ASSURANCE AND

NON-ASSURANCE TOPIC 11 & 12

SERVICES
 LEARNING OBJECTIVES
To understand the following:-
Audit related services:
❑ Review of Financial Information
❑ Agreed Upon Procedures
❑ Compilation
Other Assurance and non-assurance services:-
❑ Internal Auditing
❑ Consultation
❑ Secretarial services
❑ Taxation
❑ Accounting
❑ Examination of Prospective Financial Information
❑ Due Diligence
❑ Forensic Accounting/auditing
 RELATIONSHIP AMONG
ASSURANCE
Assurance SERVICES
Non - Assurance
Services Services

Other
Attestation
Provide prove & evidence
Management
Services Consulting

Audits Review
Certain Accounting
Reasonable assurance
Management and
Internal Consulting Bookkeeping
Control Moderate evidence Prepare account for client

Other Assurance
Tax Services
services
& Secretarial
AUDIT-REL
ATED
SERVICES
 REVIEW FINANCIAL
STATEMENT
In a review engagement, the auditor provides a moderate level of assurance
that the information subject to review is free of material misstatement.

Review comprises inquiry and analytical procedures which are designed to

review reliability of an assertion, which responsibility of one party, for use by
another party. Mcm audit, provide audit assurance for client Client rely on our assurance

Review of financial statement will involve the application of audit skills and techniques and
the gathering evidence BUT it does not involve and assessment of accounting and internal x payah Int Control,
just FS
control systems, tests of records and other procedures in auditing such as obtained third party
Like procedure,
confirmation and physical observation. x pyh testing guidline, etc (X)

keyword for review

Therefore moderate level of assurance is express compensate to the scope of
work and may be lower fees will be received…
REVIEW FINANCIAL STATEMENT
• To enable the Chartered Accountant to state whether, in
Objective of a Review all material respects, the financial statements are
Engagement prepared in accordance with an identified financial
reporting framework. Follow acctg statement or x

• The accountant should comply with the “Code of Ethics for fundamental
priciple
Professional Accountants” issued by IFAC. i.e. integrity,
objectivity..
• Auditor should plan and perform the review with an attitude of
General Principles of a professional skepticism that may exist of circumstances which
Review Engagement cause the financial statement to be materially misstated. SENTIASA
curious
doubt,

• For the purpose of expressing negative assurance in the review

report, the auditor should obtain sufficient evidence through
inquiry and analytical procedures to be able to draw
conclusion..
 REVIEW FINANCIAL
STATEMENT
Terms of the Engagement:
• The auditor should ensure that there is a
clear understanding between the client
and the auditor regarding the
engagement. i.e. clear engagement
letter..
Ada changes like policy
tak or apa apa y berubah
Procedures
• Obtain an understanding of the
entity’s business and the industry in
which the entity operates
• Obtain understanding of the
accounting systems and the nature of
the entity’s assets, liabilities, revenues
and expenses
• Inquires of the entity’s personnel
responsible for the financial reporting
about all the material assertions in the
financial statements and whether all the
transactions have been recorded, any
changes in accounting policies and
practice
PROCEDURES TO REVIEW
FINANCIAL STATEMENTS
The procedures involve:
• Inquire about the actions taken at meetings of the BOD, shareholders
and other relevant board committees
• Perform analytical procedures to identify relationships and individual
items that appear to be unusual
• Read financial statements to determine if they conform to the
identified financial reporting framework
• For every balance sheet items, perform certain level of audit technique
but not extent to getting confirmation from third party or physical
observation. Go thru items in FS but not involve 3rd party/ physcial observation

• If appropriate, obtain written representations from

management…pertaining all matter including subsequent event..
 REVIEW FINANCIAL
STATEMENT
Reporting:
• A review engagement provide a moderate level of assurance that the
information subject to review is free of material misstatement, this is
expressed in the form of negative assurance. (BAGUS CAUSE EVERYTHING IS CLEAN)
• Example Report (After the scope paragraph):
• Form of Unqualified Review Report: everything is clear, tkde benda y mencurigkan (xde mistatement)

• Based on our review, nothing has come to our attention that causes us
to believe that the accompanying financial statements do not give a true
and fair view (or are not presented fairly, in all material respect) in
accordance with International Accounting Standards. No fraud/violation std

• Also qualified report (with except for) if not pervasive effect QUALIFIED = X CLEAN
• Also adverse report of pervasive effect = lagi teruk dari qualified
 REVIEW FINANCIAL
STATEMENT
Reporting:
Also qualified report (with except for) if not pervasive effect
“Management has informed us that inventory has stated at its cost which is in excess of its
net realizable value. Management’s computation which we have reviewed shows that
inventory, if valued at the lower of cost and net realizable value as required by Approved
Accounting Standards, would been decreased by RMXXXX.”
Based on our review, except for the effects of the overstatement of inventory described in
the previous paragraph, nothing has come to our attention that causes us to believe that
the accompanying financial statements do not give a true and fair view (or are not -ve assertion

presented fairly, in all material respect) in accordance with International Accounting

Standards.
 REVIEW FINANCIAL
STATEMENT
Reporting:
Also adverse report of pervasive effect GIVE BIG EFFECT/PROGRESSIVE = TERUK

“ As noted in the note 23 of financial statements, these financial statement do not deflect
the consolidation of the financial statement of subsidiary companies, the investment in
which is accounted for on a cost basis. Under the Approved Accounting Standards, the
financial statements of the subsidiaries are required to be consolidated. FS x betul, x present ikut std

Based on our review, because of the pervasive effect on the financial statements of the
matter discussed in the preceding paragraph, the accompanying financial statements are
not presented fairly, in all material respects, in accordance with Approved Accounting
Standards..”

auditor need to collect enough evidence to perform audit report

 AGREED UPON PROCEDURES
❑Chartered accountant is engaged by a client to issue a report of actual findings
based on specific procedures performed on financial or other information and no
assurance is express.
❑Agreed upon procedures is an engagement may involve the auditor in performing
certain procedures concerning individual items of financial data (for example,
account payable, account receivable, purchase from related parties and sales
and profits of a segment of an entity), a financial statement (for example, a
balance sheet) or even a complete set of financial statements.
❑The degree of assurance included in such a report varies with the specific
procedures agreed to and performed. kena cakap apa procedures

❑Accordingly, such reports are limited in their distribution to only the involved
parties, who know the procedures the CPA will perform and the level of assurance
resulting from them.
❑The report should include a statement of what procedures management and the
CPA agreed to and what the CPA found in performing the procedures
AGREED UPON PROCEDURES
Objective of an Agreed-upon Procedures Engagement

• The objective of an agreed-upon procedures engagement is for the auditors to

carry out procedures of an audit nature to which the auditor and the entity and
any appropriate third parties have agreed and to report on factual finding and no
assurance is expressed..
General Principles of an Agreed-upon Procedures
Engagement:
• The accountant should comply with the “Code of Ethics for Professional
Accountants” issued by IFAC. i.e. integrity, objectivity..

Terms of the Engagement:

• The auditor should ensure that there is a clear understanding between the client
and the auditor regarding the agreed-upon procedures and the condition of the
engagement. i.e. clear engagement letter..
AGREED UPON PROCEDURES
Documentation
documented all document

• The auditor should document matters which are important in providing evidence
to support the report of factual finding.

Procedures and Evidence, Include:

• Inquiry and analysis
• Re-computation, comparison, and other clerical accuracy clerk
• Observation, Inspection and obtaining confirmation..
• Depends on what has been agreed with client..

Reporting:
• The report on an agreed-upon procedures engagement need to describe the
kena letak scope kerja
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.
 AGREED UPON PROCEDURES
Reporting (example):
REPORT OF ACTUAL FINDINGS
To …….
We have performed the procedures agreed with you about the account payable of ABC
Company…..
The procedures were performed solely to assist you in evaluating the validity of the account
payable and are summarized as follows:-
1.We obtained suppliers’ statement OR if statement not available, we should requested suppliers to confirm balances
owing as at 31 December 2007..

We report our finding below:-

With respect to item 1, we found there were suppliers’ statement for all such suppliers and the
amount owing is in agreement with the creditors listing.
 COMPILATION OF FINANCIAL
INFORMATION
✔For Example: Business entities registered as partnership or sole proprietorship are
not required to have annual audit of their financial statements under the Malaysian
Law
✔However, these entities may sometimes engage an accountant to assist them with
the preparation of their accounts, tax returns or other financial documents
✔Compilation services include the collecting, classifying and summarizing of
financial information
✔No assurance express on the financial statement

A compilation service engagement is defined as one in which accountants

apply accounting and financial reporting expertise to assist management in the
preparation of financial statements and issue a report to a client or third party
without
providing any CPA assurance about those statements. To have a very good report, thats
why must hve proper account
 COMPILATION OF FINANCIAL
INFORMATION
The objective is for accountant to use accounting expertise, as opposed to
of a auditing expertise, to collect, classify and summarize financial
Compilation information, produce a report and no assurance is expressed.
Engagement:
General The accountant should comply with the “Code of Ethics for
Principles of a Professional Accountants” issued by IFAC. Integrity,
Compilation objectivity, professional competence, due care, confidentiality,
Engagement: professional behavior and technical standards…..

Terms of the The accountant should ensure that there is a clear understanding
Engagement: between the client and the accountant regarding the terms of
engagement. i.e. clear engagement letter for a compilation
engagement
COMPILATION OF FINANCIAL
INFORMATION
Procedures:
1. Obtained general knowledge of the business and operations of the entity
2. Obtained knowledge about the accounting policies and practices of the
industry in which the entity operates
3. A general understanding of the nature of the entity’s business transactions,
the form of its accounting records and the qualifications of its accounting
personnel
4. The accounting basis on which the financial statements are to be presented and
the form and content of the financial statements
5. The accountant should obtain an acknowledgment from management of its
responsibility for the appropriate presentation of the financial information.
COMPILATION OF FINANCIAL
INFORMATION
Reporting on a Compilation Engagement:
COMPILATION REPORT TO….
On the basis of information provided by management we have compiled, in
accordance with the International Standard on Auditing applicable to compilation
engagements, the balance sheet of ABC Company as of 31 December 2017 and
statements of income and cash flows for the year then ended. Management is
responsible for these financial statements. We have not audited or reviewed these
financial statements and accordingly express no assurance thereon… Must acknowledge preparation of FS
- Assist them to prepare
With modified report, if any..
We draw attention to Note 10 to the financial statement because management has
elected not to capitalize the leases on plant and machinery which is departure from
approved accounting standards.
SUMMARY
Moderate
 Framework of auditing assurance and other related services
Auditing Related services
Nature of service Audit Review Agreed-Upon Compilation
Procedures
Comparative Reasonable Moderate No assurance No assurance
level of assurance assurance, but not assurance
provided by the absolute
auditor
Engagement risk Lower Higher because of limited nature of evidence
Report provided Positive assurance -ve assurance on Factual findings Identification of
on assertion (s) assertions of procedures information
“In our Opinion” “Nothing has complied. Not
come to our attempt to verify
attention”
 OTHER
ASSURANCE AND
NON-ASSURANCE
SERVICES
 INTERNAL AUDITING
penilaian
Int Aud bagi suggestion to
management to improve
issues in co

An independent appraisal function established within an organization to examine and

evaluate its activities as a service to the organization.

The objective of internal auditing is to assist members of the organization in the effective
discharge of the irresponsibility.

Internal auditing furnishes them with analyses, appraisals, recommendations, counsel, and
information concerning the activities reviewed.

The audit objective includes promoting effective control at a reasonable cost.

An independent, objective assurance and consulting activity designed to add value and
improve an organization’s operations.
It helps an organization accomplish its objectives by bringing a systematic, disciplined approach
to evaluate and improve the effectiveness of risk management, control and governance
processes.
 INTERNAL AUDITOR VS. independent

EXTERNAL AUDITOR
INTERNAL AUDITOR EXTERNAL AUDITOR
Reporting Reports to the audit committee/board of Reports to the shareholders
responsibility directors
Status Most of the time is an organization’s Is an independent contractor, third party who
employee (at times, it can be outsourced). is external to the organization.
Stakeholder Serves needs of the organizations. Serves third parties who need reliable
financial performance.
Independent status Is independent of the activities audited, Is independent of management and the
but is ready to respond to the needs and board of directors both in fact and mental
desires of all elements of management. attitude.

Responsibility Is directly involved with the prevention and Is incidentally concerned with the prevention
towards fraud detection of fraud in any form or extent in and detection of fraud in general, but is
any activity reviewed. directly concerned when financial
statements may be materially affected.
 INTERNAL AUDITOR VS. EXTERNAL
AUDITOR (CONT.)
INTERNAL AUDITOR
Scope of work Evaluate governance, control and
risk management processes to
assure the accomplishment of entity
goals and objectives.
Timing and Reviews activities continually by
frequency of focusing on future events
audit
Professional Not necessary, but may acquire
qualification Certified Internal Auditor (CIA)
go thru procedure effective / x
EXTERNAL AUDITOR
Review the financial statements to ensure that
the financial statements are free from material
misstatements and express opinion whether the
financial statements present true and fair view
Reviews records supporting financial statements
periodically (usually once a year) and focuses on
the accuracy and understandability of historical
events as expressed in financial statements
Compulsory to be a member of Malaysian
Institute of Accountants (MIA) and be granted
audit license by the Ministry of Finance (MoF)
before can be recognized as Chartered Accountant
(CA)
 CONSULTATION
Consultancy in public offering of stock
Management
Consultation Acquisition of a company
to client
Venture into new business
verbally or Cth Elon (Tesla) beli Twitter

in writing:- Development of new product

Study for new location for business (restaurant)

Developing the internal control procedures for the clients

Operational improvement, cost reduction, process flow

improvement etc
 SECRETARIAL SERVICES
Provide secretarial services to clients

Incorporation of new company

Deregistration of company

Winding up company

Maintenance of statutory books and registers

Filling statutory forms and return to CCM and other regulatory authorities

Attending meeting and preparation of minutes

Advice the client on the matter pertaining to the secretarial

 TAXATION
Compilation of return (on behalf of client):-

• CP 204
• Form C and tax computation
• Form R (Information about section 108 tax balance)
• Form E and EA (for employer and employee)

Tax planning

Advise client on new changes (rate) and new

incentives.
 ACCOUNTING
Providing accounting job to client
on:-
• Monthly basis or yearly basis or quarterly basis
• Analyze the financial information and
comparing to budget, previous year and for
unfavorable differences, provide explanation
for management decision…
• Assist in preparing payroll calculation
 REVIEW OF FINANCIAL
FORECAST AND PROJECTION
Prospective financial information means financial information based on assumptions
about events that may occur in the future events and possible actions of an entity.
An example is management’s predictions of the income statement and balance sheet one
year in the future.
It is highly subjective and can be in the form of a forecast, a projection or a
combination of both, for example: one year forecast and a five year projection.
Financial forecasts means prospective financial information prepared, to the
best of responsible party’s knowledge and believe, an entity’s expected financial
position, result of operation and the cash flow. It is based on the assumptions as
to future events which management expects to take place. (Best-assumptions).
For example: forecast for next sales will be RM1,000,000 and to achieve the
forecast, the company will launch a new product.
 REVIEW OF FINANCIAL FORECAST
AND PROJECTION
Financial projections means prospective financial information prepared to the best of
responsible party’s knowledge and believe, given one or more hypothetical
assumptions, an entity’s expected financial position, result of operation and the cash
flow. (What would happen if…) The financial position of the company based one or more
situation…
Different of the two:
Forecast is based on conditions expected to exist and the course of action to be taken.
Projection involves one or more hypothetical courses of action.

Example of assumption for profit forecast:

• Actual sales for Jan to Dec 2007 estimated increase by 5% of 2006 sales due opening another two outlets in
January 2006.
• Cost of sales is 35% of sales.
• Staff welfare at 1% of sales.
• Advertising expenses is 2% of sales…
REVIEW OF FINANCIAL FORECAST
AND PROJECTION
Management is responsible for the preparation and
presentation of financial forecast and projection, including
assumption used.

The purpose of Prospective financial statements are for

either general or limited use.

• General use: to included in a prospectus in relation to initial public offering (IPO).

• Limited use: As an internal management tool, for example to assist in evaluating a
possible capital investment, to negotiation for bank loan facilities.
 REVIEW OF FINANCIAL
FORECAST AND PROJECTION
Ensure his competency in undertaking task and the client business
The auditor,
before The intended use of the information, for IPO, loan facility
accepting the
engagement Whether the information will be for general or limited distributions
would
consider;- The nature of the assumptions, that is best-estimate or hypothetical assumptions

The period covered by the information, 2008 -2020?

The auditor and client should agree on the terms and engagement.
Clear engagement letter.
 REVIEW OF FINANCIAL
FORECAST AND PROJECTION
ISAE 3400 requires the practitioners to ascertain the following (procedures):
1.Whether the best-estimate assumptions used for preparing the prospective financial
information are reasonable;
2.Whether the hypothetical assumptions are consistent with the purpose of the
information;
3.Whether the prospective financial information is properly prepared on the basis of
the assumptions;
4.Whether the prospective financial information is prepared on a basis consistent with
historical financial statements using appropriate accounting standards
5.The underlying data are adequate and reliable and the calculation are accurate….
 REVIEW OF FINANCIAL
FORECAST AND PROJECTION
Reporting consideration
There are two important element details relating to the conclusion in the
when we want to conclude
report:-
On the reasonableness of the management assumptions, express in negative form
“Nothing has come to our attention which cause us to believe that the assumptions do not
provide a reasonable basis for the preparation of the profit forecast and ”..
“On whether the prospective financial information is properly prepared based on the
assumptions and consistent with historical financial statement, express in positive form
“In our opinion”
 REVIEW OF FINANCIAL
FORECAST AND PROJECTION
Reporting consideration
1.Unmodified Opinion: When the auditor believes that the presentation and
disclosure of the prospective financial information is adequate, the auditor should
express unmodified report on a forecast and projection:- CLEAN REPORT

For example:
a. Based on our examination of the evidence supporting the assumption, nothing
has come to our attention which causes us to believe that these assumptions do not
provide a reasonable basis for the preparation of the profit forecast; and
b. Further, in our opinion the forecast is properly prepared on the basis of the
assumptions and is presented in accordance with applicable approved accounting
standards in Malaysia….
 REVIEW OF FINANCIAL
FORECAST AND PROJECTION
Reporting consideration
2.Modified Opinion: When the auditor believes that the
presentation and disclosure of the prospective financial
information is NOT adequate, the auditor should express a
qualified or adverse opinion on the prospective financial
information or withdraw from the engagement.
 DUE DILIGENCE AUDIT
Due diligence audit is a process of enquiry and investigation made
on behalf of a prospective buyer on a possible business merger or
acquisition.
The scope of due diligence requires the Chartered Accountants to
verify the state of affair of the targeted business.
It is requires comprehensive review and enquiry. It is conducted in
prudence and in accordance with generally accepted practices.
The auditor is required to understand the client’s need, to avoid
wrong audit procedures carried out.
Therefore, letter of engagement is necessary for the audit client to
agree on the scope of audit.
 DUE DILIGENCE AUDIT
Audit Procedures:
• In the most cases, will be similar to statutory audit procedures:-
• Review the working papers of previous auditors
• Evaluate the valuation of the assets of the company
• Review Income Statement to determine accuracy of profits
• Carry out analytical review and discuss unusual items
• Review interim figures to evaluate accuracy and possible achievement of the
forecast figures
• Use interim and management accounting records to assess business trends
• Verify all material items in the balance sheet
• Review and report the management structure and corporate structure
• Review litigation issues, contingent liabilities, commitments
• Enquire if the company facing any problem relating to it product etc
• Review statutory records
 FORENSIC
AUDIT/INVESTIGATION
 FORENSIC
AUDIT/INVESTIGATION
✔Often conducted to obtain or develop information as legal evidence or for use by
expert witnesses in the court of law
✔Requires the use of critical analyses and investigative skills, integrated with
accounting knowledge and business experience
✔Required to report to the company that has appointed him/her in the case of a
regulatory body (e.g. Bursa Malaysia or Ministry) to the committee set up for that
purpose.
✔Required personnel who are trained in detecting, investigating and deterring
fraud and white-collar crime.
 FORENSIC AUDIT
Forensic Audit: An inquiry into the financial affairs of a business including
the examination of its audited accounts for recent years and its current and
estimated future position, as will enable the investigating accountant to
ascertain and marshal in his report the information relevant to the purpose of
his enquiries and to give recommendations and conclusions based on this
information.”
• Example:
• Business or employee fraud
• Criminal investigations
• Shareholder and partnership dispute
• Business economic losses
• Prospectus reports
• Purchase of shares in a private company or partnership
• Request for loan
• Investigations under statutes
 FORENSIC AUDIT
Stage of 1. Instruction
from client
Written and establish the aim and scope of
assignment
Audit who the beneficiary of the report, confidentiality
issues, schedule of investigations and reasons for
any limitations imposed
If no or incomplete instructions, the accountant should
sent a letter of engagement to the client confirming any
oral instructions or terms of reference given by the client

2. Communicating If investigating accountant not the auditor, he should make

with the auditors arrangements to ensure that the auditors are informed of
the impending investigation and to communicate with the
auditors as a matter of professional courtesy. (Adab)

This is because the investigating accountant will

require information from the auditors when
conducting the investigation
 FORENSIC AUDIT
Stage of 3. Assessing the Assess whether you can achieve the aim and
aims and assess whether the scope of investigation
Audit probable scope of can be covered
the investigations

4. Obtaining Preliminary visits to be made to gain an

background overall appreciation of the situation
information know overall situation of co

5. Deciding the Important to draft the main and sub-heading

outline of the of the report as this will help him guide the
audit report direction of the investigation, facilitates the
control of the staff and provides a
framework for the final reporting writing.
 FORENSIC AUDIT
Facts that gathered during the visit are to be compared and analyzed
Stage 6.Fact
gathering
of Prepare detailed listing of important and critical points
Audit
7. Drafting The work should be completed in parts if dah siap, terus buat report

the audit
report Once work completed should write report

8. Clearing the All factual parts of the draft report to be cleared with the company
to be investigated
draft report
with the This help to eliminate any minor inaccuracies and often leads to
company being further points of importance and hence avoiding any disputes at a
investigated later stage.
END OF TOPIC
11 & 12