Additional Assurance Services: Other Information

Chapter 20

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

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Assurance ServicesAssurance Services

Independent professional services that “improve the quality of information, or its context, for decision makers”

Assurance service encompass attestation services but are broader

Attestation, a portion of assurance services, are restricted to examination, review or agreed-upon procedures engagements

Assurance services go beyond attestation, may involve analyzing data or putting them in a form to facilitate decision making

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Relationship Between Assurance and Relationship Between Assurance and AttestationAttestation

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Demand for Assurance ServicesDemand for Assurance Services

Reduce information risk for outside parties and enable the company to contract at more favorable terms

Information technology has significantly changed expectations of information users

New services being developed Continuous auditing Assurance on system reliability

Performed in accordance with Statement on Standards for Attestation Services

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Selected Characteristics of Selected Characteristics of Assurance Services Assurance Services

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Subject MatterSubject Matter

Historical or prospective performance or condition

Physical characteristics Historical events Analyses Systems or processes Behavior

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AssertionAssertion

Declaration about whether the subject matter is presented in accordance with certain criteria.

Practitioners generally must obtain appropriate assertion about subject matter

Report can be on either The assertion about the subject matter or The subject matter itself

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CriteriaCriteria

Suitable Objective Permit reasonable consistent measurements Complete Relevant

Available Publicly available Presented in a summary, the assertion or the

practitioners’ report

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Relationships Among Terms Used Relationships Among Terms Used in Attestation Engagementsin Attestation Engagements

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Attestation RiskAttestation Risk

Risk that practitioners will unknowingly fail to appropriately modify their report on subject matter that is materially misstated

Consists of Inherent risk Control risk Detection risk

Materiality Difficult because subject matter may not be financial Determine likely needs of intended users

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Types of Attestation EngagementsTypes of Attestation Engagements

Examinations Highest level of assurance Attestation risk at low level

Reviews Limited or negative assurance Attestation risk at moderate level

Agreed-upon procedures Restricted use reports

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Examination ReportExamination Report

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Review Report on Subject Matter

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Assurance on Internal Control over Assurance on Internal Control over Financial ReportingFinancial Reporting

Presented in Chapters 7 and 18. Public companies—Performed as a part of the

integrated audit covering financial statements and internal control.

Nonpublic Companies—Have the option of having a similar integrated audit.

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Prospective Financial StatementsProspective Financial Statements

Financial Forecasts Information about the entity’s expected

financial position, results of operations and cash flows

Financial Projection Expected results, given one or more

hypothetical assumptions CPAs engaged to examine or perform

agreed-upon procedures but no review

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Examinations of Prospective Examinations of Prospective Financial StatementsFinancial Statements

Practitioners gather evidence relating to the client’s procedures for preparation of the statements

Evaluate the underlying assumptions Obtain a written representation letter from

the client Evaluate whether statements are in

conformity with AICPA guidelines

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Reporting on Prospective Reporting on Prospective Financial Statements Financial Statements

Report on subject matter States whether the statements are

presented in conformity with AICPA guidelines

Whether underlying assumptions provide a reasonable basis for the statements

Does not vouch for the achievability of the forecast or projection

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ComplianceCompliance

Types1. Attesting to an entity’s compliance with

specified requirements of laws, regulations, rules, contracts, or grants.

2. Attesting to the effectiveness of an entity’s internal control over compliance with specified requirements.

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Management’s Discussion and Management’s Discussion and AnalysisAnalysis

Management required to provide narrative explanation of financial results as part of 10-K and 10-Q

Practitioner may examine or review Objective to provide assurance on

(1) the presentation includes, in all material respects, the required elements of the rules and regulations adopted by the SEC;

(2) the historical financial amounts included in the presentation have been accurately derived, in all material respects, from the entity’s financial statements; and

(3) the underlying information, determinations, estimates, and assumptions of the entity provide a reasonable basis for the disclosures contained in the presentation.

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Trust ServicesTrust Services

Intended to address user and preparer needs regarding issues of security, availability, processing integrity, online privacy and confidentiality within e-commerce and other systems

System consists of Infrastructure Software People Procedures Data

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Trust ServicesTrust Services

The practitioner

(1) performs procedures to determine that management’s description of the system is fairly stated and

(2) obtains evidence that the controls over the system are designed and operating effectively to meet the Trust Services Principles and Criteria—the suitable criteria required for an attest engagement

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Principles and CriteriaPrinciples and Criteria

Principles

1. Security

2. Availability

3. Processing Integrity

4. Confidentiality

5. Privacy

Criteria for each principle

1. Policies

2. Communications

3. Procedures

4. Monitoring

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Types of Trust Services EngagementsTypes of Trust Services Engagements

Examination or agreed-upon procedures WebTrust

• Assurance on electronic commerce systems

SysTrust

• Assurance on any system

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Reporting on Trust ServicesReporting on Trust Services

WebTrust and SysTrust reports are similar: Assurance is provided on management’s assertion relating to the principles

SysTrust reports may be on one or more of the five principles

Designed to incorporate a seal management process Seal (logo) included on a client’s website as electronic

representation of the report Engagement must be updated at least annually to use

the seal Initial reporting period must be at least 2 months

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PrimePlus/ElderCare ServicesPrimePlus/ElderCare Services

Financial Goal setting, funding analysis, needs assessment

Nonfinancial Interpersonal and relationship management Management of interaction between service providers

and client Target market

Older clients of CPA Children of older adults Other professionals that deal with older adults

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XBRLXBRL

eXtensible Business Reporting Language is an international information format designed for business information.

Accounting profession is in process of developing guidance for CPAs to provide assurance on XBRL-Related Documents.

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Additional Future Additional Future Assurance ServicesAssurance Services

Committees working on: Health care performance measurement

This service provides assurance about the effectiveness of health care services provided by health maintenance organizations, hospitals, doctors, and other providers.

Continuous auditing

provides assurance using a series of reports provided simultaneously or shortly after the related information is released.