Other%20Engagements

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Section 4

• Other Engagements

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Introduction

• Principal type of audit engagement?

• Public accountants also perform
• 1.
• 2
• 3.

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Special Auditing Services

• Public accountants must comply with?

• Accounting services, what must public accountants
  comply with?

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• A number of auditing services besides financial
  statements

1. Audit of financial information
2. Compliance with a contractual agreement
3. Cash-basis financial statements
4. Personal financial statements

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Special Reports

• Special reports used to describe the following
• Financial information other than F/S
• Compliance with contractual agreements
• Results of applying specified auditing procedures

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1. Audit Reports on financial information other
than financial statements

• Specified elements, accounts or items
• E.g.. Lease agreement provisions
• Modification of the standard auditors report

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AUDITORS REPORT ON SCHEDULE OF GROSS SALES To
Landlord Limited At the request of Client
Limited, we have audited the schedule of gross
sales (as defined in paragraph 2 of the lease
agreement dated My 3, 200X, with Landlord
Limited) at the King Street store (city,
province) for the year ended December 31, 200X.
This financial information is the responsibility
of the management of Client Limited. Our
responsibility is to express an opinion on this
financial information based on our audit. We
conducted our audit in accordance with generally
accepted auditing standards. Those standards
require that we plan and perform an audit to
obtain reasonable assurance whether the financial
information is free of material misstatement. An
audit includes examining, on a test basis,
evidence supporting the amounts and disclosures
in the financial information. An audit also
includes assessing the accounting principles used
and significant estimates made by management, as
well as evaluating the overall presentation of
the financial information. In our opinion, this
schedule present fairly, in all material
respects, the gross sales of Client Limited at
its King Street store (city, province) for the
year ended December 31, 200X, in accordance with
the provisions of paragraph 2 of the lease
agreement referred to above. Carney, Black and
Heath, LLP Chartered Accountants Hamilton,
Canada March 1, 200Y
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2. Audit Reports on compliance with agreements,
statutes and regulations.

• Debt agreements
• E.g.. Prepared for bond trustees
• Again a modification of the standard auditors
  report

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AUDITORS REPORT ON COMPLIANCE WITH AGREEMENT To
Trust Company Limited We have audited Clients
Limited compliance as at December 31, 200X, with
the criteria established by describe nature of
provisions to be complied with described in
sections to inclusive of
name of agreement dated ,
200X, with name of party to agreement and the
interpretation of such agreement as set out in
note 1 attached. Compliance with the criteria
established by the provisions of the agreement is
the responsibility of the management of Client
Limited. Our responsibility is to express an
opinion on this compliance based on our audit. We
conducted our audit in accordance with generally
accepted auditing standards. Those standards
require that we plan and perform an audit to
obtain reasonable assurance whether Client
Limited complied with the criteria established by
the provisions of the agreement referred to
above. Such an audit includes examining, on a
test basis, evidence supporting compliance,
evaluating the overall compliance with the
agreement, and where applicable, assessing the
accounting principles used and significant
estimates made by management. In our opinion,
Client Limited is in compliance, in all material
respects, with the criteria established by the
provisions to be complied with described in
sections to of this agreement.
Carney, Black and Heath, LLP Chartered
Accountants Hamilton, Canada Date
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3. Reports on the results of applying specified
auditing procedures to financial information
other than financial statements.

• Different from the previous engagements just
  discussed
• Informed individuals must have
• What should the public accountants report or
  letter include?

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Items included

1. Specifically identify the financial information
2. Specify procedures
3. State only factual results
4. State that an audit has not been performed
5. Indicate and restrictions on report distribution
6. Disclose the addressee, accountant name, and date

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Other Special Reports

1. Reports prepared on a basis of accounting other
   than GAAP
2. Personal financial statements

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1. Reports on cash-basis statements.

• Most common type
• Why is it not GAAP?
• More descriptive titles

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AUDITORS REPORT To the Shareholders of XYZ
Company. We have audited the accompanying
statement of assets and liabilities arising from
cash transactions of XYZ Company as at December
31, 200X, and the statements of revenue collected
and expenses paid for the year then ended. These
financial statements are the responsibility of
the companys management. Our responsibility is
to express an opinion on these financial
statements based on our audit. We conducted our
audit in accordance with generally accepted
auditing standards. Those standards require that
we plan and perform an audit to obtain reasonable
assurance 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. As described in note 1, these
financial statements were prepared on the basis
of cash receipts and disbursements and are not
intended to be a presentation in accordance with
generally accepted accounting principles. In our
opinion, these financial statements present
fairly, in all material respects, the assets and
liabilities arising from cash transactions of XYZ
Company as at December 31, 200X, and the revenue
collected and expenses paid during the year then
ended, on the basis of accounting described in
note 1. Carney, Black and Heath, LLP Chartered
Accountants Toronto, Canada March 1, 200Y
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2. Reports on personal financial statements.

• What type of person?
• GAAP is quite different
• Different descriptive titles
• Issue of completeness

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Accounting Services

• Review services and compilation engagements

• What types of companies?

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A. Review services.

• CICA 8100, a review consists of
• 1.
• 2.
• 3.

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• Purpose of a review?

• Public accounts should ensure that
• The subject matter is
• Appropriate criteria for

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Review Engagement letter

1. Review in accordance with GAAP.
2. Form and content of report.
3. Clients management responsibility
4. Detection of fraud and error.

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Professional standards for a review CICA 8100

• General Standard
• Adequate technical training and proficiency in
  conducting reviews
• Due care
• Objective state of mind

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• Review standards

1. Adequate planning and proper execution
2. Possess or acquire sufficient knowledge of the
   business
3. Plausibility

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• Reporting standards

• Scope and nature
• The report should include
• Has anything come to the accountants attention?
• That no assurance can be provided

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CICA 8100 - Enquiry, analytical procedures, and
discussion

1. What are enquiries concerned with?
2. What type of analytical procedures?
3. Discussions with whom?

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Review engagement report

1. Subject matter reported on.
2. Review made in accordance with
3. Review consisted primarily of
4. Not an audit
5. When there are no reservations unqualified
   negative assurance

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Cannot express an unqualified negative assurance?

• Departure from appropriate criteria
• Inappropriate or unreasonable interpretation
• Information not available

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Reservation in the report

• Qualification
• Adverse statement
• Denial of assurance
• A reservation paragraph

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Paragraph on restriction of use

• CICA suggests the following
• This report is intended to be used solely for
  indicate specific use and is not to be referred
  to nor distributed to any person not a member of
  management of Client Limited or name of person
  to whom the report is addressed.

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Types of review engagements

1. Interim and annual F/S
2. Financial information other than F/S
3. Compliance with agreements and regulations

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1. Interim and Annual F/S

• Should follow additional requirements of CICA
  8200
• Some specific procedures

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• Enquiries
• 1.
• 2.
• 3.
• 4.

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• Analytical procedures
• 1.
• 2.

• Previous engagements

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• Other public accountants

• Discussing the F/S
• Letter of representation

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REVIEW ENGAGEMENT REPORT To person engaging
the public accountant We have reviewed the
balance sheet of XYZ Limited as at 200X,
and the statements of income retained earnings,
and cash flows for the year then ended. Our
review was made in accordance with generally
accepted standards for review engagements and
accordingly consisted of enquiry, analytical
procedures and discussion related to information
supplied to us by the company. A review does not
constitute an audit, and consequently, we do not
express an audit opinion on these financial
statements. Nothing has come to our attention as
a result of our review that causes us to believe
that these financial statements are not, in all
material respects, in accordance with generally
accepted accounting principles. Carney, Black
and Heath, LLP Chartered Accountants Toronto,
Canada Date
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2. Financial information other than F/S

• Includes specific financial statement items
• Same review procedures but should also look at
  CICA 5805
• Report should include

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REVIEW ENGAGEMENT REPORT To ABC Company At the
request of Client Limited, we have reviewed name
of financial information of XYZ Limited as at
200X, (calculated in accordance with the
provisions of Section X of the . agreement with
ABC Company dated May 5, 199X, and the
interpretations set out in Note 1). Our review
was made in accordance with generally accepted
standards for review engagements and accordingly
consisted of enquiry, analytical procedures and
discussion related to information supplied to us
by the company. A review does not constitute an
audit, and consequently, we do not express an
audit opinion on this name of financial
information. Nothing has come to our attention
as a result of our review that causes us to
believe that this name of financial information
is not, in all material respects, in accordance
with the basis of accounting. Carney, Black
and Heath, LLP Chartered Accountants Toronto,
Canada Date
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3. Compliance with agreements and regulations

• What does this type of engagement include?
• CICA 8600
• 1.
• 2.
• 3.
• 4.

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REVIEW ENGAGEMENT REPORT To person engaging
the public accountant We have reviewed Client
Limited's compliance as at December 31, 200X,
with covenants or conditions to be complied
with described in sections .. to .. inclusive
of the agreement dated November 3, 199X, with
party to the agreement and the following
interpretations of certain provisions of such
agreement describe interpretations.Our review
was made in accordance with generally accepted
standards for review engagements and accordingly
consisted of enquiry, analytical procedures and
discussion related to information supplied to us
by the company. A review does not constitute an
audit, and consequently, we do not express an
audit opinion on this matter. Nothing has come
to our attention as a result of our review that
causes us to believe that the company is not in
compliance with covenants or conditions to be
complied with described in sections .. to ..
inclusive of the agreement and related
interpretations referred to above. Carney,
Black and Heath, LLP Chartered Accountants Toronto
, Canada Date
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B. Compilation services.

• A compilation involves
• The purpose
• Not intended to provide any assuarnace

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• When should accountant be involved?

• 1.
• 2.
• Need an agreement letter

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The agreement letter.

1. The conduct of the engagement
2. Client's responsibility
3. Cannot detect fraud or error
4. Appropriateness of F/S
5. No assurance
6. Uninformed readers
7. Notice to reader

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CICA 9200.

• Adequate technical training and proficiency in
  accounting
• Adequate planning and proper execution
• Must not accept unreasonable information

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The Notice To Reader.

• Should include the following matters
• Source of information for the compilation
• No audit or review
• Caution readers
• Should not express what?

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NOTICE TO READER To person engaging the public
accountant We have compiled the balance sheet of
Client Limited as at December 31, 200X, and the
statements of income, retained earnings, and cash
flows for the period then ended from
information provided by management (the
proprietor). We have not audited, reviewed or
otherwise attempted to verify the accuracy or
completeness of such information. Readers are
cautioned that these statements may not be
appropriate for their purposes. Carney, Black and
Heath, LLP Chartered Accountants Toronto,
Canada Date

• Lack of Independence
• I am not independent of X Limited because my
  spouse owns 25 percent of the shares of the
  company.

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C. Comfort letters Letters of consent.

• Prospectus
• Purpose of a comfort letter

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• Addressed to a regulatory authority

• Does the following
• Identifies company
• Specifies the F/S
• States the status of the examination
• Provides negative assurance
• State the use of the letter

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• Purpose of a letter of consent

• Auditors consenting to the use of their audited
  F/S
• Comply with CICA 7100

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• Underwriters

• Comfort letter to underwriters
• Auditors independence
• An opinion
• If no audit performed?
• Negative assurance
• Use of the letter

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D. Reporting on Future-Oriented F/S.

• Who is interested in future-oriented F/S?
• Most common types?

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• What do users want?

• What types of evidence does the accountant
  gather?
• Must not vouch for achievability

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AUDITORS REPORT ON FINANCIAL FORECAST To the
Directors of X Limited The accompanying
financial forecast of X Limited, consisting of a
balance sheet as at date and the statements of
income, retained earnings, and cash flow for the
period(s) then ending, has been prepared by
management using assumptions with an effective
date of effective date. We have examined the
support provided by management for the
assumptions, and the preparation and presentation
of this forecast. Our examination was made in
accordance with the applicable Auditing Guideline
issued by the Canadian Institute of Chartered
Accountants. We have no responsibility to update
this report for events or circumstances occurring
after the date of our report.

• In our opinion
• As at the date of this report,the assumptions
  developed by management are suitably supported
  and consistent with the plans of the company, and
  provide a reasonable basis for the forecast
• This forecast reflects such assumptions and
• The financial forecast complies with the
  presentation and disclosure standards for
  forecasts established by the Canadian Institute
  of Chartered accountants.

Since this forecast is based on the assumptions
regarding future events, actual results will vary
from the information presented and the variations
may be material. Accordingly, we express no
opinion as to whether this forecast will be
achieved. Carney, Black and Heath, LLP Chartered
Accountants Toronto, Canada Date
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E. Reports on Internal Control.

• Internal control letter
• Written for internal use

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• Groups outside client companies

• Regulatory agencies
• Report on internal control

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• Opinions on internal control

• Material weaknesses in internal control?

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• Reviewing internal control for the purposes of
  expressing and opinion

1. Plan
2. Review
3. Test
4. Evaluate

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Problem 1. You are a public accountant retained
by the manager of a cooperative retirement
village to do write-up work. You are expected to
compile unaudited financial statements
accompanied by a standard compilation
communication. In performing the work you
discover that there are no invoices to support
25,000 of the managers claimed disbursements.
The manager informs you that all the
disbursements are proper. Required Explain the
steps you should take in this situation.
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• Problem 2.
• Jiffy Clerical Services is a company that
  furnishes temporary office help to its customers.
  The company maintains its accounting records on a
  basis of cash receipts and cash disbursements.
  You have audited the company for the year ended
  December 31, 200X, and have concluded that the
  company's financial statements represent a fair
  presentation on the basis of accounting described
  above.
• Required
• Draft an unqualified auditors report you would
  issue covering the financial statements for the
  year ended December 31, 200X.
• Briefly discuss and justify your modifications of
  the conventional standard auditors report on
  accrual-basis statements.

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Problem 3. The following report on the basic
financial statements was drafted by a staff
assistant at the completion of the review
engagement of Delano Limited, a continuing client
for the year ended September 30, 200X.
To the Board of Directors of Delano Limited We
have reviewed the balance sheet of Delano Limited
at June 30, 200X, and the statements of income
and retained earnings for the year then ended, in
accordance with generally accepted auditing
standards. Our review included such tests of the
accounting records as we considered necessary in
the circumstances A review consists principally
of enquiries of company personnel. It is
substantially less in scope than an audit, but
more in scope than a compilation. Accordingly, we
express only limited assurance on these financial
statements. Based on our review, we are not
aware of any material modifications that should
be made to these financial statements in order
for them to be in accordance with generally
accepted accounting principles applied on a
consistent basis. Sandwich Anston
Co. CAs July 4, 200X
Required Identify the deficiencies in the draft
of the proposed report on the financial
statements. Group these deficiencies by paragraph.
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Problem 4. The limitations on the public
accountant's professional responsibilities when
they are associated with unaudited financial
statements are often misunderstood. These
misunderstandings can be substantially reduced if
the public accountants follow professional
pronouncements in the course of their work, and
take other appropriate measures. Required The
following list describes several situations
public accountants may encounter, or contentions
they may have to deal with, in association with
and preparation of unaudited financial
statements. Briefly discuss the extent of the
public accountant responsibilities and, if
appropriate, the actions they should take to
minimize any misunderstandings. Number your
answers to correspond with the numbering in the
following list.

1. The public accountants were engaged by telephone
   to perform write-up work, including the
   compilation of financial statements. The client
   believes that the public accountants have been
   engaged to audit the financial statements and
   examine the records accordingly.
2. A group of investors who own a farm that is
   managed by an independent agent engage public
   accountants to compile quarterly unaudited
   financial statements for them. The public
   accountants prepare the financial statements from
   information given to them by the independent
   agent. Subsequently, the investors find the
   statements

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• were inaccurate because their agent was
  embezzling funds. They refuse to pay the public
  accountants fees and blame them for allowing the
  situation to go undetected, contending that they
  should not have relied on the representations
  from the independent agent.
• In comparing the trial balance with the general
  ledger, the public accountants find an account
  labeled Audit Fees in which the client has
  accumulated the public accountants quarterly
  billings for accounting services, including the
  review of quarterly unaudited financial
  statements.
• To determine appropriate account classification,
  the public accountants looked at a number of the
  clients invoices. They noted in their working
  papers that some invoices were missing, but did
  nothing further because it was felt that the
  invoices did not affect the unaudited financial
  statements they were compiling. When the client
  subsequently discovered that invoices were
  missing, he contested that the public accountants
  should not have ignored the missing invoices when
  compiling financial statements and had a
  responsibility at least to inform him that thy
  were missing.
• The public accountants were engaged to review the
  financial statements of a client. While reviewing
  the draft of financial statements with their
  client, the CAs learned that the land and
  buildings were recorded at appraisal value.