-compliance found.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.22Sustainability reporting ‘triple bottomline’ assurancesEconomic sustainability an organisation’s impacts on theeconomic circumstances of its stakeholders and oneconomic systems at the local, national and global levels.Environmental sustainability an organisation’s impactson living and non-living natural systems, includingecosystems, land, air and water.Social sustainability an organisation’s impacts on thesocial systems within which it operates.Impacts on stakeholders at the local, national and globallevels.The organisation’s intangible assets, such as its humancapital and reputation.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.23The report under the GRI Guidelineshas 5 sectionsA report under GRI Guideline 3.1 comprises of two parts:Part 1 – Reporting Principles and Guidance Principles to define report content:––––MaterialityStakeholder inclusivenessSustainability contextCompleteness Principles to define report quality Guidance on how to set the report boundary.Part 2 – Standard Disclosures Strategy and profile Management approach Performance indicators.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.24Related services framework (ISRSs)Standards under this framework, InternationalStandards on Related Services (ISRSs), are appliedcurrently to two services: Agreed-upon procedures (ISRS 4400) agreed-uponprocedures are based on audit procedures in a verylimited ‘agreed-upon’ area with a proscribed set ofusers. Compilations (ISRS 4410 ) compilations offer noassurance.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.25Engagements to perform agreed-upon proceduresregarding financial information (ISRS 4400) The objective of an agreed-upon proceduresengagement is for the auditor to carry out proceduresof an audit nature to which the auditor, and the entity,and third parties have agreed to report on factualfindings. Agreed-upon procedures are not considered to be anassurance engagement. The intended user assessesthe procedures and findings and draws his ownconclusions.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.26Audit procedures agreedThe auditor performs certain procedures on subjectmatter information like financial data (e.g. accountspayable, accounts receivable, purchases from relatedparties and sales and profits of a segment of anentity), a financial statement (e.g. a balance sheet)or even a complete set of financial statements.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.27Engagements to compile financialinformation (ISRS 4410)The objective of a compilation engagement is for theaccountant to use accounting expertise, as opposed toauditing expertise, to collect, classify and summarisefinancial information. This ordinarily entails reducingdetailed data to a manageable and understandable formwithout a requirement to test the assertions underlyingthat information.Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

Slide 14.28Thank you for your attentionAny Questions?Hayes, Gortemaker and Wallage, Principles of Auditing PowerPoints on the Web, 3rd edition Pearson Education Limited 2014

International Standards on Auditing Chapter 14 –Other Assurance and Non-Assurance Engagements Rick Hayes, Hans Gortemaker and Philip Wallage. . Assurance engagements other than (1) Related Services ISA’s 100–999 IAPS’s 1000–1999 ISRE’s 2000–