Other Services Provided by Audit Firms

1. AuditingA Risk-Based Approach To Conducting A Quality Audit 10th edition Karla M. Johnstone | Audrey A. Gramling | Larry E. Rittenberg Chapter 17 Other Services Providedby Audit Firms

2. Learning Objectives • Identify and describe nonaudit attestation services provided by audit firms and discuss the relevant professional standards • Explain review and compilation engagements, relevant procedures performed, and reports issued • Explain the procedures and reporting requirements for providing assurance on interim financial information for audit clients • Discuss special reporting considerations for unique financial statement audit situations

3. Learning Objectives • Describe attestation engagements relating to agreed-upon procedures, financial forecasts and projections, and pro forma financial information, and the types of reports that are issued for these engagements • Describe forensic accounting and distinguish between forensic accounting and auditing • Describe sustainability reporting and articulate the auditor’s role in providing assurance on management sustainability reports

4. Professional Judgment in Context - Examples of Nonaudit Services Provided by Audit Firms

5. Professional Judgment in Context - Examples of Nonaudit Services Provided by Audit Firms

6. Learning objective 1 Identify and describe nonaudit attestation services provided by audit firms and discuss the relevant professional standards

7. Attestation Services Provided by Audit Firms

8. Subject Matter of an Attestation Engagement

9. Components of Attestation Services and Parties Involved in Attestation Services • Information or a process on which assurance service is provided • Criteria for evaluation • Sufficient appropriate evidence • Written attestation report • Parties involved • Responsible party • Practitioner • Intended users

10. Levels of Assurance Provided in an Attestation Engagement

11. EXHIBIT 17.2 - United States and International Attestation (Assurance) Standards

12. Learning objective 2 Explain review and compilation engagements, relevant procedures performed, and reports issued

13. Review engagement • Enables a practitioner to state whether anything has come to the practitioner’s attention that causes the practitioner to believe that financial statements are not prepared, in all material respects, in accordance with applicable financial reporting framework • Based on procedures which do not provide all evidence that would be required in an audit • Obtain limited assurance that there are no material modifications to be made to financial statements

14. Review Procedures(SEE Exhibit 17.4)

15. Review Procedures(SEE Exhibit 17.4)

16. Standard Review Report

17. Compilation engagements • Accountant uses accounting expertise to collect, classify, and summarize financial information • Assists management in presenting financial information in the form of financial statements • Does not undertake to obtain any assurance that there are no material modifications that should be made to the financial statements in order for the statements to be in conformity with the applicable financial reporting framework

18. Compilation Procedures • Practitioner is not required to make inquiries or perform procedures to verify, corroborate, or review information provided by the client • Additional or revised information should be obtained if practitioner believes that client-provided information may be: • Incorrect • Incomplete • Unsatisfactory • Practitioner should withdraw from engagement if client refuses to provide information

19. Learning objective 3 Explain the procedures and reporting requirements for providing assurance on interim financial information for audit clients

20. Reviews of Interim Financial Information for audit clients • SEC requires public companies to: • File quarterly financial information with SEC on Form 10-Q within 40 to 45 days and provide shareholders with quarterly reports • Include quarterly information in annual reports to SEC (Form 10-K) and in annual reports to shareholders • Have quarterly financial information reviewed by independent auditors • Review report not required to be included in quarterly information

21. Review Procedures for Interim Financial Information

22. Reporting on Interim Financial Statements • Standard report on a review of separately issued interim financial statements of public companies: • Identifies the information reviewed • Indicates whether the standards of PCAOB were followed in performing the review • Explains nature of a review • Disclaims an opinion • Provides negative assurance that auditor is not aware of any material departures from GAAP

23. Learning objective 4 Discuss special reporting considerations for unique financial statement audit situations

24. AU-C 800 - Audits of Financial Statements Prepared in Accordance with Special-Purpose Frameworks • Special-purpose framework: Financial reporting framework other than GAAP • Other comprehensive bases of accounting • Cash basis: Records cash receipts and disbursements and modifications of the cash basis having substantial support • Tax basis: Used to file income tax return for a period covered by financial statements

25. AU-C 800 - Audits of Financial Statements Prepared in Accordance with Special-Purpose Frameworks • Regulatory basis:Used to comply with requirements of financial reporting provisions of a regulatory agency to whose jurisdiction entity is subject • Contractual basis: Used to comply with an agreement between the entity and one or more third parties other than auditor • Special-purpose financial statements: Prepared in accordance with a special-purpose framework

26. Considerations When Accepting an Engagement of Audit of Special-Purpose Financial Statements • Obtain an understanding of: • Purpose for which financial statements are being prepared • Intended users • Steps taken by management to ensure that the framework is acceptable under the circumstances • Obtain an agreement from management of its understanding of and acknowledgement for its responsibility to include all appropriate disclosures

27. Considerations When Planning andPerforming an Engagement of Audit of Special-Purpose Financial Statements • Be sure to comply with all AU-C sections relevant to the audit • Adapt and apply all AU-C sections relevant to audit as necessary in circumstances • Obtain an understanding of organization’s selection and application of accounting policies

28. Considerations When Forming an Opinion on special-purpose financial statements • Consider whether management’s financial statements: • Adequately describe applicable financial reporting framework • Have an appropriate title • Include a summary of significant accounting policies • Describe how special-purpose framework differs from GAAP • Result in fair presentation of entity’s financial results

29. EXHIBIT 17.8 - Overview of Reporting Requirements for Special-Purpose Financial Statements

30. AU-C 805 • Addresses special considerations in application of AU-C 100–700 to the audit of a single financial statement or of a(n): • Specific element • Account • Item of a financial statement

31. AU-C 806 - Reporting on Compliance with Aspects of Contractual Agreements or Regulatory Requirements • Auditor is requested to report on an entity’s compliance with certain contractual agreements or regulatory requirements • Such reports can be issued if the covenants of the agreement are based on information from audited financial statements • Compliance report contains limited or negative assurance

32. Learning objective 5 Describe attestation engagements relating to agreed-upon procedures, financial forecasts and projections, and pro forma financial information, and the types of reports that are issued for these engagements

33. Agreed-Upon Procedures Engagements • Agreed-upon procedures engagement: Practitioner is engaged by a client to issue a report of findings based on specific procedures performed on subject matter • Report should be in the form of a description of procedures and associated findings • Report should indicate that it is restricted in its use to specified parties • Specified parties: Individuals who will receive the practitioner’s agreed-upon procedures report

34. Agreed-Upon Procedures

35. Financial Forecasts and Projections • Prospective financial statements: Forecasts or projections including summaries of assumptions and accounting policies • Financial forecast: Prospective financial statements that present, to the best of the responsible party’s knowledge, an entity’s: • Expected financial position • Results of operations • Cash flows

36. Financial Forecasts and Projections • Financial projection: Prospective financial statements that present, to the best of the responsible party’s knowledge, given one or more hypothetical assumptions, an entity’s: • Expected financial position • Results of operations • Cash flows

37. Compilation of Prospective Financial Statements • Assembling prospective financial statements • Assembling: Manual or computer processing of mathematical or clerical functions for presentation of prospective financial statements • Performing compilation procedures • Issuing a compilation report

38. Examination of Prospective Financial Statements

39. Agreed-Upon Procedures of Prospective Financial Statements • May be limited or extensive depending on requirements of responsible party • Must involve more than a simple reading of prospective financial statements

40. Reporting on Pro Forma Financial Information • Pro forma financial information: Shows what significant effects on historical financial information might have been had a consummated or proposed transaction occurred at an earlier date • Illustrates effects of following types of transactions • Business combinations • Disposing of a significant segment of a business • Changing the form of organization of business or its status as an autonomous entity

41. Procedures Applicable for Examining or Reviewing Pro Forma Financial Information • Obtain: • Understanding of the underlying transaction • Knowledge of each part of combined organization in a business combination • Discuss management’s assumptions regarding effects of transaction or event • Evaluate whether pro forma adjustments are completely recorded

42. Procedures Applicable for Examining or Reviewing Pro Forma Financial Information • Obtain appropriate evidence to support any pro forma adjustments • Evaluate whether management’s assumptions are described in a clear and comprehensive fashion • Determine that computations underlying pro forma adjustments are mathematically correct • Obtain from management written representations • Their responsibility for assumptions used in making pro forma adjustments

43. Procedures Applicable for Examining or Reviewing Pro Forma Financial Information • Assertion that assumptions provide a reasonable basis for presenting effects related to transaction • Assertion that significant effects related to transaction are appropriately disclosed • Read such information and evaluate: • Underlying transaction • Pro forma adjustments • Significant assumptions • Uncertainties • Evaluate source of historical financial information

44. Learning objective 6 Describe forensic accounting and distinguish between forensic accounting and auditing

45. EXHIBIT 17.19 - Differences Between Forensic Accounting and Accounting

46. Learning objective 7 DESCRIBE SUSTAINABILITY REPORTING AND ARTICULATE THE AUDITOR’S ROLE IN PROVIDING ASSURANCE ON MANAGEMENT SUSTAINABILITY REPORTS

47. sustainability-related terms • Non-financial reporting:Practice of measuring, disclosing, and being accountable to internal and external stakeholders for organizational performance toward goal of sustainable development • Corporate social responsibility reporting: Continuing commitment by business to behave ethically and contribute to economic development while improving quality of life of the workforce, their families, local community, and society at large

48. common sustainability-related terms • Triple bottom-line reporting • Reporting on: • Financial performance • Environmental performance • Social performance • Sustainability reporting: Voluntary corporate disclosures about sustainability initiatives, plans, and associated outcomes • Sustainability: Actions taken at corporate level to ensure economic, environmental, and social responsibility

49. Reporting on Sustainability Activities and Outcomes • Create a continuous platform for dialogue about expectations for responsibility and performance • Understand the impacts that organizations can have on sustainable development • Compare performance within an organization and between different organizations over time to inform decisions

50. Providing Assurance on Sustainability Reporting • Independent assurance enhances the credibility of sustainability reporting • External assurance is preferable to internal assurance because it is: • More objective • Independent from the management