Nicodemus, Daena D.

A-331 AAPRINCIPLES

Journal 2: Internal Auditing (Auditing and Assurance Principles)

1. What are Review Engagements? Explain the following:

Review Engagements or negative engagements and also limited assurance

are done by auditors after an audit of the financial statements of a company

performed by an accountant. Analytical review as well as inquiry procedures are

conducted by the auditor to which he provides a limited assurance on whether the

financial statements are accurate where a negative assurance report is given

(Corporate Finance Institute, n.d.).

According to the Institute of Chartered Accountants in England and Wales

(2019), assurance review engagements may also help the accountant in reporting

the issues and weaknesses that they encounter in the subject matter to the directors

of the company in which these engagements may be able to give more value as

compared to just having an assurance report.

With these given information, we can infer that review engagements are

additional assurance engagements that are conducted after an initial assurance

engagement or audit conducted in a company in which these review engagements,

although considered to provide only limited assurance, give supplementary

assessment and analysis for further management decisions.

Nicodemus, Daena D. A-331 AAPRINCIPLES

1. Reviews of Historical Financial Information

Historical financial information are information that are derived mainly

from the accounting system of an entity and presented in financial terms. These

information are about economic events that occurred in past. Historical financial

information may also be about past circumstances or economic conditions of the

entity (Auditing and Assurance Standards Board, n.d.).

Since review engagements are limited assurance engagements on

financial statements, a review of these historical financial information is then a

limited assessment conducted by an auditor only on historical financial

information, these kinds of reviews are limited to examining historical financial

information alone coming up with a negative assurance report on these items.

2. Review of Interim Financial Information

Interim Financial Information, according to the American Institute of

Certified Public Accountants (n.d.), are financial information or even financial

statements that cover a period that is less than a full year. The period may also

be a 12-month period that ends on a date different from the fiscal year end of the

entity. Additionally, reviews of Interim Financial Information are conducted if the

latest annual financial statements of the entity have been audited by the auditor

himself or another accountant; or if the auditor is engaged with auditing the

current year financial statements of the entity, or he audited the latest annual
Nicodemus, Daena D. A-331 AAPRINCIPLES

financial statements of the entity and he also expects to engage with the entity’s

financial statements for the current year.

As further explained by the American Institute of Certified Public

Accountants, the objective of reviews on Interim Financial Information is to

provide a basis for communicating whether the accountant was aware of material

modifications that should be applied to conform with the framework of financial

reporting. These material modifications should be made to the interim financial

information.

3. Examination of Prospective Financial Information

According to BDO Mozambique (n.d.), prospective financial information

are financial information relating to occurrences as well as actions which have

not happened yet that also have the possibility to not happen at all. With this, an

examination of prospective financial information is concluded in which it is

directed at examining the prospective financial information to derive at the

conclusion that it was or it was not properly prepared with accordance to the

assumptions.

Examination of prospective financial information is then the examination of

the financial information based on events that the company assumes to occur

and whether the assumptions provided are reasonable, and if the prospective

financial information are aligned with the said assumptions.

Nicodemus, Daena D. A-331 AAPRINCIPLES

2. What are Agreed-Upon Procedures? Explain its scope and objectives.

As stated by Cabrera, M. and Cabrera, G. (2020), Agreed-Upon Procedures

are engagements in which the procedures that the professional accountant shall

perform are determined by the intended user in which the professional accountant

then presents factual findings from the procedures done in a form of report

presented to the intended users.

The scope of Agreed-Upon Procedures as discussed by Cabrera, M. and

Cabrera, G. is to undertake the procedures that the accountant and the intended

party “agreed upon” in which the accountant presents results on that alone. An

Agreed-Upon Procedure is also not intended to provide assurance but the intended

parties may derive with some sort of assurance on their own from the given report.

The objective of Agreed-Upon Procedures is for the auditor to perform the

tasks that he agreed upon with the entity as well as any appropriate third party, if

any, in an audit nature from which he will release a report on his factual findings.

3. What is a Compilation Engagement? Explain its scope and objectives.

A Compilation Engagement in PSRS 4410 (formerly PSA 930) as stated by

Cabrera, M. and Cabrera, G., is a service in which there exists the presentation of

financial information in the form of financial statements without the presence of any

form of assurance on the statements.

Nicodemus, Daena D. A-331 AAPRINCIPLES

The scope of a Compilation Engagement, as also discussed by Cabrera, M.

and Cabrera, G., encompasses financial information in which instead of assessing

this information or examining it and making conclusions out of it, the accountant

engages in accounting activities such as collecting these final information,

classifying them accordingly, as well as summarizing them. On the other hand, the

objective of Compilation Engagements is for accountants to use their accounting

expertise wherein they collect, summarize, and also classify financial information

instead of auditing them.

4. Differentiate the following:

1. Review Engagements from Agreed-Upon Procedures

As defined by Cabrera, M. and Cabrera, G. (2020), Review Engagements

are engagements which involve investigation of financial statements giving

limited investigation due to a much narrower scope as compared to an audit

resulting in a negative assurance. On the other hand, Agreed-Upon Procedures

involve the conduction of the procedures that the accountant and the intended

party agreed on in which the accountant will then report factual findings on the

undertaking of the procedures.

Review engagements provide assurance although limited. However,

agreed-upon procedures are not intended to give any form of assurance. They

are only intended to give a straightforward and factual findings on the procedures

done.
Nicodemus, Daena D. A-331 AAPRINCIPLES

2. Review Engagements from Compilation Engagements

In a Review Engagement, the auditor is expected to conduct analytical

procedures and also to make inquires, however, in a limited manner and scope

as compared to an audit. This is done in order for the auditor to ascertain if the

financial statement information is fair and with accordance to the standards. On

the other hand, in compilation engagements, the auditor only presents financial

statements with accordance to the management’s representations. The auditor

also does not, in any way, verify the information in these financial statements nor

does he give a conclusion on them (Bragg, 2020).

3. Agreed-upon Procedures from Compilation Engagements

Agreed-upon Procedures as earlier defined are engagements without any

assurance of sort wherein the objective of the accountant is only to perform the

certain undertakings that he agreed on with the intended user for the purpose of

reporting factual findings. Whereas, as stated by the Corporate Finance Institute

(n.d.), Compilation Engagements are services wherein managements are being

assisted by accountants in presenting the financial information by means of

financial statements.

To further differentiate, in Agreed-upon Procedures, there still exists

findings from an undertaking. However, this report is factual instead of an

opinionated audit while Compilation Engagements involve no findings at all.

Nicodemus, Daena D. A-331 AAPRINCIPLES

Financial information literally are just compiled and classified to form financial

statements in Compilation Engagements.

5. Why is a CPA / Accountant engaged to perform these services?

Yanuaria (n.d.) states that there is a need to hire an accountant in one’s

business first, to have an organized record of its financial data wherein accountants

maintain these records from the day to day operations of the company. This is

manifested in Compilation Engagements.

Having an accountant is important in a business as he can give you financial

advice with monitoring and budgeting your cash flow in which you are able to

navigate hurdles that you encounter (Vetter, 2017). This is clearly evident when a

review engagement is done by an accountant where you get trustworthy findings to

base your decisions on as well as actual audits in which the conclusions are really

concrete and can definitely help the company make management decisions.

CPAs or accountants are people who are really knowledgeable in the

business field on various aspects. They can give financial advice, they can compile

financial information, they are knowledgeable with accounting software, they can

provide tax services, and they are capable of auditing too, among many others. With

the extensive education of accountants, we can definitely say that they have a wide

range of expertise. Furthermore, with the aforementioned reasons on why

accountants are important given by Yanuaria and Vetter, we can infer that

accountants are the people whom we need to rely too with our needs when it comes
Nicodemus, Daena D. A-331 AAPRINCIPLES

to financial information and no one else. You do not ask a policeman to give you a

diagnosis is you are feeling unwell. You also don’t pay an artist to cook food for you.

The expertise of accountants is in the business field. Therefore, the people whom

we should trust with our accounting needs are CPAs or accountants because they

are the most reliable in this field. If you need to have your financial information

collected and classified, you go to an accountant and ask him to do this for you.

Same goes for with your review engagements, agreed-upon procedures, and even

other auditing engagements, you choose an accountant and no one else to perform

these tasks. If you do not, at the end of the day, you might just regret your decision.
Nicodemus, Daena D. A-331 AAPRINCIPLES

References

American Institute of Certified Public Accountants. (2002). AU Section 722: Interim

Financial Information.

https://www.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloa

dabledocuments/au-00722.pdf

BDO Mozambique. (n.d). Examination of Prospective Financial Information.

https://www.bdo.co.mz/en-gb/services/audit-assurance/examination-of-

prospective-financial-information

Bragg, S. (2020). The difference between an audit, a review, and a compilation.

Accounting Tools. https://www.accountingtools.com/articles/2018/3/7/the-

difference-between-an-audit-a-review-and-a-compilation

Cabrera, M. E. B. & Cabrera, G. A. B. (2020). Principles of Auditing and Assurance

Services (2020-2021 ed.). GIC Enterprises & Co., Inc.

Corporate Finance Institute. (n.d.). Compilation Management.

https://corporatefinanceinstitute.com/resources/knowledge/finance/compilation-

engagement/#:~:text=A%20compilation%20engagement%20is%20a%20type

%20of%20engagement%20where%20a,contained%20in%20the%20financial

%20statement.

Corporate Finance Institute. (n.d.). What is Review Engagement?

https://corporatefinanceinstitute.com/resources/knowledge/finance/review-

engagement/#:~:text=A%20review%20engagement%20is%20a,or

%20correctness%20of%20financial%20statements.
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Historical financial information. (n.d.). In Auditing and Assurance Standards Board

Glossary. https://www.auasb.gov.au/Pronouncements/Glossary-of-defined-

terms/Definitions-H.aspx#:~:text=Term,in%20time%20in%20the%20past.

Institute of Chartered Accountants in England and Wales. (2019). Assurance Review

Engagements Historical Financial Statements.

https://www.icaew.com/-/media/corporate/files/technical/technical-

releases/audit/tech-0913aaf-assurance-review-engagements-on-historical-

financial-statements-revised-mar-2019.ashx

Vetter, A. (2017). 5 reasons why your business needs an accountant. The Business

Journals. https://www.bizjournals.com/bizjournals/how-to/growth-

strategies/2015/04/5-reasons-why-your-business-needs-an-accountant.html

Yanuaria, M. L. M. (n.d.) Importance of Accountants: Why You Should Hire One for

Your Business? MPM. https://mpm.ph/importance-of-

accountants/#:~:text=Organized%20Record%20of%20Financial

%20Data&text=Having%20an%20unorganized%20financial%20documents,day

%20to%20day%20financial%20records.