CHAPTER 4 AN AUDITOR'S SFRVICES 146 Not all engagements performed by auditors are assurance engagements based on the Assurance Framework.” Some audit services are based on the Related Services Framework. International Standards on Related Services (ISRS) Engagements that use ISRS are Agreed-upon Procedures (ISRS 4400) * and Compilation of Financial or Other Information (ISRS 4410). (See Illustration 4.1 “Related Services Framework.”) Areport issued by a auditor in connection with an engagement that does not exhibit all of the elements described in the Assurance Framework,® such as a compilation or ‘engagement to perform agreed-upon procedures, should specifically state it does not offer assurance nor does it make any claim about compliance with the Assurance Framework, ISAs or ISAEs. Furthermore, it does not purport to enhance the degree of confidence intended users can have ‘A related service engagement is generally an examination of historical nancial state- ments to develop a conclusion based on the criteria, but no audit opinion. In some instances, this kind of engagement could also be linked to information in other historical financial statements = Engagements to Perform Agreed-Upon Procedures Regarding Financial Information (ISRS 4400)°” ‘An agreed-upon procedures engagement is an engagement in which the party engaging the professional accountant or the intended user determines the procedures to be per~ formed and the auditor provides a report of factual findings as a result of undertaking those procedures ‘Agreed-upon procedures are not considered an assurance engagement. While the intended user of the report may derive some assurance from the report of factual findings, the engagement is not intended to provide, nor does the auditor express, a conclusion that provides a level of assurance. Rather, the intended user assesses the procedures and findings and draws his own conclusions.* (See Illustration 4.1 “Agreed-upon Procedures”) Matters to Be Agreed ‘The auditor should ensure that all involved parties have a clear understanding regarding the agreed procedures and the conditions of the engagement, Matters to be agreed between auditor and management include the: l= nature of the engagement including the fact that no assurance will be expressed on the procedures performed; l= identification of the financial information to which the agreed-upon procedures will be applied; l= nature, timing, and extent of the specific procedures to be applied. Procedures Performed ‘An engagement to perform agreed-upon procedures may involve the auditor in per- forming certain procedures on subject matter information like financial data (e.g.RELATED SERVICES. accounts payable, accounts receivable, purchases from related parties, and sales and profits of a segment of an entity), a financial statement (e.g. a balance sheet) or even a complete set of financial statements. The procedures applied in an engagement to perform agreed-upon procedures may include: inquiry and analysis, recompilation, comparison and other clerical accuracy checks, observation, inspection, and obtaining confirmations (these are discussed in Chapter 10 Substantive Testing and Evidence) Objective ‘The objective of an agreed-upon procedures engagement is for the auditor to carry out procedures of an audit nature to which the auditor, the company, and some third party have agreed and to report on factual findings. The report is restricted to those parties that have agreed to the procedures since others, unaware of the reasons for the procedures, may misinterpret the results, Report ‘The report on an agreed-upon procedures engagement needs to describe the purpose and the agreed-upon procedures of the engagement in sufficient detail to enable the reader to understand the nature and the extent of the work performed. The report of factual findings should contain,“ among other things, a description of the auditor's factual findings including sufficient details of errors and exceptions found and a statement that the report is restricted to those parties that have agreed to the procedures to be performed, Illustration 4.15 contains an example of a report of factual findings issued in con- nection with an engagement to perform agreed-upon procedures regarding financial information, Independence Not Required Independence is not a requirement for agreed-upon procedures engagements; however, the terms or objectives of an engagement or national standards may require the auditor to comply with the independence requirements of IFAC’s Code of Ethics, Where the auditor is not independent, a statement to that effect would be made in the report of factual findings." ria Certification Exam Question 4.6° A certified accountant's report on agreed-upon procedures related to managements assertion about an entity's compliance with specified requirements should contain: (A) A statement of limitations on the use of the report. (8) An opinion about whether management's assertion is fairly stated. (©) Negative assurance that control risk has not been assessed. (0) An acknowledgement of responsibilty for the sufficiency of the procedures. 147CHAPTER 4 AN AUDITOR'S SFRVICES 148 REPORT OF FACTUAL FINDINGS To (those who engaged the auditor) We have performed the procedures agreed with you and enumerated below vith respect to the accounts payable of ASC Company as at (date), set forth in the accompanying schesules (not showm in this example). Our engagement was undertaken in accordance withthe Intemational Standare on Auditing (or refer to relevant national standards or practices) applicable to agreed-upon procedures engagements. The procedures were performes solely to assist you in evaluating the validity of the accounts payable and are summarized as follows 11. We obtained and checked the addition of the Wiel balance of accounts payable as at (date) prepared by ‘ABC Company, and we compared the total tothe balance in the related general ledger account. 2 We compared the attached list (not shown in tis example) of major suppliers and the amounts owing at {ate} to the related names and amounts inthe tral balance. 3 We obtained suppliers’ statements or requested suppliers to confirm balances owing at (date) 4 We compared such statements or confirmations tothe amounts refered tain 2. For amounts which did not agree, we obtained reconciliations fom ABC Comoany. For reconciliations obtained, we identified and listed outstanding voices, credit notes and outstanding checks, each of which was greater than @x. We located and examined such invoices and credit nates subsequently received and checks subsequently paid {and we ascertained that they should in fact have been listed as outstanding on the reconciliations. We report our findings below {a) With respect to item 1 we found the addition to be comect and the tatal amaunt tobe in agreement. {() With respect to item 2 we found the amounts compared to be in agreement. {e) With respect to item 3 we found there were supoliers’ statements fr all such suppliers. {With respect to tern 4 we found the amounts agreed, or with respect to armounts which did not agree, we found ABC Company had prepared reconciliations and thatthe credit notes, invoices and outstanding. checks over Eun were appropriately sted as reconciling items with the foloveng exceptions: (etal the exceptions) Because the above procedures do not constitute efter an auditor a review made in accordance with Intemational Standards on Ausing (or relevant national standards or practices), we do rot express any ‘assurance on the accounts payable 3s of (date) Had we performed adeitional procedures or had we performed an audit or review ofthe financial statements in accordance vith Intemational Standares on Auditing (or relevant navonal standards or practoes), ether matters might nave come to our attention that would have been reported to you. ‘Our report is solely forthe purpose set forth in te frst paragraoh of this report ang for your information and isnot to be used for any other purpose or tobe distrbuted to any other partes. This repor relates only to ‘he accounts and items specified above and does rot extend to ary financial statements of ABC Company), {aken as a whole. Date ‘AUDITOR Aasress