Additional Assurance Services: Historical Financial Information

1
Additional Assurance Services Historical
Financial Information
2
Other Engagements Involving Historical Financial
Information

• Special reports
• Audits of financial statements for use in other
  countries
• Audits of personal financial statements
• Issuance of comfort letters
• Accounting and review services

3
Special Reports

• Reports on financial statements prepared in
  accordance with a comprehensive basis of
  accounting other than GAAP.
• Report must describe the basis of accounting used
  and indicate that a basis of accounting other
  than GAAP is used.
• Titles of financial statements should not be
  GAAP titles
• Reports on specified elements, accounts, or items
  of financial statements.
• Examination only (i.e. expression of opinion
  agreed-upon procedures or review also available
  but not considered a special report)
• Materiality is in relation to the information
  presented
• Reports on compliance with aspects of contractual
  agreements or regulatory requirements related to
  audited financial statements.
• Auditors must have performed audit of financial
  statements
• Report should provide negative assurance as to
  compliance.

4
Special Reports

• Reports on financial presentations to comply with
  contractual or regulatory provisions
  (special-purpose presentations).
• Report should indicate basis of accounting used
• Report should include restriction to intended
  parties
• Reports on audited financial information
  presented in prescribed forms or schedules that
  require a prescribed form of auditors report.
• Auditors should not sign any statement that is
  not consistent with applicable professional
  standards.
• Such statements should be reworded or the mark
  the form see attached and attach audited
  financial statements.

5
Audit Report Cash BasisIntroductory Paragraph

• We have audited the accompanying statement of
  assets and liabilities arising from cash
  transactions of XYZ Company as of December 31,
  20X1, and the related statement of revenue
  collected and expenses paid for the year then
  ended. These financial statements are the
  responsibility of the Company's management. Our
  responsibility is to express an opinion on these
  financial statements based on our audit.

6
Audit Report Cash BasisScope Paragraph

• We conducted our audit in accordance with
  generally accepted auditing standards. Those
  standards require that we plan and perform the
  audit to obtain reasonable assurance about
  whether the financial statements are free of
  material misstatement. An audit includes
  examining, on a test basis, evidence supporting
  the amounts and disclosures in the financial
  statements. An audit also includes assessing the
  accounting principles used and significant
  estimates made by management, as well as
  evaluating the overall financial statement
  presentation. We believe that our audit provides
  a reasonable basis for our opinion.

7
Audit Report Cash BasisBasis of Accounting and
Opinion Paragraphs

• As described in Note 1, these financial
  statements were prepared on the basis of cash
  receipts and disbursements, which is a
  comprehensive basis of accounting other than
  generally accepted accounting principles.
• In our opinion, the financial statements
  referred to above present fairly, in all material
  respects, the assets and liabilities arising from
  cash transactions of XYZ Company as of December
  31, 20X1, and the revenue collected and expenses
  paid during the year then ended, on the basis of
  accounting described in Note 1.

8
Audits of Financial Statements For Use In Other
Countries

• Auditor should be familiar with accounting and
  auditing standards used in other country.
• Should obtain clients written representation
  concerning the intended use of the financial
  statements.
• Should follow AICPA general and fieldwork
  standards as appropriate and may apply other
  countrys auditing standards and indicate so in
  report.
• May issue a U.S. report modified to reflect
  accounting standards of other country or the
  report form of the other country.

9
Audits of Personal Financial Statements

• Assets and liabilities are shown at their
  estimated current values.
• Statements are titled Statement of Financial
  Condition (balance sheet) and Statement of
  Changes in Net Worth (Income Statement).
• Special problem of completeness in personal
  financial statements.
• No internal controls
• Incentives to conceal assets.

10
Issuance of Comfort Letters

• Also called letters to underwriters
• Generally requested by underwriters of securities
  offerings to provide underwriter certain
  assurances concerning
• Compliance with accounting regulations of SEC.
• Unaudited financial information included with
  registration statement to SEC.
• Non-financial information included with
  registration statement.
• To issue comfort letter, CPA must have audited
  related financial statements.

11
Accounting and Review Services

• Review services for interim information of public
  companies
• Guided by standards set forth by SAS No. 100,
  Interim Financial Information.
• Requires understanding of clients business and
  internal control
• Procedures generally consist of inquiries of
  appropriate client personnel and analytical
  procedures applied to financial data.
  Representation letter from management should be
  obtained concerning the presentation and
  completeness of the data.
• Review report provides limited or negative
  assurance that there are no required material
  modifications to the financial statements.
• Since some level of assurance is provided,
  auditor independence is required for review
  services.
• Modifications to review report only required for
  GAAP departures.

12
Accounting and Review Services

• Review services for nonpublic companies
• Guided by standards set forth by ARSC (called
  SSARS).
• Often more cost effective than an audit.
• Procedures similar to those performed in a review
  of interim statements for a public company.
• Unlike reviews of interim statements of public
  companies, auditors need not obtain knowledge
  about clients internal control.
• Review report provides limited or negative
  assurance that there are no required material
  modifications to the financial statements.
• Since some level of assurance is provided,
  auditor independence is required for review
  services.
• Modifications to review report only required for
  GAAP departures.

13
Accounting and Review Services

• Compilation Services
• Guided by standards set forth by ARSC (called
  SSARS).
• Involves organizing client-provided data in the
  format of financial statements.
• Accountant should have knowledge of the
  accounting principles and practices used in the
  clients industry and an understanding of the
  clients business transactions and accounting
  records.
• Accountant must read financial statements for
  appropriate format and obvious material
  misstatements.
• Compilation provides no assurance and report
  should contain a disclaimer of opinion (report
  only required for intended third party use).
• Modification to report required for
• Departures from GAAP
• Omission of substantially all disclosures
• Information in prescribed forms
• CPA not independent

14
Review Report for Nonpublic Companies First
Paragraph

• We have reviewed the accompanying balance
  sheet of XYZ Company as of December 31, 20XX, and
  the related statements of income, retained
  earnings, and cash flows for the year then ended,
  in accordance with Statements on Standards for
  Accounting and Review Services issued by the
  American Institute of Certified Public
  Accountants. All information included in these
  financial statements is the representation of the
  management of XYZ Company.

15
Review Report for Nonpublic Companies Second
Paragraph

• A review consists principally of inquiries
  of company personnel and analytical procedures
  applied to financial data. It is substantially
  less in scope than an audit in accordance with
  generally accepted auditing standards, the
  objective of which is the expression of an
  opinion regarding the financial statements taken
  as a whole. Accordingly, we do not express such
  an opinion.

16
Review Report for Nonpublic Companies Third
Paragraph

• Based on our review, we are not aware of any
  material modifications that should be made to the
  accompanying financial statements in order for
  them to be in conformity with generally accepted
  accounting principles.

17
Compilation ReportFirst Paragraph
We have compiled the accompanying balance sheet
of XYZ Company as of December 31, 19XX, and the
related statements of income, retained earnings,
and cash flows for the year then ended, in
accordance with Statements on Standards for
Accounting and Review Services issued by the
American Institute of Certified Public
Accountants.
18
Compilation ReportSecond Paragraph
A compilation is limited to presenting in the
form of financial statements information that is
the representation of management. We have not
audited or reviewed the accompanying financial
statements and, accordingly, do not express an
opinion or any other form of assurance on them.