Developed by:

Dr. Raymond N. Johnson, CPA

Gregory K. Lowry, MBA, CPA
John Wiley & Sons, Inc.
William C. Boynton
California Polytechnic State
University at San Luis Obispo
Raymond N. Johnson
Portland State University
Walter G. Kell
University of Michigan
CHAPTER 21
OTHER SERVICES AND REPORTS
Overview of levels of assurance and
other services offered by CPAs
Other SAS Engagements
Attestation Engagements
Accounting and Review Services
Other Considerations

Assurance/Service Matrix
Figure 21-1
The basic professional standards issued by the
Auditing Standards Board that relate to these
services are as follows:
1. Statements on Auditing Standards (SAS). The
SASs are interpretations of generally accepted
auditing standards and generally relate to
managements assertions about elements
contained in the financial statements.
2. Statements on Standards for Attestation
Engagements (SSAE). The SSAEs establish a
broad framework for a variety of attest services
increasingly demanded of the accounting
profession.
Overview of Levels of
Assurance and Other Services
3. Statements on Standards for Accounting and
Review Services (SSARS). The SSARSs define the
services associated with the review or the
compilation of financial statements of a
nonpublic entity and provide guidance to
accountants concerning the standards and
procedures applicable to these 2 engagements.
These services are available only to nonpublic
entities.
Overview of Levels of
Assurance and Other Services
Other SAS Engagements
Special reports are reports resulting from the audit of, or
application of agreed-upon procedures to, historical
financial data other than financial statements
prepared in conformity with GAAP. AU 623, Special
Reports (SAS 62 & 77), indicates that the term
special reports applies to auditors reports on:

1. Financial statements that are prepared in conformity with a
comprehensive basis of accounting other than generally accepted
accounting principles.
2. Specific elements, accounts, or items of a financial statement.
3. Compliance with aspects of contractual agreements or regulatory
requirements related to audited financial statements.
4. Financial presentations to comply with contractual agreements
or regulatory provisions.
5. Financial information presented in prescribed forms or schedules
that require a prescribed form of auditors report.

Other Comprehensive
Bases of Accounting
Recognized in Auditing Standards (AU
623.04):
Federal income tax basis of accounting
Cash and modified cash basis of accounting
Accounting procedures proscribed by
government or regulator
Criteria enjoys substantial support (e.g., general
price level accounting) RARE


Other Comprehensive
Bases of Accounting
All of the 10 GAAS are applicable

The first standard of reporting is satisfied by
indicating whether the statements are
presented fairly in conformity with the basis of
accounting used.

The third reporting standard on disclosure also
applies.
Other Comprehensive
Bases of Accounting
The auditors special report on financial
statements prepared on an OCBOA should
contain 4 paragraphs:
1. An introductory paragraph that is the same
as in the auditors standard report except
that more distinctive titles should be used
for the financial statements, such as
statement of assets and liabilities arising
from cash transactions.
2. A scope paragraph that is the same as in the
auditors standard report.
Other Comprehensive
Bases of Accounting
3. An explanatory paragraph following the
scope paragraph that states the basis of
presentation and refers to the note to the
financial statements that describes the
comprehensive basis of accounting other
than GAAP.
4. An opinion paragraph that expresses the
auditors opinion (or disclaims an opinion) on
whether the financial statements are
presented fairly, in all material respects, in
conformity with the basis of accounting
described.
Special Reports
Specified Elements, Accounts, or
Items of a Financial Statement
1. These data may include rentals, royalties, profit
participation plans, or the provision for income taxes.

2. A special report may be issued on these data as a result of
an audit or the application of agreed-upon procedures.
Special Reports
Compliance Reports Related to Audited
Financial Statements

In addition to requiring audited financial statements, lenders
or their trustees often request assurance from the independent
auditor that the borrower has complied with the accounting
and auditing covenants of the agreement.
Special Report on Debt Compliance
Given as a Separate Report
Figure 21-4
INDEPENDENT AUDITORS REPORT
We have audited, in accordance with generally accepted auditing
standards, the balance sheet of XYZ Company as of December 31, 20X2,
and the related statements of income, retained earnings, and cash flows
for the year then ended, and have issued our report thereon dated
February 16, 20X3.
In connection with our audit, nothing came to our attention that caused
us to believe that the Company failed to comply with the terms,
covenants, provisions, or conditions of sections XX to XX, inclusive of
the Indenture dated July 21, 20X0, with ABC Bank insofar as they
relate to accounting matters. However, our audited was not directed
primarily toward obtaining knowledge of such noncompliance.
This report is intended solely for the information and use of the boards
of directors and management of XYZ Company and ABC Bank and
should not be used for any other purpose.
SAS 71 Review
SAS 71 Review of Interim Financial
Statements

SAS 71 pertains to reviews of interim financial
information (IFI) for less than a full year (usually
quarterly) or for a 12-month period ending on a date
other than the entitys fiscal year end. IFI includes
data on financial position, results of operations, and
cash flows in the form of complete or summarized
financial statements or summarized financial data.
SAS 71 Review
An SAS 71 review service is substantially less in scope
than an audit. However, the accountant must possess:
1. an adequate knowledge of the accounting principles
and practices of the industry in which the entity
operates and
2. an understanding of the entitys business, including
its organization, its operating characteristics, and the
nature of its assets, liabilities, revenues, and
expenses, common review procedures include:
Making certain prescribed inquiries of management
and others with financial and accounting
responsibilities concerning the entitys accounting
principles and practices and any changes therein.
SAS 71 Review
Performing analytical procedures designed to
identify relationships and individual items in the
financial information that appear to be unusual.
Obtaining information about actions taken at
meetings of stockholders and the board of directors
and its committees that may affect the financial
information.
Reading the financial information to consider
whether, on the basis of information coming to the
accountants attention, the information appears to
conform with GAAP.
Obtaining written representations from
management concerning the reviewed financial
information and managements responsibility for it.
SAS 71 Review
Additional Requirements in SAS 71
Reviews
SAS 71 reviews of IFI are performed only for
entities whose annual financial statements
are audited. As a result, the reviewing
independent accountant is expected to have
an understanding of relevant internal
control policies and procedures that relate
to the preparation of both annual and
interim financial information.
Furthermore, the accountant is expected to
use this knowledge to:
1. identify types of potential material
misstatements in the IFI and consider the
likelihood of their occurrence and
2. select the inquiries and analytical
procedures that will provide a basis for
reporting whether material modifications
should be made to the IFI to conform with
GAAP.
SAS 71 Review
Accountants Report on SAS 71 Review
of Interim Financial Information
Figure 21-5
INDEPENDENT AUDITORS REPORT
We have reviewed the accompanying [describe the statements or information
reviewed] of ABC Company and consolidated subsidiaries as of September 30,
20X1, and for the three-month and nine-month periods then ended. These
financial statements (information) are (is) the responsibility of the companys
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted 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.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements (information) for them (it) to
be in conformity with generally accepted accounting principles.
Accountants Report on
Unaudited Statements
Figure 21-6
The accompanying balance sheet of X Company as of
December 31, 20XX, and the related statements of income,
retained earnings, and cash flows for the year ended were not
audited by us, and accordingly, we do not express an opinion
on them.
(Signature and Date)
Assurance/Service Matrix
Figure 21-1
Accepting and Performing
Attest Engagements
In 1986, the AICPA issued the first in a new series of
authoritative statements entitled Statements on Standards
for Attestation Engagements (SSAEs).

Intended to provide guidance and establish a broad framework
for performing and reporting on attest services, SSAE 1,
Attestation Standards (AT 100.01) defines an attest
engagement as follows:

An attest engagement is one in which a practitioner (CPA) is
engaged to issue or does issue a written communication that
expresses a conclusion about the reliability of a written
assertion that is the responsibility of another party.
Accepting and Performing
Attest Engagements
In performing an attest engagement, a CPA:
1. gathers evidence to support the assertion,
2. objectively assess the measurements and
communications of the individual making
the assertion, and
3. reports the findings.
Accepting and Performing
Attest Engagements
Attestation Standards
In an attest engagement, the CPA must meet the 11
general attestation standards presented in AT
Section 100.

The attestation standards, like GAAS, are classified
into 3 categories: general, fieldwork, and reporting.

These standards are shown in Figure 21-7 where
they are compared with the 10 GAAS.
Accepting and Performing
Attest Engagements
Significant conceptual differences between the 2
sets of standards.
1. Extend the attest function beyond historical financial
statements. Thus, the standards omit references to
financial statements and to GAAP.
2. Allow the CPA to give assurances on the assertions below
the level of the positive expression of an opinion
associated with the traditional financial statement audit.
3. Provide for attest services tailored to the needs of specific
users based on agreed-upon procedures and limited-
use reports.

Attestation Standards Compared with GAAS
Figure 21-7
Attestation Generally Accepted
Standards Audit Standards
General Standards
1. The engagement shall be performed by a 1. The audit is to be performed by a person
practitioner or practitioners having or persons having adequate technical
adequate technical training and training and proficiency as an auditor.
proficiency in the attest function.
2. The engagement shall be performed by a
practitioner or practitioners having
adequate knowledge in the subject matter
of the assertion.
3. The practitioner shall perform an
engagement only if he or she has reason to
believe that the following 2 conditions
exist:
The assertion is capable of evaluation
against reasonable criteria that either
have been established by a recognized
body or are stated in the presentation of
the assertion in a sufficiently clear and
comprehensive manner for a
knowledgeable reader to be able to
understand them.
The assertion is capable of reasonably
consistent estimation or measurement
using such criteria.
4. In all matters relating to the engagement, 2. In all matters relating to the assignment,
an independence in mental attitude shall an independence in mental attitude is to
be maintained by the practitioner or be maintained by the auditor or auditors.
practitioners.
5. Due professional care shall be exercised 3. Due professional care is to be exercised in
in the performance of the engagement. the performance of the audit and the
preparation of the report.
Attestation Generally Accepted
Standards Audit Standards
Standards of Fieldwork
1. The work shall be adequately planned, and 1. The work is to be adequately planned, and
assistants, if any, shall be properly assistants, if any, are to be properly
supervised. supervised.
2. Sufficient evidence shall be obtained to 2. A sufficient understanding of the internal
provide a reasonable basis for the control structure is to be obtained to plan
conclusion that is expressed in the report. the audit and to determine the nature,
timing, and extent of tests to be
performed.
3. Sufficient competent evidential matter is to
be obtained through inspection,
observation, inquiries, and confirmations
to afford a reasonable basis for an opinion
regarding the financial statements under
audit.
Attestation Generally Accepted
Standards Audit Standards
Standards of Reporting
1. The report shall identify the assertion 1. The report shall state whether the
being reported on and state the character financial statements are presented in
of the engagement. accordance with generally accepted
accounting principles.
2. The report shall state the practitioners 2. The report shall identify the circumstances
conclusion about the reliability of the in which such principles have not been
assertion based on the established or consistently observed in the current period
stated criteria against which it was in relation to the preceding period.
measured.
3. The report shall state all of the 3. Informative disclosures in the financial
practitioners significant reservations statements are to be regarded as
about the engagement and the reasonably adequate unless otherwise
presentation of the assertion. stated in the report.
4. The report on an engagement to evaluate 4. The report shall either contain an
an assertion that has been prepared in expression of opinion regarding the
conformity with agreed-upon criteria on an financial statements, taken as a whole, or
engagement to apply agreed-upon an assertion to the effect that an opinion
procedures should contain a statement cannot be expressed. When an overall
limiting its use to the parties who have opinion cannot be expressed, the reasons
agreed on such criteria or procedures. therefor should be stated. In all cases
where an auditors name is associated
with financial statements, the report
should contain a clear-cut indication of
the character of the auditors work, if any,
and the degree of responsibility the
auditor is taking.
Summary of Engagements Covered by Statements
on Standards for Attestation Engagements
Figure 21-8
SSAE Nature of Type of
Section Attestation Engagement Assurance
200 Financial Forecasts and Projections Examination
A financial forecast is a prospective financial statement that Agreed-upon
presents; to the best of the responsible partys knowledge Procedures
and belief, an entitys expected financial position, results of
operations, and cash flows.
A financial projection is a prospective financial statement Compilation
that presents, to the best of the responsible partys
knowledge and belief, given one or more hypothetical
assumptions, an entitys expected financial position, results
of operations, and cash flows.
300 Reporting on Pro Forma Information Examination
The objective of pro forma financial information is to show Review
what the significant effects on historical financial
information might have been had a consummated or
proposed transaction (or event) occurred at an earlier date.
For example, pro forma financial information is commonly
used to show the effects of transactions such as a business
combination or disposition of a significant portion of
business.
SSAE Nature of Type of
Section Attestation Engagement Assurance
400 Reporting on an Entitys Internal Controls This section Examination
provides guidance regarding:
Conditions that must be met for a practitioner to examine Agreed-upon
managements assertion about the effectiveness of an Procedures
entitys internal controls, including the prohibition of
acceptance of an engagement to review such a
management assertion.
Engagements to examine managements assertion about
the design and operating effectiveness of an entitys
internal controls, including a segment of an entitys
internal controls.
Engagements to examine managements assertion about
only the suitability of design of an entitys internal controls
(no assertion is made about the operating effectiveness of
the internal controls).
Engagements to examine managements assertion about
the design and operating effectiveness of an entitys
internal controls based on criteria established by a
regulatory agency.
SSAE Nature of Type of
Section Attestation Engagement Assurance
500 Compliance Attestations This section provides guidance Examination
for engagements related to managements written assertion
either:
An entitys compliance with requirements of specified laws, Agreed-upon
regulations, rules, contracts, grants, or Procedures
The effectiveness of an entitys internal control over
compliance with specified requirements.
600 Agreed-upon Procedures Engagements This section sets Agreed-upon
forth attestation standards and provides guidance to a Procedures
practitioner concerning performance and reporting in all
agreed-upon procedures engagements, except those covered
by other specific professional standards.
700 Managements Discussion and Analysis This section Examination
sets forth attestation standards and provides guidance to a
practitioner concerning the performance of an attest Review
engagement with respect to managements discussion and
analysis prepared pursuant to the rules and regulations
adopted by the Securities and Exchange Commission (SEC),
which are presented in annual reports to shareholders and
in other documents.
Accountants Standard Report on
Examination of a Financial Forecast
Figure 21-9
We have examined the accompanying forecasted balance sheet,
statements of income, retained earnings, and cash flows of XYZ
Company as of December 31, 20XX, and for the year then ending. Our
examination was made in accordance with standards for an examination
of a forecast established by the American Institute of Certified Public
Accountants and, accordingly, included such procedures as we
considered necessary to evaluate both the assumptions used by
management and the preparation and presentation of a forecast.
In our opinion, the accompanying forecast is presented in conformity
with guidelines for presentation of a forecast established by the
American Institute of Certified Public Accountants, and the underlying
assumptions provide a reasonable basis for managements forecast.
However, there will usually be differences between the forecasted and
actual results, because events and circumstances frequently do not
occur as expected, and those differences may be material. We have no
responsibility to update this report for events and circumstances
occurring after the date of this report.
Assurance/Service Matrix
Figure 21-1
Accounting and
Review Services
The Statements and Standards for Accounting and
Review Services (SSARs) were first developed in 1979
at a time when CPAs could provide only 2 levels of
assurance on financial statements.
Audit
Unaudited

The SSARs review service was originally developed as
a lower-cost and lower-assurance alternative to an
audit of the financial statements of nonpublic
companies.
Accounting and
Review Services
The codification of Statements on Standards for
Accounting and Review Services is referred to by
AR section numbers associated with accounting
and review services. AR 100.04 defines a
nonpublic company as any entity other than:

1. One whose securities trade in a public market either on a stock
exchange (domestic or foreign) or in the over-the-counter
market, including securities quoted only locally or regionally,
2. One that makes a filing with a regulatory agency in preparation
for the sale of any class of its securities in a public market, or
3. A subsidiary, corporate joint venture, or other entity controlled
by an entity covered by 1 or 2.

Accounting and
Review Services
Review of Financial Statements

The purpose of a review engagement of the financial
statements of a nonpublic entity is to perform
inquiry and analytical procedures that provide the
accountant with a reasonable basis for expressing
limited assurance that there are no material
modifications that should be made to the
statements in order for them to be in conformity
with GAAP (or OCBOA), if applicable.
Accountants Report on SSARS Review
of Financial Statements
Figure 21-13
I [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 and 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
[owners] of XYZ Company.
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, I [we] do not express
such an opinion.
Based on my [our] review, I am [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.
Accounting and
Review Services
Compilation of Financial Statements
The purpose of a compilation engagement is to present in the
form of financial statements information that is the
representation of management without undertaking to express
any assurance on the statements.

Many small businesses rely on assistance from their CPAs to
prepare financial information for their use in either managing
the company or in submitting information about the company
to a bank in support of a request for financing.
Accounting and Review Services
Compilation procedures focus on:
Accountants knowledge of accounting principles
Understanding the nature of business transactions
Accounting records
Stated qualifications of accounting personnel
Basis of accounting used

Accountants Report on Compilation of
Financial Statements
Figure 21-14
I [we] have compiled the accompanying balance sheet of
XYZ Company as of December 31, 20XX, and the related
statements of income, retained earnings, and cash flows
and 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.
A compilation is limited to presenting in the form of
financial statements information that is the
representation of management [owners]. I [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.
Accounting and
Review Services
A sample standard review report
recommended in AR 100.17 is shown in
Figure 21-14. In some cases, management
may want the accountant to compile
financial statements so that management
can monitor the business, and
management may decide that it doesnt
need full disclosure financial statements
for this purpose.
Accounting and
Review Services
The Accounting and Review Services SSARS 8 allows the
accountant to evaluate the risk that a third party would
use the compiled financial statements. When the auditor
answers that there is little risk of a third party using the
financial statements, the accountant may either:

1. Issue a compilation report.
2. Obtain an engagement letter signed by management
documenting an understanding with the entity about the
services to be performed.
3. Issue a letter to management documenting the
understanding with the entity about the services to be
performed.

Other Considerations
Change of Engagement
In the course of rendering professional services, a CPA may be
asked to change from one type of service to another. A change
is a step up when it results in a higher level of assurance than
originally agreed to. The CPA can agree to this type of change
when:

1. there appears to be sufficient evidence to support the higher
level of assurance and,
2. it seems likely that the revised engagement can be completed in
accordance with professional standards.

In contrast, a change in engagement is a step down when a lower
level of assurance is requested by the client.
CHAPTER 21
OTHER SERVICES AND REPORTS
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