Assurance engagement related to historical financial statements CPA exam Auditing Course default


Define agreed-upon procedures engagements.
When the auditor and management or a third-party user agree that the engagement will be limited to certain specific procedures, it is referred to as an agreed-upon procedures engagement. Many CPAs refer to these as procedures and findings engagements because the resulting reports emphasize the specific procedures performed and the findings of those completed procedures.
Agreed-upon procedures engagements appeal to CPAs because management, or a third-party user, specifies the procedures they want done and then the CPA issues a report describing the procedures agreed upon and the findings resulting from the procedures. Imagine the difficulty a CPA firm faces if it is asked to issue an opinion to a federal agency that a company complied with federal affirmative action laws for a two-year period under compliance attestation standards. Now assume that the federal agency is willing to identify 10 specific procedures the CPA firm will do to satisfy the agency. Obviously, the latter engagement will be much easier to manage. Assuming the CPA firm and federal agency can agree on the procedures, many CPA firms are willing to perform the procedures and issue a report of the related findings. Other agreed-upon procedures engagements might involve a CPA calculating internal rates of return and beta risk for measuring volatility for a mutual fund or gross sales amounts used to compute rent under a store lease for a retail firm.

other types of audit and attestation services that fall within the auditing standards but are not audits of historical financial statements in accordance with GAAP or IFRS. Some of these services include: audits of financial statements prepared on another comprehensive basis of accounting (OCBOA); audits of specified elements, accounts, or items; and debt compliance letters.
Cash or modified cash basis.
Basis used to comply with the requirements of a regulatory agency.
Income tax basis.
Financial Reporting Framework for Small- and Medium-Sized Businesses.
A definite set of criteria having substantial support.
Specified Elements, Accounts, or Items
Auditors are often asked to audit and issue reports on specific aspects of financial statements. A common example is a report on the audit of sales of a retail store in a shopping center to be used as a basis for rental payments. Other common examples include reports on royalties, profit participation, and provision for income taxes. The authority for auditing specified elements, accounts, or items is in the auditing standards.
Debt Compliance Letters and Similar Reports
Clients occasionally enter into loan agreements that require them to provide the lender with a report from a CPA about the existence or nonexistence of some condition. For example, a bank may require a company to maintain a certain dollar amount of working capital at a specified date and to obtain an audit report that states whether the company complied with the stated working capital requirements.