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An attest engagement is attest services that occur when a practitioner is engaged to issue or does issue
an examination, a review, or an agreed-upon procedures report on subject matter, or an assertion about
subject matter that is the responsibility of another party. This differs from an audit in that during an
attest engagement, the accountant expresses an opinion on the reasonableness of a particular assertion;
during an audit, the accountant expresses an opinion as to whether or not financial documents are
presented fairly and in accordance with GAAP.
The two conditions that are necessary are: Suitable criteria must be objective, measurable, complete,
and relevant. The criteria must be available to users either publicly, through inclusion in the
presentation of the subject matter, assertion or report, or by being well understood by the majority of
the users.
Review Question 21-5
Large institutions might request an attestation report on internal controls because it is a requirement
due to the Federal Deposit Insurance Corporation Improvement Act of 1991. This act was created after
the savings and loan crisis in the 80’s as an effort to protect consumers and to revise FDIC auditing and
evaluation standards.
Other institutions that might request an attestation report are publicly traded companies. Review Question 21-8
In order to perform a compilation engagement an auditor must know the accounting principles and
practices of the industry in which the entity operates, a general understanding of the entity’s
organization, it’s operating characteristics and the nature of its assets, liabilities, revenues, and expenses;
and an understanding of the accounting principles and practices used by the entity.
In order to perform a review engagement, an auditor must know the accounting principles and practices
of the industry in which the entity operates; a general understanding of the entity’s organization, its
operating characteristics, and the nature of its assets, liabilities, revenues, and expenses; an
understanding of the accounting principles and practices used by the entity in measuring, recognizing,
recording, and disclosing all significant accounts and disclosures in the financial statements, and the
entity’s personnel’s knowledge about important matters.
Review Question 21-10 The role of the internal auditor is to help management comply with the requirements of section 302 and
404 of the Sarbanes-Oxley Act of 2002. Their recommended roles according to SOX are in the following:
Evaluating risks and controls
Reviewing Compliance
Financial Auditing
Operational Auditing
Problem 21-30
The differences between compilation, review, and audit engagements are as follows:
In a compilation engagement, the accountant examines all of the financial statements to determine the
company’s overall financial health. These statements are compiled by the financial information that is
given to the CPA firm by management. In the compilation engagement, the accountant does not obtain
any assurance that the statements are free from material misstatements and no assurance is provided
on the reliability of the financial statements. This type of engagement is less expensive than a review or
an audit.
In a review engagement, the accountant examines the financial statements to determine the reliability
and reasonableness of the statements. The accountant makes inquiries and conducts analytical
procedures to determine whether or not the financial statements are free from material misstatements.
In the review engagement, the accountant obtains a limited assurance that the financial statements are
free from material misstatements and will state in the report that the accountant does not have any
knowledge of material misstatements in the financial statements. This type of engagement is more
expensive than a review but less expensive than an audit.
In an audit engagement, the auditor expresses their opinion on the fairness of the financial statements
and expresses their views on the presentation of the financial statements. During this engagement, the
auditor will obtain a high level of assurance that the financial statements are free from material
misstatements and will state in the report that there is an assurance provided by the auditor that the
financial statements are presented fairly. This type of engagement is considerably more expensive than
a review but it might be effective in reducing the amount of interest you would have to pay on the loan
that you’re requesting.
Problem 21-32
“Independent Accountant’s Report” is missing from the heading
The report does not have a date
Paragraph 1:
Honey’s Health Foods management is responsible for the projection is missing from the first paragraph The purpose for the examination is not stated in the first paragraph
The last sentence of paragraph 1 should be excluded
“our responsibility is to express an opinion on the projection based on our examination” needs to be
added at the end of paragraph 1
Paragraph 2:
“Our examination was made in accordance with attestation standards established by the American
Institute of Certified Public Accountants” needs to be stated at the beginning of paragraph 2
Opinion should not be stated in paragraph 2
Paragraph 2 needs a statement regarding the accountant’s belief that the examination provides a
reasonable basis for the opinion
Missing Paragraph 3 – needs to be added and needs to have the following:
This paragraph should contain the opinion of the independent accountant
Should state the hypothetical assumptions for which the projection is based upon
Needs a statement saying “there will likely be differences between the projected and actual results,
because events and circumstances frequently do not occur as expected, and those differences may be
material.
Needs a statement saying “we have no responsibility to update this report for events and circumstances
occurring after the date of this report”
Missing Paragraph 4 – needs to be added and needs to have the following:
Needs a statement of limited use because this is a financial projection and is not to be made available for
general use since an accountant’s report was involved
Problem 21-35
a) Customers are reluctant to engage in e-commerce because of privacy concerns. Customers want
assurances that their private information including personally identifiable information and credit card
information, is being protected. Customer’s also want assurances that the website they’re doing
business with is a legitimate business that will provide recourse should their privacy or information be
vulnerable
b) The firm can provide assurances by utilizing the WebTrust seal of assurance. This seal lets the
consumer know that a CPA has evaluated the website’s business practices and controls to determine that
the business conforms to principles and criteria. Rhett Corporation will have to meet all of the Trust Services principles before it can receive the WebTrust seal of assurance. Then this seal will be
maintained by a CPA until its expiration date at which point it can be renewed.
c) To provide the WebTrust assurance service, the firm will need to complete an assertion by following
the process outlined:
The firm will obtain an understanding of Rhett Corporations e-commerce business and information
privacy practices and its controls over the processing of e-commerce transactions and the protection of
related private customer information.
The firm will selectively test transactions executed in accordance with the disclosed business and
information privacy practices.
The firm will test and evaluate the operating effectiveness of the controls
The firm will perform procedures that are considered necessary in rendering an opinion on Rhett’s
management’s assertions.
Discussion Case 21-38
a) A practitioner can conduct an agreed-upon procedures engagement to evaluate an entity’s written
assertion that it was in compliance with its state’s environmental laws and regulations as long as the
following conditions are met:
The practitioner is independent of the entity
The compliance assertion is provided in writing
The compliance assertion is measurable against the criteria that was identified
The entity is complying with environmental laws and company policies
The practitioner has sufficient documentation that supports their conclusion
b) The practitioner would gain an understanding of the internal control system that would be sufficient
enough to plan the engagement and assess risk. The practitioner would then perform a test of controls
to support the assessed level of risk to the internal control system.
