| Attestation Engagement, defined | An engagement performed under the attestation standards.” The definition identifies the following four types of attestation engagements: (1) Assertion-based examination engagement; (2) Direct examination engagement; (3) Review engagement; and (4) Agreed-upon procedures engagement.
**The purpose of an attestation engagement is to provide users of information, generally third parties, with an opinion, conclusion, or findings regarding the reliability of subject matter or an assertion about the subject matter, as measured against suitable and available criteria** |
| FYI -
For an examination engagement, the auditor has —“To express an opinion in an examination, the practitioner obtains reasonable assurance about whether the subject matter, or an assertion about the subject matter, is free from material misstatements, whether due to fraud or error.
**Obtains sufficient appropriate evidence about whether material misstatements exist by designing and implementing appropriate responses to the assessed risks. Examination procedures may involve inspection, observation, analysis, inquiry, reperformance, recalculation, or confirmation with outside parties.”** | For a review engagement—“To express a conclusion in a review, the practitioner obtains limited assurance about whether any material modification should be made to the subject matter in order for it to be in accordance with (or based on) the criteria or to an assertion about the subject matter in order for it to be fairly stated.
**In a review, the nature and extent of the procedures are substantially less than in an examination.**
**Obtains review evidence, through the application of inquiry and analytical procedures or other procedures as appropriate, to obtain limited assurance that no material modifications should be made to the subject matter in order for it to be in accordance with (or based on) the criteria.”** |
| FYI -
For an agreed-upon procedures engagement—“To report on the application of agreed-upon procedures, the practitioner applies procedures determined by the . . . parties . . . who are responsible for the sufficiency of the procedures for their purposes. As a result of the engagement, the practitioner reports on the results of the engagement but does not provide an opinion or conclusion on the subject matter or assertion. In an agreed-upon procedures engagement, the practitioner
1. Plans the work and properly supervises other members of the engagement team.
2. Applies the procedures agreed to . . . and reports on their results.” | Reporting—“Based on evidence obtained, the practitioner expresses an opinion in an examination, expresses a conclusion in a review, or reports findings in an agreed-upon procedures engagement.” |
| True or False
Statements on Standards for Attestation Engagements (SSAEs) are issued by the AICPA's Accounting and Review Services Committee. | False, issued by the AICPA's Auditing Standards Board (ASB) |
| True or False
If criteria are determined to be “unsuitable” for an examination engagement, the practitioner may agree to perform a review engagement instead. | False, if not suitable for a examination engagement, it is not suitable for a review engagement |
| True or False
A written assertion from the responsible party is required for all attestation engagements. | False, a written assertion as to whether the subject matter is measured or evaluated according to suitable criteria is required when performing an assertion-based examination or a review engagement; a written assertion is not required when performing a direct examination engagement or an agreed-upon procedures engagement under the attestation standards. |
| FYI
The essential difference between an assertion-based examination engagement and a direct examination engagement is that: (1) a written assertion from the responsible party is required for an assertion-based examination engagement, whereas such an assertion is not obtained for a direct examination; and (2) the practitioner may report on either the assertion or the underlying subject matter for an assertion-based examination engagement, whereas the practitioner reports only on the underlying subject matter for a direct examination engagement. | For an Assertion-Based Examination Engagement—Request a Written Assertion about the Subject Matter From the Responsible Party
If the Engaging Party Is the Responsible Party and Refuses to Provide a Written Assertion—The practitioner should withdraw when that is permitted.
If the Engaging Party Is Not the Responsible Party and the Responsible Party Refuses to Provide a Written Assertion—The practitioner need not withdraw but should disclose that refusal in the practitioner's report and restrict the use of the report to the engaging party.
**The responsible party is still responsible for the subject matter as a whole, and the practitioner should request a written assertion covering the entire relevant period(s), even when the responsible party was not present during some (or all) of the period covered by the practitioner's report.** |
| FYI
Overview of Examination Reports—Basic Structure
Examination reports do not follow the structure/organization of current auditing standards
1. The paragraphs of an examination report are not labeled.
2. The body of the examination report typically consists of four paragraphs (and a signature block) as follows:
a. Introduction
b. Scope
c. Independence
d. Opinion
**Additional paragraphs may be added prior to the opinion paragraph—for example, to describe any significant inherent limitations or to emphasize certain matters related to the engagement/subject matter, and so on.** | Assertion-based examination engagement (AT-C 205)—The practitioner may either report on the responsible party’s written assertion or report directly on the subject matter; when reporting on the assertion, the assertion should accompany the practitioner’s report (alternatively, the assertion may be stated in the report).
Direct examination engagement (AT-C 206)—The practitioner reports on the underlying subject matter; the responsible party does not provide a written assertion for a direct examination engagement.
**An additional paragraph may be added after the opinion paragraph to restrict the distribution of the report when appropriate.** |
| FYI
AICPA Sample Reports—Presented at the End of the Lesson
For assertion-based examination engagement (from AT-C 205)
1. Unmodified report on management’s assertion
2. Unmodified report on subject matter
3. Disclaimer of opinion
**For direct examination engagement (from AT-C 206)—Unmodified report on the underlying subject matter** | Review Engagement, defined:
An attestation engagement in which the practitioner obtains limited assurance by obtaining sufficient appropriate review evidence about the responsible party's measurement or evaluation of underlying subject matter against criteria in order to express a conclusion about whether any material modification should be made to the subject matter information in order for it to be in accordance with (or based on) the criteria or to the responsible party's assertion in order for it to be fairly stated.
**AT-C 210 specifically prohibits review engagements involving (a) prospective financial information; (b) internal control; or (c) compliance with the requirements of specified laws, regulations, rules, contracts, or grants.** |
| Define, Agreed Upon Procedures Engagement | An attestation engagement in which a practitioner performs specific procedures on subject matter and reports the findings without providing an opinion or conclusion.
**The practitioner does not need to restrict the distribution of the report to so-called specified users; now allows for the possibility of a general-use report**
**Permits procedures to be developed during the engagement (and allows the practitioner to assist in developing the procedures) as long as the engaging party acknowledges the appropriateness of the procedures prior to issuance of the report** |
| FYI
Planning and Performing the Agreed-Upon Procedures Engagement-
1. The practitioner should not agree to perform procedures that are vague or otherwise open to varying interpretations.
a. Examples of acceptable terms include the following: inspect, confirm, compare, agree, trace, inquire, recalculate, observe, and mathematically check.
2. Only the engagement team (or other practitioners), not internal auditors, should perform the agreed-upon procedures referenced in the practitioner's report; internal auditors may prepare schedules and accumulate data for the practitioner's use
3. Prior to the issuance of the AUP report, the practitioner should obtain from the engaging party a written agreement of the procedures and acknowledgment of the appropriateness of the procedures for the intended purpose of the engagement; if the engaging party refuses to provide that, the practitioner should withdraw from the engagement.
**The written representations should be dated the same as the date of the practitioner's report.** | True or False
When engaged to apply agreed-upon procedures on a financial statement element, the CPA should present the report in the form of procedures and findings.
True |
| FYI
Examination Engagements on Prospective Financial Information
Preconditions—
1. The practitioner should not accept an engagement to examine a Forecast or projection unless the responsible party has agreed to disclose the significant assumptions;
2. Projection unless the responsible party has agreed to identify which of the assumptions are hypothetical and to comment on the limitations of the projection's usefulness; or
3. Partial presentation that does not comment on the limitations of the presentation's usefulness.
**The practitioner should request a written assertion from the responsible party; if that party refuses, the practitioner should withdraw when that is permitted by applicable law or regulation.**
The practitioner should request the required written representations from the responsible party (even if the engaging party is not the responsible party). There is no alternative to obtaining the requested representations, so the responsible party's refusal to furnish the representations is a scope limitation that may preclude an unmodified opinion and warrant withdrawal. | 1. If the prospective financial information departs in a material way from AICPA presentation guidelines—The practitioner should express a qualified or adverse opinion.
2. If the prospective financial information fails to disclose any “significant assumptions” or if one or more of the significant assumptions are not suitably supported or do not provide a reasonable basis for the forecast or projection—The practitioner should express an adverse opinion.
3. If unable to obtain sufficient appropriate evidence as a basis for the opinion—The practitioner should express a disclaimer of opinion.
**Note:
Any type of prospective financial statements (either a forecast or a projection) would be appropriate for limited use; however, only a forecast is appropriate for general use.
A forecast has to be based on a realistic premise that is supportable; however, the premise for a projection need not be supportable, although the hypothetical assumptions should be consistent with the presentation's purpose. In evaluating assumptions other than hypothetical assumptions, the practitioner can conclude that they are suitably supported if each significant assumption is supported by the “preponderance” of information.**
**Partial presentations usually are appropriate only for limited use. The practitioner should include a description of any limitations on the usefulness of the presentation.** |
| Prospective Financial Statements -
A company hired a practitioner to perform an examination of prospective financial statements. The practitioner concluded that the assumptions did not provide a reasonable basis for the prospective financial statements. Which of the following types of opinion should the practitioner issue? | Adverse
When the underlying assumptions do not provide a reasonable basis for the prospective financial statements, the practitioner should issue an adverse (not unqualified) opinion |
| Prospective Financial Statements -
In which of the following situations will a practitioner disclaim an opinion on an examination of prospective financial statements? | Disclaim an Opinion
If the practitioner is unable to obtain sufficient appropriate evidence regarding the prospective financial statements, the practitioner should disclaim an opinion (and describe the scope limitation in the report). |
| FYI
Pro Forma Financial Statements -
Applicability: AT-C 310, Reporting on Pro Forma Financial Information, applies to examination or review engagements involving pro forma financial information.
It does not apply to agreed-upon procedures engagements involving pro forma financial information or when parties request a comfort letter on pro forma financial information in connection with a stock offering.
**For example, pro forma financial information may be used to show the effects of (a) business combinations; (b) changes in capitalization; (c) dispositions of significant business segments; (d) changes in the form of business organizations; or (e) proposed sales of securities.**
**
1. For an examination, the historical financial statements must have been audited;
2. For a review, the historical financial statements must have been either audited or reviewed—they cannot express a higher level of assurance on the pro forma information than on the historical financial statements; | . The document containing the pro forma financial information must also include the historical financial statements (or the historical financial statements must be readily available);
2. For an examination, the historical financial statements must have been audited; for a review, the historical financial statements must have been either audited or reviewed—they cannot express a higher level of assurance on the pro forma information than on the historical financial statements;
3. The audit report or the review report, as applicable, must be included in the document containing the pro forma financial information (or it must be readily available); and
**The practitioner should request a written assertion from management; if management refuses, the practitioner should withdraw from the engagement (when that is permitted by law or regulation).** |
| Pro Forma, defined | A presentation that shows what the significant effects on historical financial information might have been had a consummated or proposed transaction (or event) occurred at an earlier date.”
** Written Representation - Management's refusal to provide the requested written representations is a scope limitation sufficient to cause the practitioner to withdraw from the examination or review engagement. There is no alternative for obtaining the requested written representations from management for an engagement to examine or review pro forma financial information.** |
| True or False
Pro Forma Financial Statements -
The distribution of a review report on pro forma financial information should be restricted to specified users. | False |
| True or False
Pro Forma Financial Statements -
A review report on pro forma financial information includes a disclaimer of opinion in addition to negative assurance. | True
**Negative assurance is a statement by a CPA that no adverse issues have been found regarding the accuracy of a client's financial statements**
**Positive assurance is most commonly associated with audit or examination engagements. When the audit team or CPA expresses positive assurance, they are basically saying that based on the procedures they performed, they believe the financial statements are fairly stated and conform with US GAAP.** |
| FYI
Compliance Attestations
Only consists of:
1. Examination
2. Agreed Upon Procedures
**reviews are PROHIBITED**
**Practitioner Should Request a Written Assertion from Management—If management refuses, the practitioner should withdraw from the engagement when that is permissible.**
**Management's refusal to furnish the required written representations is a scope limitation sufficient to preclude an unmodified opinion and may warrant withdrawal when that is permitted; there is no alternative to obtaining the required written representations** | Definitions -
Compliance with Specified Requirements: “An entity's compliance with specified laws, regulations, rules, contracts, or grants.”
Material Noncompliance: “A failure to follow compliance requirements or a violation of prohibitions included in the specified requirements that results in noncompliance that is quantitatively or qualitatively material, either individually or when aggregated with other noncompliance.”
**The practitioner may be engaged to report directly on the subject matter (compliance), on management's assertion about compliance, or on internal control over compliance.** |
| FYI
MD&A -
Must have audited the annual financials for the latest period applicable to the MD&A presentation; any other financials involved must have been audited (or at least reviewed if interim/quarterly financials) by the practitioner or a predecessor auditor.
Primary Dimensions of an Examination of MD&A
1. Planning the examination (similar to an audit engagement)—Develop an overall strategy that limits "attestation risk" to an acceptably low level (IxCxD)
2. Consideration of internal control applicable to MD&A (similar to an audit)
3. Obtain sufficient evidence—Varies with the circumstances
4. Consideration of subsequent events (SEC expects MD&A to reflect events at or near the filing date) | Four Assertions Implicitly Embodied in the MD&A Presentation - OCCP
1. Occurrence—Whether reported events actually occurred during the period.
2. Consistency with the financials—Whether historical amounts have been accurately derived from the financials.
3. Completeness of the explanation—Whether the description of matters comprising the MD&A presentation is complete.
4. Presentation and disclosure—Whether information in the MD&A is properly classified, described, and disclosed. |
| FYI
Modifications of MD&A (examination) Report -
1. Reservations as to presentation—Results in a qualified or adverse opinion.
2. Reservations as to scope—Results in a qualified opinion or a disclaimer of opinion.
3. Division of responsibility—May refer to another practitioner's report on MD&A for a specific component as a partial basis for one's own report.
4. Emphasis of a matter—Presented as a separate paragraph (e.g., information included beyond the SEC's requirements). | Review of MD&A—Results in Negative Assurance
Purpose—To report whether the practitioner has any reason to believe that:
1. The presentation does not include the elements required by the SEC;
2. The historical financial amounts are not accurately derived from the financials; and
3. The underlying information, assumptions, etc., do not provide a reasonable basis for the disclosures within the MD&A. |
| FYI
Assurance Services
Assurance Services, defined
Independent professional services that improve the quality or context of information for decision makers. (Quality includes the reliability and relevance of information and context refers to how the decision maker uses the information.) | Relationship of Assurance to Auditing and Attestation—
Auditing and attestation both involve enhancing the reliability of information (auditing specifically focuses on historical financial statement subject matter, whereas attestation is not limited to financial statements subject matter); assurance is broader than attestation, since assurance may address the relevance of information in addition to the reliability of information. |
