Download On-line Privacy: The entity discloses its privacy practices, complies

CHAPTER 21
ATTESTATION ENGAGEMENTS AND
OTHER ACCOUNTING SERVICES
Answers to Review Questions
21-1
Assurance services are independent professional services that improve the quality
of information, or its context, for decision makers. The definition focuses on
decision-making because good decision-making requires quality information that
can be financial or nonfinancial. An assurance service engagement can aid the
decision maker in searching through the available information in order to identify
which pieces of information are relevant for the required decision and in
improving the quality of the information or its context. An assurance service
engagement can also improve quality through increasing confidence in the
information’s reliability and relevance.
21-2 The Special Committee on Assurance Services has developed the following six
assurance services:
Risk assessment - assurance that the entity’s profile of business risks is comprehensive
and evaluates whether the entity has appropriate systems in place to effectively
manage those risks.
Business performance measurement - assurance that an entity’s performance
measurement system contains relevant and reliable measures for assessing the degree
to which the entity’s goals and objectives are achieved or how its performance
compares to competitors.
Information system reliability - assurance that an entity’s internal information systems
provide reliable information for operating and financial decisions.
Electronic commerce - assurance that systems and tools used in electronic commerce
provide appropriate data integrity, security, privacy, and reliability.
Health care performance measurement - assurance about the effectiveness of health
care services provided by HMOs, hospitals, doctors, and other providers.
ElderCare - assurance that specified goals regarding the elderly are being met by various
care givers.
21-3 There are three broad risks associated with electronic commerce: business
practices, transaction integrity, and information protection. The WebTrust Principles are:
Business Practices Disclosure - The entity discloses its business practices for electronic
commerce transactions and executes transactions in accordance with its disclosed
business practices.
Transaction Integrity - The entity maintains effective controls to ensure that customers’
orders placed using electronic commerce are completed and billed as agreed.
Information Protection - The entity maintains effective controls to provide reasonable
assurance that private customer information obtained as a result of electronic
commerce is protected from uses not related to the entity’s business.
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21-4 The four principles that are used in SysTrustTM to evaluate a system as reliable
are:
On-line Privacy: The entity discloses its privacy practices, complies with such
privacy practices, and maintains effective controls to provide reasonable
assurance that personally identifiable information obtained as a result of
electronic commerce is protected in conformity with its disclosed privacy
practices.
Security: The entity discloses its key security practices, complies with such
security practices, and maintains effective controls to provide reasonable
assurance that access to the electronic commerce system and data is restricted
only to authorized individuals in conformity with its disclosed security practices.
Business Practices / Transaction Integrity: The entity discloses its business
practices for electronic commerce, executes transactions in conformity with such
practices, and maintains effective controls to provide reasonable assurance that
electronic commerce transactions are processed completely, accurately, and in
conformity with its disclosed business practices.
Availability: The entity discloses its availability practices, complies with such
availability practices, and maintains effective controls to provide reasonable
assurance that electronic commerce systems and data are available in conformity
with its disclosed availability practices.
21-5 ElderCare can be a potential major service for CPA firms because the population
in the U. S. and Canada is aging and many of these people have accumulated significant
wealth. Additionally, individuals are living to ages where they require some form of
assisted-living. In the past, these individuals relied on members of their family to provide
some level of care. However, changing demographics show a more mobile, younger
generation. Many of these younger families have both spouses working outside the home
and they do not have time to care for elderly relatives. The CPA can bring another level
of assurance or comfort to the elderly person (and family members).
There are three types of ElderCare services that practitioners can offer (1)
consulting/facilitating services, (2) direct services, and (3) assurance services.
21-6 SSAE No. 10 defines an attest engagement as “occurring when a practitioner is
engaged to issue or does issue a report on subject matter, or an assertion about subject
matter, that is the responsibility of another party."
The conditions necessary to perform an attestation engagement are that the
practitioner has reason to believe that the subject matter is capable of evaluation against
reasonable criteria that are suitable and available to users.
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21-7 Attestation standards provide for three types of engagements: (1) examination, (2)
review, and (3) agreed-upon procedures. However, an individual SSAE may prohibit one
or more of these types of engagements. A compilation may be performed on financial
forecasts and projections. Examples of attestation engagements are (1) reporting on an
entity's internal control over financial reporting, (2) providing assurance on financial
forecasts and projections, (3) providing assurance on compliance with the requirements
of specified laws, regulations, rules, contracts, or grants.
21-8 The accountant can satisfy the requirement that the specified users take
responsibility for the sufficiency of the procedures to be performed by doing one of the
following:
 Comparing the procedures to be applied to written requirements of the specified
users.
 Discussing the procedures to be applied with an appropriate representative of the
specified users.
 Reviewing relevant contracts with or correspondence from the specified users.
21-9 Management may use criteria issued by the AICPA such as the COSO criteria
included in SAS No. 55. They may also use criteria established by regulatory agencies or
other bodies of experts that follow a due process.
21-10 Prospective financial statements are either financial forecasts or financial
projections. Financial forecasts are prospective financial statements that present an
entity's expected financial position, results of operations, and cash flows. They are based
on assumptions reflecting conditions the responsible party expects to exist and the course
of action it expects to take. Financial projections are prospective financial statements that
present, given one or more hypothetical assumptions, an entity's expected financial
position, results of operations, and cash flows. The primary difference between the two
is that the financial projection is based on hypothetical assumptions and is intended to
respond to a question such as "What would happen if...?" A financial projection is
sometimes prepared to present one or more hypothetical courses of action for evaluation.
Additionally, financial projections can be used only for limited distribution.
21-11 Two types of services can be performed under SSARS: (1) a compilation and (2)
a review.
21-12 In conducting a compilation, the accountant must have the following knowledge
about the entity:
 The accounting principles and practices of the industry in which the entity operates.
 A general understanding of the nature of the entity's business transactions, the form of
its accounting records, the stated qualifications of its accounting personnel, the
accounting basis on which the financial statements are to be presented, and the form
and content of the financial statements.
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In conducting a review, the accountant must possess the following knowledge
about the entity:
 The accounting principles and practices of the industry in which the entity operates
and an understanding of the entity's business.
 A general understanding of the entity's organization, its operating characteristics, and
the nature of its assets, liabilities, revenues, and expenses; this would include general
knowledge of the entity's production, distribution, and compensation methods, types
of products and services, operating locations, and material transactions with related
parties.
Answers to Multiple-Choice Questions
21-13
21-14
21-15
21-16
21-17
21-18
D
C
B
B
D
B
21-19
21-20
21-21
21-22
21-23
21-24
D
C
B
A
C
B
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