Week 2 Team C 1

Auditing, Attestation, and Assurance Services

Jeffrey Crump, Millay Dimond, Debbie Evans, Sandy Leong, and

Shauna Yuresko

Contemporary Auditing I ACC-491

March 8, 2015

Professor Venetia Clark

Week 2 Team C 2

Auditing, Attestation, and Assurance Services

Auditing, attestation, and assurance services help to ensure

businesses are operating ethically and staying compliant with all

rules, standards, and regulations. Boynton and

Johson (2006) defined auditing as, “A systematic process of

objectively obtaining and evaluating evidence regarding

assertions about economic actions and events to ascertain the

degree of correspondence between those assertions and established

criteria and communicating the results to interested

users”(Chapter 1 The Auditing Environment). In other words,

auditing gives stakeholders and others who are invested in the

business a means to see the reliability and success or failure of

the business. An audit can be as simple as a second person

reviewing the work. This is a basic example of an internal audit.

Larger companies often hire an independent auditing firm to

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review their financial documents, check them for accuracy, and

ensure compliance with GAAP standards. Attestation is a

consulting service in which a CPA signs official documents as a

third party stating that all actions are true and were conducted

properly. An example of this service is when a company has an

accountant review procedures for compliance. Once they review

them, they can sign off on the procedure. Boynton and

Johnson (2006) stated, “Assurance services are independent

professional services that improve the quality of information, or

its context, for decision makers” (Chapter 1 The Auditing

Environment). Assurance services can be issued on a variety of

items. A bank may want to offer a new balance transfer program.

To increase awareness they will allow people to put in their

current balance and interest and then show the savings by

transferring the funds. The bank would use assurance services to

ensure that calculations are correct. Assurance services allow

the company to feel confident that the information they are

providing is accurate. This paper will compare and contrast

these three services in detail while explaining who would request

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such services, what standards apply to each service, and who

establishes those standards.

Any company looking to remain in compliance with

governmental standards would want to have an audit. An audit

allows a company to assure all stake holders of the reliability

of the business they are doing and the finances they are

reporting. An audit can further help a company to know if they

are completely compliant with all federal taxes and banking

conditions. Furthermore, if a company wants to make sure they

are recording everything efficiently and reporting accurately, an

audit can really help. An audit allows a company to see the

inner workings of their company from a different perspective and

then make their next move from there. An audit also helps to

examine the internal controls of a company and whether or not

they need to be improved or added to.

Sometimes an audit is not enough to assure all stakeholders

and that is when an attestation and/or an assurance may be

needed. An assurance assures all stakeholders that the financial

documents have been reviewed by a CPA and that they are accurate

and valid according to federal standards. An attestation is when

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an auditor adds their signature to official documents as an

independent third party signifying that the documents are

accurate and that everything was handled correctly. Any business

looking to assure the public and their stake holders would

request these services, and board members or investors may even

demand it.

Banks are another entity that may want to look into audit

services, including attestation and assurances. Everyday people

use banks and those people need to know that their money is

secure and that they will be protected if anything goes wrong.

By engaging in assurance services, a bank can have their

operation looked at in detail and have the assurance that a third

party would put their reputation on the line to say they are

doing things right. Anyone signing documents at a bank would

benefit from attestation services, as anyone would want to know

that their legal documents were filled out correctly and all

signatures are valid. Essentially, anyone who wants to feel more

secure about their financial decisions could benefit from these

services.

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The ten generally accepted auditing standards provide the

basis for high quality performance of auditing, attestation, and

assurance services. The first three standards of GAAS require

the auditor to have adequate training, mental independence, and a

high standard of professional care. The next three standards

require the auditor to adequately plan the auditing field work,

have sufficient understanding of the audited organization, and

obtain sufficient audit evidence. The remaining four GAAS

pertain to reporting of the audit findings. The report states

whether generally accepted accounting principles were applied,

any inadequacy of disclosure, and an opinion on the company’s

financial statements. GAAS develop the integrity and reliability

of financial information evaluated by CPAs. GAAS establish

general uniform rules for auditing which is a verification

service extended to attestation. Stakeholders’ trust of

independent CPA audits lead to the demand for attestation and

other assurance services of CPAs.

CPAs evaluate financial information and management

assertions against predetermined criteria or standards. GAAS are

standards that are used for auditing the accuracy and reliability

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of financial statements. Internal financial reporting control

procedures are standards for determining how the company adheres

to compliance requirements. Operational audits may involve

budgets and business objectives as standards for evaluating

performance. The attestation service of verifying and expressing

a written opinion on management’s written claims of a sales

forecast may involve the reporting standards of GAAP. The

attestation of management’s assertion on loan payments is

examined against the terms of the loan agreement. The CPA

performance view is an assurance service providing the assessment

on a company’s performance evaluation of a specific activity.

CPAs apply the industry standards used for specific activity

performance measurements. Another assurance service is CPA risk

advisory, which provides an unbiased analysis of a possible

adverse effect on the company. Profitability can be a standard

used for measuring the degree of risk.

Auditing, attestation, and assurance standards are

established by different organizations. Some organizations cross

over into all areas and some concentrate their efforts on just

one area. Auditing standards used by registered public accounting

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firms are established by the Public Company Accounting Oversight

Board (PCAOB). The PCAOB’s authorization to establish these

standards comes from the Sarbanes-Oxley Act of 2002. According

to the Public Company Accounting Oversight Board (2015), “PCAOB

Rule 3100, Compliance with Auditing and Related Professional

Practice Standards, requires the auditor to comply with all

applicable auditing and related professional practice standards

of the PCAOB.” So, not only does the PCAOB establish these

standards, but they also require that they must be followed by

all auditors. Audit standards are also established by the

American Institute of CPAs (AICPA). The AICPA works with state

CPA organizations in order to give auditors the information and

resources they need to complete jobs for their clients. They do

this by, among other things, developing standards for audit and

other services and monitoring and enforcing compliance with the

standards.

Attestation standards are also established by the AICPA

Auditing Standards Board. They set the standards that must be

followed by the members of the AICPA when conducting attest

engagements. In addition, the PCAOB sets attestation standards

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for practitioners to follow. In addition to the PCAOB standards,

“When a practitioner undertakes an attest engagement for the

benefit of a government body or agency and agrees to follow

specified government standards, guides, procedures, statutes,

rules, and regulations, the practitioner is obliged to follow

those governmental requirements as well as the applicable

attestation standards” (Public Company Accounting Oversight

Board, 2015).

Assurance standards are set both on a national and

international basis. Internationally, “The International

Auditing and Assurance Standards Board (IAASB) is an independent

standard-setting body that serves the public interest by setting

high-quality international standards for auditing, assurance, and

other related standards, and by facilitating the convergence of

international and national auditing and assurance standards”

according to the International Federation of Accountants (2015).

The American Institute of CPAs establishes assurance standards

and helps members to understand and utilize the standards.

As time has gone on, fraudulent financial reporting and

restatements of earnings have become more prevalent. Therefore

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making auditing services become more important. Attestation and

assurance services provide even more assurance for stakeholders

in a business. Boynton and Johnson (2006) stated, “Financial

statement audits provide an important level of assurance about

the integrity of financial statement information used by decision

makers” (Chapter 1 The Auditing Environment).

References

Bovnton, W. C., & Johnson, R. N. (2006). Modern auditing:

Assurance services and the integrity of financial reporting.

(8th ed). Hoboken, NJ: Wiley.

International Federation of Accountants. (2015). Retrieved from

http://www.ifac.org/auditing-assurance

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PCAOB Public Company Accounting Oversight

Board. (2015). Retrieved from

http://pcaobus.org/Standards/Auditing/Pages/Auditing_Standar

d_1.aspx