Claire Ann M.

Lagcao
A-331 Internal Auditing (Auditing and Assurance Principles)

1. What are Review Engagements? Explain the following:

Another name for a review engagement is a restricted assurance or negative

engagement. Auditors execute a review engagement after an accountant has finished
auditing the financial statements of a company, and as a result, the auditor offers only a
limited level of assurance regarding the correctness of the financial statements. During
the engagement, the auditor conducts an inquiry and analytical review methods in order
to produce the modest degree of assurance required for a negative assurance report.

1. Reviews of Historical Financial Information

It is a kind of attestation service where a public accounting firm creates a written

report that provides less assurance than an audit over whether the financial
statements are materially accurate and in compliance with accounting standards.
A review can be less expensive than an audit and is frequently adequate to meet
the user's requirements (ClearTax, 2021).

2. Review of Interim Financial Information

In accordance with ClearTax (2021), the majority of the review of interim financial
statements is based on the use of analytical techniques and questioning of
personnel in charge of financial and accounting matters.

3. Examination of Prospective Financial Information

Lastly, this review engagement intends to provide an opinion, including a

statement of negative assurance, on whether or not the specified assumptions
were appropriately employed to create the future financial information and
whether or not they provide a reasonable basis for such preparation.

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

In an engagement involving agreed-upon procedures, assurance-related

procedures are carried out without the member drawing any conclusions or expressing
any opinions from them, and no assurance is provided to the intended users.
Alternatively, only the genuine outcomes of the methods used are reported (Charted
Accountants, 2019). The member's goal in an engagement with agreed-upon
procedures is to use their professional skills and competence to carry out assurance-
related procedures that they, the engaging party, and any third-party intended users
have agreed to, and to report factual findings without providing assurance or giving the
impression that assurance has been provided.
Claire Ann M. Lagcao
A-331 Internal Auditing (Auditing and Assurance Principles)

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

An arrangement in which a practitioner uses their expertise in financial

accounting to assist the organization in gathering and displaying financial data for a
corporation in compliance with the reports required by this PSRS and the proper
financial reporting framework. Throughout this PSRS, the terms "compile," "compiling,"
and "compiled" are all used in this manner. A compilation engagement is the aid of an
external accountant in presenting accounting transactions to administration in the form
of financial statements. The accountant must be more familiar with the company's
operations in order to prepare the financial statements. Furthermore, its scope is being
responsible for working with management to acquire information from management as
well as assisting in gathering and presenting financial information for the organization in
compliance with the financial reporting structure. Management may have developed the
financial data in an early or draft stage in certain compilation efforts. The objective of
compilation engagements is to offer financial information in a specific format. (Auditing
and Assurance Standards Council, n.d.).

4. Differentiate the following:

1. Review Engagements from Agreed-Upon Procedures

The International Auditing and Assurance Standards Board (n.d.) state

that in a review engagement, the practitioner provides a limited assurance report
following a review of the company's historical financial records. Although the
practitioner's report is based on factual findings regarding financial data, it does
not provide any assurance that it follows the agreed-upon approach, as stated by
IAASB (n.d.). The report is only delivered to those parties who have approved the
procedures; it is not made public.

2. Review Engagements from Compilation Engagements

The accountant is not obligated in a compilation assignment to

independently examine the integrity or authenticity of the findings supplied in this
document or to gather more data in order to establish an assessment or draw
another conclusion on the financial statements. According to AICPA (n.d.), the
accountant's goal in a compilation engagement would be to use financial
reporting and accounting skills to assist managers in the preparation of financial
statements and reports in accordance with this section, without committing to
obtaining or providing any assurance that there are no errors. Because of their
simplicity and low cost, review engagements are becoming more common. When
it is not necessary for the financial reports to be evaluated for probable
misstatement, the compilation, also known as a notice to readers, is the
procedure by which an accountant compiles the information into financial
statements.
Claire Ann M. Lagcao
A-331 Internal Auditing (Auditing and Assurance Principles)

3. Agreed-upon Procedures from Compilation Engagements

When a practitioner performs particular processes on a financial or non-

financial subject matter or an assertion and reports the results without expressing
an opinion or a conclusion, they are engaging in an agreed-upon procedures
engagement. The findings are the actual outcomes of the processes that were
carried out. The results can be precisely documented and evaluated. As a result,
it is possible to anticipate that the techniques utilized to investigate the issue will
yield accurate, dependable results (Wiley, 2020). During a compilation
engagement, the accountant simply evaluates the management-prepared
financial statements to determine whether they are appropriate in form and free
of obvious material errors.

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

Accountants have a great deal of responsibility since they are trusted by

organizations to handle their financial accounts, which has an impact on the entire
business. To guarantee the accuracy and integrity of the financial statements and
reports they produce, organizations hire accountants to undertake these tasks. By
providing these services, fraud and dishonesty risks can be avoided or reduced. While a
review engagement is merely meant to determine whether a firm's financial statements
are believable or legitimate, a complete audit is built to look for misstatements.
Furthermore, regardless of the circumstances, a professional accountant must always
keep the greatest standards of ethics and conduct.
Claire Ann M. Lagcao
A-331 Internal Auditing (Auditing and Assurance Principles)

Sources:

AICPA. (n.d.). Compilation Engagements. US AICPA Organization.

https://us.aicpa.org/content/dam/aicpa/research/standards/compilationreview/do
wnloadabledocuments/ar-c-00080.pdf

Auditing and Assurance Standards Council. (n.d.). Philippine Standard on Related

Services 4410 (Revised) - COMPILATION ENGAGEMENTS. AASC
Organization. https://aasc.org.ph/new_std_sept2016/PSRS
%204410%20(Revised)%20_compil ation%20engagements.pdf

Charted Accountants. (2019). Agreed Upon Procedures Engagements to Report

Factual
Findings.file://IC:/Users/windows-
10/Downloads/APS1%20revised%20standard%20final%20(2).pdf

ClearTax. (2021, July 6). SAE 3400 the examination of prospective financial
information.

Income Tax filing in India for FY 2021-22 (AY 2022-23) : ClearTax | Upload your

Form-16 to -File Income Tax Returns. https://cleartax.in/s/sae-3400-the-

examination-of-prospective-financial-information

The International Auditing and Assurance Standards Board (n.d.). Review engagement

and Agreed-upon procedure.

Wiley Practitioner's Guide (2020). Agreed-upon Procedure.

https://doi.org/10.1002/9781119596042.ch54
Claire Ann M. Lagcao
A-331 Internal Auditing (Auditing and Assurance Principles)