CHAPTER 21
ATTESTATION ENGAGEMENTS AND
OTHER ACCOUNTING SERVICES
Answers to Review Questions
21-1Assurance services are independent professional services that improve the quality of information, or its context, for decision makers. The definition focuses on decision-making because good decision-making requires quality information that can be financial or nonfinancial. An assurance service engagement can aid the decision maker in searching through the available information in order to identify which pieces of information are relevant for the required decision and in improving the quality of the information or its context. An assurance service engagement can also improve quality through increasing confidence in the information’s reliability and relevance.
21-2The Special Committee on Assurance Services has developed the following six assurance services:
Risk assessment - assurance that the entity’s profile of business risks is comprehensive and evaluates whether the entity has appropriate systems in place to effectively manage those risks.
Business performance measurement - assurance that an entity’s performance measurement system contains relevant and reliable measures for assessing the degree to which the entity’s goals and objectives are achieved or how its performance compares to competitors.
Information system reliability - assurance that an entity’s internal information systems provide reliable information for operating and financial decisions.
Electronic commerce - assurance that systems and tools used in electronic commerce provide appropriate data integrity, security, privacy, and reliability.
Health care performance measurement - assurance about the effectiveness of health care services provided by HMOs, hospitals, doctors, and other providers.
ElderCare - assurance that specified goals regarding the elderly are being met by various care givers.
21-3There are three broad risks associated with electronic commerce: business practices, transaction integrity, and information protection. The WebTrust Principles are:
Business Practices Disclosure - The entity discloses its business practices for electronic commerce transactions and executes transactions in accordance with its disclosed business practices.
Transaction Integrity - The entity maintains effective controls to ensure that customers’ orders placed using electronic commerce are completed and billed as agreed.
Information Protection - The entity maintains effective controls to provide reasonable assurance that private customer information obtained as a result of electronic commerce is protected from uses not related to the entity’s business.
21-4The four principles that are used in SysTrustTM to evaluate a system as reliable are:
On-line Privacy: The entity discloses its privacy practices, complies with such privacy practices, and maintains effective controls to provide reasonable assurance that personally identifiable information obtained as a result of electronic commerce is protected in conformity with its disclosed privacy practices.
Security: The entity discloses its key security practices, complies with such security practices, and maintains effective controls to provide reasonable assurance that access to the electronic commerce system and data is restricted only to authorized individuals in conformity with its disclosed security practices.
Business Practices / Transaction Integrity: The entity discloses its business practices for electronic commerce, executes transactions in conformity with such practices, and maintains effective controls to provide reasonable assurance that electronic commerce transactions are processed completely, accurately, and in conformity with its disclosed business practices.
Availability: The entity discloses its availability practices, complies with such availability practices, and maintains effective controls to provide reasonable assurance that electronic commerce systems and data are available in conformity with its disclosed availability practices.
21-5ElderCare can be a potential major service for CPA firms because the population in the U. S. and Canada is aging and many of these people have accumulated significant wealth. Additionally, individuals are living to ages where they require some form of assisted-living. In the past, these individuals relied on members of their family to provide some level of care. However, changing demographics show a more mobile, younger generation. Many of these younger families have both spouses working outside the home and they do not have time to care for elderly relatives. The CPA can bring another level of assurance or comfort to the elderly person (and family members).
There are three types of ElderCare services that practitioners can offer (1) consulting/facilitating services, (2) direct services, and (3) assurance services.
21-6SSAE No. 10 defines an attest engagement as “occurring when a practitioner is engaged to issue or does issue a report on subject matter, or an assertion about subject matter, that is the responsibility of another party."
The conditions necessary to perform an attestation engagement are that the practitioner has reason to believe that the subject matter is capable of evaluation against reasonable criteria that are suitable and available to users.
21-7Attestation standards provide for three types of engagements: (1) examination, (2) review, and (3) agreed-upon procedures. However, an individual SSAE may prohibit one or more of these types of engagements. A compilation may be performed on financial forecasts and projections. Examples of attestation engagements are (1) reporting on an entity's internal control over financial reporting, (2) providing assurance on financial forecasts and projections, (3) providing assurance on compliance with the requirements of specified laws, regulations, rules, contracts, or grants.
21-8The accountant can satisfy the requirement that the specified users take responsibility for the sufficiency of the procedures to be performed by doing one of the following:
- Comparing the procedures to be applied to written requirements of the specified users.
- Discussing the procedures to be applied with an appropriate representative of the specified users.
- Reviewing relevant contracts with or correspondence from the specified users.
21-9Management may use criteria issued by the AICPA such as the COSO criteria included in SAS No. 55. They may also use criteria established by regulatory agencies or other bodies of experts that follow a due process.
21-10Prospective financial statements are either financial forecasts or financial projections. Financial forecasts are prospective financial statements that present an entity's expected financial position, results of operations, and cash flows. They are based on assumptions reflecting conditions the responsible party expects to exist and the course of action it expects to take. Financial projections are prospective financial statements that present, given one or more hypothetical assumptions, an entity's expected financial position, results of operations, and cash flows. The primary difference between the two is that the financial projection is based on hypothetical assumptions and is intended to respond to a question such as "What would happen if...?" A financial projection is sometimes prepared to present one or more hypothetical courses of action for evaluation. Additionally, financial projections can be used only for limited distribution.
21-11Two types of services can be performed under SSARS: (1) a compilation and (2) a review.
21-12In conducting a compilation, the accountant must have the following knowledge about the entity:
- The accounting principles and practices of the industry in which the entity operates.
- A general understanding of the nature of the entity's business transactions, the form of its accounting records, the stated qualifications of its accounting personnel, the accounting basis on which the financial statements are to be presented, and the form and content of the financial statements.
In conducting a review, the accountant must possess the following knowledge about the entity:
- The accounting principles and practices of the industry in which the entity operates and an understanding of the entity's business.
- A general understanding of the entity's organization, its operating characteristics, and the nature of its assets, liabilities, revenues, and expenses; this would include general knowledge of the entity's production, distribution, and compensation methods, types of products and services, operating locations, and material transactions with related parties.
Answers to Multiple-Choice Questions
21-13 / D / 21-19 / D21-14 / C / 21-20 / C
21-15 / B / 21-21 / B
21-16 / B / 21-22 / A
21-17 / D / 21-23 / C
21-18 / B / 21-24 / B
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