Syllabus F. Other Assignments F1. Audit-related services

F1bc. Non-Audit Engagements 2 / 2

Syllabus F1bc)

b) Describe the main categories of assurance services that audit firms can provide and assess the benefits of providing these services to management and external users.

c) Describe the level of assurance (reasonable, high, moderate, limited, negative) for an engagement depending on the subject matter evaluated, the criteria used, the procedures applied and the quality and quantity of evidence obtained.

There are three main types of non-audit engagements

They are more likely to arise with small companies, and only a general awareness is needed

They are...

  1. Review Engagements

    • Offer limited assurance

    • Used by smaller companies who do not require an audit but may want to apply for finance

    • The assurance given is negative assurance

    • Involves a lot less work than an audit

    • Agree the terms with the client and send an engagement letter

    • Look at the systems in place and how judgements made by management affect the items under review

    • Assess materiality & procedures to be used

    • Analytical Review (year on year figures) + forecasts as well as establish relationships between balances

    • Assess the entities accounting practices and how information is recorded during the review and examine minutes of important meetings to establish any facts which may affect the financial statements.

  2. Agreed Upon Procedures

    In certain situations the auditor may not be asked to express an opinion, but merely to present the results of a set of procedures

    • The client draws their own conclusions from the data presented by the auditor.

    • Eg. A report for a bank as to the validity of the receivables balance

    • The report will only be for the client

    • The engagement letter shows the purpose & procedures to be applied and the form of any report.

    • It should also make clear that neither an audit, nor a review is being carried out and that the report should not be distributed

  3. Compilation Engagements

    This is where the accountant is asked to compile financial information for presentation to the client

    • An example is the compilation of FS from a client’s books and records

    • No opinion is issued

    • Eg. 

      On the basis of information provided by management we have compiled, in accordance with the International Standard on Related Services (or refer to relevant national standards or practices) applicable to compilation agreements, the balance sheet of Jamima Ltd at 31 March 20XX and statements of income and cash-flows for the year ended then. 

      Management is responsible for these financial statements. 

      We have not audited or reviewed them and accordingly express no opinion thereon.