CPA AUD: Special Topics - Other Assurance Services - Reviews, Compilations, Agreed-Upon Procedures

What Is It?

Other Assurance Services: Reviews, Compilations, Agreed-Upon Procedures refers to a set of services provided by certified public accountants (CPAs) to help clients achieve their objectives. These services involve reviewing, compiling, and performing agreed-upon procedures on financial statements, transactions, or other data.

Why Does the Exam Ask This?

The exam asks about Other Assurance Services to assess the candidate's ability to apply professional judgment, evaluate risks, and provide assurance on financial statements and transactions. This topic measures the candidate's understanding of the standards and rules governing these services, as well as their ability to identify and address potential risks and limitations.

What Do I Need to Know First?

To understand Other Assurance Services, you should first know: 1. The different types of assurance services offered by CPAs (e.g., reviews, compilations, agreed-upon procedures) 2. The standards and rules governing these services (e.g., AICPA, PCAOB) 3. The key characteristics and limitations of each service 4. The importance of professional judgment and risk assessment in providing assurance services

Topic Snapshot

Other Assurance Services: Reviews, Compilations, Agreed-Upon Procedures is a critical topic in the CPA exam, as it represents a significant portion of the AUD section. Understanding these services is essential for CPAs to provide high-quality assurance services to clients and to comply with relevant standards and regulations.

Exam / Job / Audit Weighting

Frequency: 10-15% of AUD section Difficulty Rating: Intermediate Question Type or Real-World Task Type: Multiple-choice questions, case studies, and scenario-based questions

Difficulty Level

intermediate

Must-Know Rules, Formulas, Standards, or Principles

1. The AICPA's Statements on Standards for Accounting and Review Services (SSARS) govern reviews and compilations.
2. The PCAOB's Auditing Standards govern agreed-upon procedures.
3. The key characteristics and limitations of each service, including the level of assurance provided and the type of procedures performed.

Misconceptions

1. Believing that reviews and compilations are interchangeable terms.
2. Thinking that agreed-upon procedures are only used for financial statement audits.
3. Assuming that reviews and compilations are only used for small businesses or non-profit organizations.
4. Believing that professional judgment is not necessary in providing assurance services.
5. Thinking that risk assessment is not a critical component of assurance services.

Common Mistakes

1. Failing to understand the key characteristics and limitations of each service.
2. Not identifying and addressing potential risks and limitations.
3. Providing inadequate or insufficient procedures in agreed-upon procedures engagements.
4. Failing to document procedures and findings in reviews and compilations.
5. Not considering the client's objectives and needs when providing assurance services.

The Common Trap

The most common trap is failing to understand the key characteristics and limitations of each service and not identifying and addressing potential risks and limitations.

Terms to Remember

1. Review: A service that involves applying accounting and financial reporting standards to assist management in presenting financial statements.
2. Compilation: A service that involves presenting financial statements based on information provided by management.
3. Agreed-Upon Procedures: A service that involves performing specific procedures on financial statements or transactions to provide limited assurance.
4. Professional judgment: The ability to make informed decisions based on experience, knowledge, and analysis.
5. Risk assessment: The process of identifying and evaluating potential risks and limitations in providing assurance services.

Step-by-Step Process

To perform a review, compilation, or agreed-upon procedures engagement, follow these steps: 1. Understand the client's objectives and needs. 2. Identify and assess potential risks and limitations. 3. Determine the appropriate procedures to perform. 4. Perform the procedures and document findings. 5. Report on the results of the engagement.

Exam Answer Builder

1-mark Question

What is the primary objective of a review engagement? A) To provide a clean opinion on financial statements. B) To apply accounting and financial reporting standards to assist management. C) To perform agreed-upon procedures on financial statements. D) To compile financial statements based on information provided by management.

Correct Answer: B

2-mark Question

What is the key characteristic of a compilation engagement? A) The CPA provides a clean opinion on financial statements. B) The CPA applies accounting and financial reporting standards to assist management. C) The CPA presents financial statements based on information provided by management. D) The CPA performs agreed-upon procedures on financial statements.

Correct Answer: C

5-mark Question

A client requests a review engagement to assist management in presenting financial statements. The CPA identifies potential risks and limitations, including material weaknesses in internal control and inadequate documentation of transactions. What procedures should the CPA perform to address these risks and limitations? A) Perform a detailed analysis of financial statement accounts. B) Review documentation of transactions and internal controls. C) Perform agreed-upon procedures on financial statements. D) Compile financial statements based on information provided by management.

Correct Answer: B

Case Study

A client requests a compilation engagement to present financial statements for a new business venture. The CPA determines that the client has inadequate documentation of transactions and lacks internal controls. What should the CPA do? A) Perform a review engagement to provide a clean opinion on financial statements. B) Compile financial statements based on information provided by management. C) Perform agreed-upon procedures on financial statements. D) Refuse to perform the engagement due to inadequate documentation and lack of internal controls.

Correct Answer: D

This vs That

Other Assurance Services: Reviews, Compilations, Agreed-Upon Procedures is often confused with Audits. While audits involve examining financial statements and transactions to express an opinion on their fairness and accuracy, reviews and compilations involve providing limited assurance on financial statements and transactions.

Time-Saver Hack

When performing a review or compilation engagement, focus on identifying and addressing potential risks and limitations. This will help you to provide high-quality assurance services and comply with relevant standards and regulations.

Mini Scenarios

Basic Scenario

A client requests a review engagement to assist management in presenting financial statements. The CPA performs procedures to identify and address potential risks and limitations. What should the CPA do next? A) Report on the results of the engagement. B) Perform agreed-upon procedures on financial statements. C) Compile financial statements based on information provided by management. D) Refuse to perform the engagement due to inadequate documentation.

Correct Answer: A

Applied Scenario

A client requests a compilation engagement to present financial statements for a new business venture. The CPA determines that the client has inadequate documentation of transactions and lacks internal controls. What should the CPA do? A) Perform a review engagement to provide a clean opinion on financial statements. B) Compile financial statements based on information provided by management. C) Perform agreed-upon procedures on financial statements. D) Refuse to perform the engagement due to inadequate documentation and lack of internal controls.

Correct Answer: D

Tricky Scenario

A client requests a review engagement to assist management in presenting financial statements. The CPA identifies potential risks and limitations, including material weaknesses in internal control and inadequate documentation of transactions. However, the client refuses to address these risks and limitations. What should the CPA do? A) Report on the results of the engagement. B) Perform agreed-upon procedures on financial statements. C) Compile financial statements based on information provided by management. D) Refuse to perform the engagement due to inadequate documentation and lack of internal controls.

Correct Answer: D

Diagnostic MCQ Bank

Question 1

What is the primary objective of a compilation engagement? A) To provide a clean opinion on financial statements. B) To apply accounting and financial reporting standards to assist management. C) To present financial statements based on information provided by management. D) To perform agreed-upon procedures on financial statements.

Options

A) To provide a clean opinion on financial statements. B) To apply accounting and financial reporting standards to assist management. C) To present financial statements based on information provided by management. D) To perform agreed-upon procedures on financial statements.

Correct Answer: C

Explanation

A compilation engagement involves presenting financial statements based on information provided by management. It does not involve applying accounting and financial reporting standards or performing agreed-upon procedures.

Why the correct answer is right

The correct answer is right because compilation engagements involve presenting financial statements based on information provided by management.

Why the trap option is tempting

The trap options are tempting because they describe services that involve applying accounting and financial reporting standards or performing agreed-upon procedures, which are not characteristics of compilation engagements.

Question 2

What is the key characteristic of a review engagement? A) The CPA provides a clean opinion on financial statements. B) The CPA applies accounting and financial reporting standards to assist management. C) The CPA presents financial statements based on information provided by management. D) The CPA performs agreed-upon procedures on financial statements.

Options

A) The CPA provides a clean opinion on financial statements. B) The CPA applies accounting and financial reporting standards to assist management. C) The CPA presents financial statements based on information provided by management. D) The CPA performs agreed-upon procedures on financial statements.

Correct Answer: B

Explanation

A review engagement involves applying accounting and financial reporting standards to assist management in presenting financial statements. It does not involve providing a clean opinion on financial statements or presenting financial statements based on information provided by management.

Why the correct answer is right

The correct answer is right because review engagements involve applying accounting and financial reporting standards to assist management.

Why the trap option is tempting

The trap options are tempting because they describe services that involve providing a clean opinion on financial statements or presenting financial statements based on information provided by management, which are not characteristics of review engagements.

Real-World Patterns

Other Assurance Services: Reviews, Compilations, Agreed-Upon Procedures show up in real work in the following ways: 1. A small business owner requests a review engagement to assist management in presenting financial statements. 2. A non-profit organization requests a compilation engagement to present financial statements for a new program. 3. A publicly traded company requests a review engagement to assist management in presenting financial statements and to identify potential risks and limitations.

30-Second Cheat Sheet

1. Other Assurance Services: Reviews, Compilations, Agreed-Upon Procedures involve providing limited assurance on financial statements and transactions.
2. Reviews involve applying accounting and financial reporting standards to assist management in presenting financial statements.
3. Compilations involve presenting financial statements based on information provided by management.
4. Agreed-upon procedures involve performing specific procedures on financial statements or transactions to provide limited assurance.
5. Professional judgment and risk assessment are critical components of Other Assurance Services.

Related Concepts

1. Audits: Involves examining financial statements and transactions to express an opinion on their fairness and accuracy.
2. Financial Statement Analysis: Involves analyzing financial statements to identify trends and patterns.
3. Internal Controls: Involves implementing procedures to ensure the accuracy and reliability of financial statements and transactions.

Verified Source List

1. American Institute of Certified Public Accountants (AICPA)
2. Public Company Accounting Oversight Board (PCAOB)
3. Financial Accounting Standards Board (FASB)
4. Securities and Exchange Commission (SEC)
5. Institute of Internal Auditors (IIA)

References

1. AICPA. (2020). Statements on Standards for Accounting and Review Services (SSARS).
2. PCAOB. (2020). Auditing Standards.
3. FASB. (2020). Accounting Standards Codification.
4. SEC. (2020). Securities Exchange Act of 1934.
5. IIA. (2020). International Standards for the Professional Practice of Internal Auditing.