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STANDARD ON OTHER ASSURANCE SERVICES INCLUDING CERTIFICATIONS, PROJECTIONS AND PROVISIONAL STATEMENTS

With various business scandals which have unearthed in the last couple of years, the profession is under the lens and scanner as never before. In such a situation, the standards specified by the Institute of Chartered Accountant of India (ICAI) helps the profession to safeguard the various risks faced by the profession.

The services of a Practicing Chartered Accountant is not restricted to Audits. With the change in the business environment and the adoption of new technology, a chartered accountant is expected to do more than audit functions. Reliance on Chartered Accountants for various attestation functions has increased manifold in business transactions. The other areas in which a practising chartered accountant renders services is assurance engagement. The assurance engagement is described as an “engagement in which practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria.” Thus, in assurance engagement, a conclusion is provided instead of opinion to the third party like financial institutions, investors, various Govt. authorities etc.

When we discuss the auditing standards, a general understanding is that the standards are applicable for external audits / Statutory audits. In such cases, the report is generally addressed to the members or the Government authorities (in case of Tax audits). However, a careful analysis of the assurance standards provided by ICAI, helps us to understand that the standards also address the attestation functions, risk advisory functions, compilation functions and report on the IFC of the entity. The difference between audit, attestation service, assurance service and compilation engagements can be understood in the following manner:

Auditing Standard on other Assurance Services

Nature of service

Audit

Review

Attestation / Agreed upon procedures

Compilation

Level of assurance

High level of assurance

Limited / Moderate assurance

No assurance

No assurance

Financial information

Historical

Historical

Historical / projections

Historical / projections

Reporting

“In our opinion….true & fair view”

Positive assurance

“Nothing has come to our attention

Negative assurance

Factual findings of the procedure

Identification of information complied.

Standards applicable

Standards on Auditing

SA 100 - 999

Standards on Review engagements

SRE 2000 - 2699

Standards on assurance engagements

SAE 3000 -3699

Standards on related service

SRS 4000 - 4699

The following paragraphs discuss the requirements for agreed upon procedures and compilation standards

Engagements other than audit and reviews or Review of historic financial information

Standard Ref.

Contents

Type of services

SAE - 3400

Examination of prospective financial information

Loan finance, valuation of business, attesting a forecast etc

SAE - 3402

Assurance reports on controls at a service organization

Audit of KPOs / BPOs or IFC of another entity providing service

SAE 3420

Assurance engagement to report on the compilation of proforma financial information included in a prospectus

Information in prospectus regarding initial public offering

Standard Ref.

Contents

Type of services

SRS -4400

Engagement to perform agreed upon procedures regarding financial information

Report on physical verification of inventory for internal use of management, reporting on the IFC controls to the management, risk advisory

SRS – 4410

Compilation engagements

Report on preparation of MIS for management’s internal reporting, performance review

 

Analysis of the above standards and requirements

A. Standard on Quality Control (SQC) 1 Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements

This standard can be considered to be the standard which will be applicable irrespective of the functions performed by the practicing Chartered Accountant. The objective of the standard is to ensure that firm should form a system of quality control and adhere to the professional standards and legal and regulatory requirements. The firm is expected to have policies and procedures regarding the quality which should be documented and communicated to the firm’s personnel. The elements of SQC-1 have the following components:

  • Leadership responsibilities of quality which requires the managing partner / Quality partner to create a culture that quality is essential component, communicate the same through workshops and training and process to deal with non-compliances
  • Ethical requirements require the adherence with objectivity, integrity, confidentiality, professional competence, due diligence and professional behaviour.
  • Acceptance and continuance of client relationship and specific engagements
  • Human Resource which requires right personnel with adequate knowledge and ensuring skill updating through proper training
  • Engagement performance generally by any senior or engagement partner
  • Monitoring of the assignment
 

B. Acceptance of Client engagement

The requirement regarding the acceptance of the client engagement is pervasive across the standard. The importance of obtaining knowledge about the client or to Know Your Client (KYC) cannot be denied before acceptance of any kind of engagement. All the standards as discussed above has the requirement to adhere to following guidelines before commencement of the assignment:

  • Preliminary knowledge of the engagement & circumstances,
  • Appropriate source of information
  • Intended use of the information
  • Information will be for general or limited distribution
  • Period covered
  • Scope of the engagement, competence to perform the engagement

C. Written Representation

A written representation letter is a form letter written by a management to outside auditor and signed by the management of the client company. The letter attests to the accuracy of the financial statements supplied by the company to the auditor, and that all information relevant to the financial statements has been disclosed to the auditor. The letter is signed following the completion of audit fieldwork, and before the financial statements is issued along with the auditor's opinion. The written representation in this shall consist of pro forma adjustments carried out to present the information in the requisite format, compilation of all the material aspects. It should also consist of relevant information provided to the auditor for the agreed upon procedure.

D. Documentation

The working papers for the assurance engagements and related services will generally include the following:

  • Source of information
  • Audit Plan
  • Client engagement letter
  • Basis of forecast and assumptions made in arriving the forecast
  • Evidence supporting the assumption
  • Management Representation letter
  • Nature, timing and extent of procedure
  • Reasons for arriving the conclusion

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Category Audit, Other Articles by - CA Amrita Chattopadhyay 



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