an auditor‟s services · [hayes, dassen, schilder and wallage, principles of auditing an...
TRANSCRIPT
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.1
An Auditor‟s Services Principles of Auditing: An Introduction to
International Standards on Auditing - Ch 4
Rick Stephan Hayes,
Roger Dassen, Arnold Schilder,
Philip Wallage
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.2
IAASB’s Engagement Standards
• Some engagement standards are based on “International Framework for Assurance Engagements” (assurance engagements), and others result from the “Related Services Framework” (related services engagements).
• Three sets of standards (ISAs, ISREs and ISAEs) share the assurance engagement framework and one standard set (ISRS) is based on the related services framework.
• ISAs, ISREs, ISAEs and ISRSs are collectively referred to as the IAASB‟s Engagement Standards.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.3
Illustration 4.1
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.4
Reasonable and Limited Assurance
Engagements (not in text)
• “Reasonable assurance engagement” and “limited assurance engagement” distinguish between the two types of assurance engagement
• The objective of a reasonable assurance engagement is a reduction in assurance engagement risk to an acceptably low level as the basis for a positive form of expression of the practitioner‟s conclusion. E.g, “presents fairly in all material respects”
• The objective of a limited assurance engagement is a reduction in assurance engagement risk to a level that is acceptable in the circumstances, as the basis for a negative form of expression of the practitioner‟s conclusion. E.g., “nothing has come to our attention that causes us to believe that financial statements do not conform, in all material respects, with IFRS”.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.5
Besides the International Framework for Assurance
Engagements, ISAs, ISREs and ISAEs, practitioners who perform
assurance engagements are governed by (not in text)
• The IFAC Code of Ethics for Professional
Accountants
• International Standards on Quality Control
(ISQCs)
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.6
Assurance Engagements for Audits and
Reviews for Historical Financial Information
(ISAs / ISREs)
• Historical Financial Standards are divided into those
governed by International Standards on Auditing
(ISAs) and International Standards on Review
Engagements (ISREs)
• Audit standards are described in ISA 200-799.
Special Purpose Engagement and other
examinations of historical financial information is ISA
800 – 899 (except reporting which is ISA 701).
• Review standards are ISREs 2000 – 2699
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.7
Assurance Engagements on Subject Matters Other
than Historical Financial Information (ISAEs)
The ISAE standards are divided into two parts:
(1) ISAEs 3000 – 3399 which are topics that
apply to all assurance engagements
(2) ISAEs 3400 – 3699 which are subject
specific standards, for example standards
relating to examination of prospective financial
information,
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.8
Not all engagements performed by practitioners are assurance
engagements
Frequently performed engagements that are not
covered by the Assurance Framework are:
Engagements covered by International
Standards for Related Services (ISRS), such
as agreed-upon procedures and compilations.
The preparation of tax returns where no
conclusion conveying assurance is expressed.
Consulting (or advisory) engagements, such
as management and tax consulting.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.9
Related Services Framework (ISRSs)
Standards under this framework, International Standards on Related Services (ISRSs), are applied currently to two audit services:
• Agreed-upon procedures (ISRS 4400) Agreed-upon procedures are assurance based on audit procedures in a very limited “agreed upon” area with a proscribed set of users.
• Compilations (ISRS 4410 ). Compilations offer no assurance whatsoever.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.10
Assurance Engagements Defined
Assurance engagement means
an engagement in which a
practitioner (professional
accountant or auditor),
expresses a conclusion (in
report form) that is designed
to enhance the degree of
confidence users have about
the evaluation of a subject
matter against identified
criteria.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.11
five elements that all assurance
engagements exhibit
(1) a three party relationship involving a
practitioner; a responsible party; and the
intended users,
(2) a subject matter,
(3) suitable criteria,
(4) evidence
(5) an assurance
report.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.12
Illustration 4.2
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.13
Three Party Relationship
The practitioner (e.g., auditor, accountant, expert)
gathers evidence to provide a conclusion to the
intended users about whether a subject matter (e.g.,
financial statements) conforms, in all material
respects, with identified criteria.
The responsible party (usually management or the
board of directors) is one who is responsible for the
subject matter and is not the intended user.
The intended users are generally the addressee of
the assurance report.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.14
Illustration 4.3
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.15
The assurance engagement evaluates whether the subject matter conforms to suitable criteria that will meet the needs of an intended user.
A subject matter of an assurance is the topic about which the assurance is conducted.
– Subject matter could be information such as financial statements, statistical information, non-financial performance indicators, capacity of a facility, etc.
– The subject matter could also be systems and processes (e.g., internal controls, IT systems) or behavior (e.g., corporate governance, compliance with regulation, human resource practices).
Subject
Matter
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.16
Suitable Criteria
Suitable criteria are the benchmarks (standards, objectives or set of rules) used to evaluate evidence or measure the subject matter of an assurance engagement.
– International Financial Reporting Standards
– U.S. Generally Accepted Accounting Principles
– national standards
– Global Reporting Initiative
– PCAOB internal control report criteria
– Applicable law, regulation or contract
– An agreed level of performance
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.17
Characteristics of Suitable
Criteria
(a) Relevance
(b) Completeness
(c) Reliability
(d) Neutrality
(e) Understandability
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.18
Assurance Report
The practitioner provides a written report containing a conclusion that conveys the assurance obtained as to whether the subject matter conforms, in all material respects, with the identified criteria. For instance, an audit of financial statements provides an opinion on conformity with IFRS.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.19
Assurance Report Basic Elements
– A title
– An addressee:
– A description of the subject matter.
– A statement restricting the use of the assurance report
– identification the responsible party
– Statement - performed in accordance with ISAEs.
– A summary of the work undertaken
– Identification of the criteria
– The practitioner‟s conclusion
– The assurance report date.
– The name and location of the firm or the practitioner
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.20
Engagements to Review Financial Statements (ISRE 2400)
Where reviews of financial
statements differ most from
a financial statement audit
is in the limited procedures
performed (limited in inquiry
of management and
analytical procedures) and
the review report. Reviews
are limited assurance
engagements.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.21
ISRE 2400 Objective of Review (not in text)
The objective of a review of financial statements
is to enable an auditor to state whether, on the
basis of procedures which do not provide all
the evidence that would be required in an
audit, anything has come to the auditor‟s
attention that causes the auditor to believe
that the financial statements are not prepared,
in all material respects, in accordance with the
applicable financial reporting framework
(negative assurance).
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.22
• The objective of a review of interim financial
information differs significantly from that of an
audit in accordance with ISAs. A review of
interim financial information does not provide
a basis for expressing an opinion.
• A review may bring significant matters
affecting the interim financial information to
the auditor‟s attention, but it does not provide
all of the evidence that would be required in
an audit.
Engagements to Review Interim Financial Statements (ISRE 2410) Not in Text
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.23
Review: Limited Audit Procedures
• Inquiry consists of seeking information of knowledgeable persons inside or outside the entity.
• Analytical procedures consist of the analysis of significant ratios and trends including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or deviate from predictable amounts.
• Inspection consists of examining records, documents, or tangible assets, is carried out on a limited basis.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.24
The review report should contain a clear
written expression of negative
assurance. The auditor should assess
whether anything has come to the
auditor‟s attention based on the review
that causes the auditor to believe the
financial statements do not give a true
and fair view (or „are not presented
fairly, in all material respects,‟) in
accordance with the identified financial
reporting framework.
Review: Review of Financial Statements
Conclusion
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.25
SPECIAL PURPOSE ENGAGEMENTS
New terms from ISA 701 {replace} the old ISA 800 terms Not in text
The auditor refers to ISA 701 when expressing an opinion on:
(a) A complete set of financial statements prepared in accordance with a financial reporting framework designed for a general purpose, but not designed to achieve fair presentation;
(b) A complete set of financial statements prepared in accordance with a financial reporting framework designed for a special purpose {(1) Other comprehensive basis of accounting and (2) Reports on compliance with contractual agreements} such as
That used by an entity to prepare its income tax return.
The cash receipts and disbursements basis of accounting.
The financial reporting provisions of a government regulatory agency
(c) A single financial statement, or statements, that would otherwise be part of a complete set of financial statements and
(d) One or more specific elements, accounts or items of a financial statement {component financial statements}.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.26
A complete set of financial statements prepared in accordance with
a financial reporting framework designed for a general purpose, but
not designed to achieve fair presentation
For example, for a balance sheet prepared to
establish the value of net assets of an entity at
the date of its sale, the seller and the
purchaser may have agreed that estimates of
allowances for uncollectible accounts
receivable are to be made. This may result in
preparing financial information that is not
neutral (as required in paragraph 36(d) of the
ISA 200 Framework), but it may nevertheless
be acceptable in the circumstances.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.27
A financial reporting framework designed for a special
purpose {Other Comprehensive Basis of Accounting (OCBA)
and Reports on compliance with contractual agreements}
• That used by an entity to
prepare its income tax return.
• The cash receipts and
disbursements basis of
accounting.
• The financial reporting
provisions of a government
regulatory agency.
• The financial reporting
provisions of a contract
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.28
One or more specific elements, accounts or items of a financial
statement {Reports on a Component of Financial Statements}
The auditor may be requested to express an opinion on one or more components of financial statements, for example, accounts receivable, inventory, an employee‟s bonus calculation or a provision for income taxes.
This type of engagement does not result in a report on the financial statements taken as a whole and, accordingly, the auditor would express an opinion only as to whether that specific component audited is prepared in accordance with the accounting standards.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.29
Summarized Financial Statements
• ISA 701 does not discuss reports expressing
an opinion on summary historical financial
information which has been derived from
historical financial information. Standards and
guidance for auditors‟ reports on summary
audited financial statements are contained in
proposed ISA 800, “The Independent Auditor‟s
Report on Summary Audited Financial
Statements.”
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.30
Reports on Summarized Financial
Statements
Some financial statement users may only be interested in the highlights of a company‟s financial position.
The auditor expresses an opinion whether the summary financial statements are an appropriate summary of the financial statements from which they have been derived in accordance with the applied criteria.
The report must caution the reader that summarized financial statements should be read in conjunction with the company‟s most recent audited financial statements.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.31
Assurance Engagements on Other than
Historical Financial Information
Subject specific standards fall into four subject matter groups:
Prospective financial statements
Subject mater related to non-financial information
Subject matter related to systems and processes (e.g., corporate governance, environmental systems, and internal control (SOx SEC 404)
Subject matter about behavior.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.32
Examples of existing standards that may be considered in
systems and processes, non-financial information or behavior
assurance engagements are:
• Sarbanes Oxley Section 404 internal control audit standard
• Global Reporting Initiative (GRI) Sustainability Reporting Guidelines.
• SA8000 standards for social accountability towards employees,
• International Labour Organization (ILO) conventions for social accountability towards employees,
• World Business Council for Sustainable Development (WBCSD) social and eco-efficiency indicators,
• European Union Eco-management and Audit scheme (EMAS) standard for environmental management systems, and
• ISO14001 standard for environmental management systems.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.33
The Examination of Prospective
Financial Information (ISAE 3400)
“Prospective financial information” means
financial information based on assumptions
about events that may occur in the future.
Prospective financial information can be in the
form of a forecast, a projection or a combination
of both. A “forecast” is prospective financial information prepared on
the basis of management‟s assumptions as to future events
(best-estimate assumptions).
A “projection” means prospective financial information
prepared on the basis of hypothetical assumptions about
future events and management actions which may or may
not take place, such as a possible merger of two companies.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.34
Internal Control Reporting and SOX 404
reporting
A company must issue an internal control report containing these statements:
Management's responsibility for establishing and maintaining adequate internal control
The framework used by management to evaluate the effectiveness of internal control over financial reporting
Management's assessment of the effectiveness of the company's internal control over financial reporting
The report is reviewed by an external auditor.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.35
Auditor Standards for Internal Control
Reports
Section 103 of the Sarbanes-Oxley require that public accounting firms describe in the audit report the scope of its testing of the company's internal control structure and procedures performed in its internal control evaluation under SOx Section 404(b).
In the audit report, the registered public accounting firm also must describe, at a minimum, material weaknesses in company internal controls and any material noncompliance found.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.36
PCAOB Auditing Standard No. 4, Reporting on Whether a Previously
Reported Material Weakness Continues to Exist (not in text)
• Establishes requirements that apply when an
auditor is engaged to report on whether a
previously reported material weakness in
internal control over financial reporting
continues to exist
• Such an engagement is voluntary in nature at
the election of management, and may be
performed as of any reasonable date selected
by management.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.37
Economic Sustainability An organization‟s impacts on the economic circumstances of its stakeholders and on economic systems at the local, national and global levels.
Environmental Sustainability An organization‟s impacts on living and non-living natural systems, including ecosystems, land, air and water.
Social Sustainability An organization‟s impacts on the social systems within which it operates.
Impacts on stakeholders at the local, national, and global levels.
The organization‟s intangible assets, such as its human capital and reputation.
Sustainability Reporting “Triple
Bottom Line” Assurances
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.38
The report under the GRI
Guidelines has 5 sections
1. Vision and Strategy – a description of the reporting organization‟s strategy with regard to sustainability, including a statement from the CEO.
2. Profile – overview of the reporting organization‟s structure and operations and of the scope of the report.
3. Governance Structure and Management Systems – description of organizational structure, policies, and management systems, including stakeholder engagement efforts.
4. GRI Content Index – a table supplied by the reporting organization identifying where the information listed.
5. Performance Indicators – measures of the impact or effect of the reporting organization divided into integrated, economic, environmental, and social performance indicators.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.39
Related Services International Standards on Related
Services (ISRS)
Engagements covered by
International Standards
for Related Services,
including:
• Agreed-upon
procedures.(ISRS
4400)
• Compilation of financial
or other information.
(ISRS 4410)
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.40
Engagements to Perform Agreed-Upon Procedures Regarding
Financial Information (ISRS 4400)
An agreed-upon procedures engagement is an engagement in which the party engaging the professional accountant or the intended user determines the procedures to be performed and the professional accountant provides a report of factual findings as a result of undertaking those procedures.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.41
Matters to be agreed between auditor and
management include the:
nature of the engagement including the fact
that no assurance will be expressed on the
procedures performed;
identification of the financial information to
which the agreed-upon procedures will be
applied;
nature, timing, and extent of the specific
procedures to be applied.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.42
Audit Procedures Agreed
The auditor performs certain procedures concerning individual items of financial data (for example, accounts payable, accounts receivable, purchases from related parties and sales and profits of a segment of an entity), a financial statement (for example, a balance sheet) or even a complete set of financial statements.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.43
Engagements to Compile
Financial Information
(ISRS 4410)
The objective of a compilation
engagement is for the
accountant to use
accounting expertise, as
opposed to auditing
expertise, to collect,
classify and summarize
financial information. This
ordinarily entails reducing
detailed data to a
manageable and
understandable form
without a requirement to
test the assertions
underlying that information.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.44
The accountant is not ordinarily required to:
• Make any inquiries of management to assess
the reliability and completeness of the
information provided;
• Assess internal controls;
• Verify any matters; or
• Verify any explanations.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007
Slide 4
.45
Thank You for Your Attention
Any Questions?