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Contents

Introduction.............................................................................................. 1
Assurance service.................................................................................... 2
types provide services CPAs......................................................................3
A audit...................................................................................................... 3
A review................................................................................................... 5
A compilation........................................................................................... 6
non-auditing services.................................................................................. 7
nine audit services...................................................................................... 8
bookkeeping or other services relating to the accounting records...........8
Financial Information System Design and Implementation...................9
provided to audit clients........................................................................9
Appraisal or Valuation Services, Fairness Opinions or...........................9
Contribution-In-Kind Reports provided to audit clients..........................9
Actuarial Services provided to audit clients........................................10
Internal Audit Services provided to audit clients.................................11
Management Functions provided to audit clients................................11
Human Resources services provided to audit clients.............................12
Broker Dealer Services provided to audit clients....................................12
Legal Services provided to audit clients.................................................13
Post employment benefits Plan and administration..........................13
Tax Services provided to audit clients.................................................14
Other Services provided to audit clients.............................................14
References................................................................................................. 15

Introduction

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The word, audit, has been derived from the Latin word Audire meaning
to hear. Auditing is a formal examination of accounting books, documents
and vouchers of a business concern in order to verify the profit and loss
and the financial position of a business. Its a systematic check or
assessment of financial records of a business, department or organization
to establish accuracy or efficiency or effectiveness.

The need of audit arises due to the fact that a business enterprise needs
to ensure the correctness of all accounts pertaining to the business. It is
also important to ascertain whether or not, the financial statements, profit
and loss account and balance sheet have been prepared in a way as to
show the summary of the flow of transactions for the whole period and the
true picture and position of a business enterprise. Besides, in order to
ensure the accuracy or the efficiency of the records, detection and
prevention of errors is vitally important. Hence, audit, under its main
objectives and subsidiary objectives fulfills the purpose.

Audit is an effective tool for a Business Management, as internal audit is


conducted in order to ensure the policies are being followed. It enables to
make valuable suggestions for improvement and to formulate future
policies of a business. Audit also helps management to review the policies
from time to time.

Since audit involves a detailed verification of accounting records, it helps


greatly to discover errors or frauds while it promotes a moral check on the
employees through which their efficiency may also be determined. To its
more positive form, audit can motivate the employee to maintain the
efficiency leading to increase their performance level. Aside from these, it
is with the help of audit that misappropriation of goods and manipulation
of records may be identified.

Assurance service
Assurance service is: an independent professional service,
typically provided by Chartered or Certified Public

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Accountants or Chartered Certified Accountant, with the
goal of improving information or the context of information
so that decision makers can make more informed, and
presumably better, decisions. Assurance services provide
independent and professional opinions that reduce
information risk (risk from incorrect information)

Assurance services are a class of services provided by


certified public accountants (CPAs) in public practice.
While the term is sometimes used inconsistently among
individual CPA firms, the American Institute of Certified
Public Accountants (AICPA) Special Committee on
Assurance Services defined assurance services as
independent professional services that improve the
quality of information, or its context, for decision-makers.

Assurance services are rooted in the CPAs tradition of


independent verification of data prepared by others .

They differ from many services historically provided by


CPAs in that they represent an expansion of the
information and forms of reports provided. Indeed, they
represent an evolution in the nature of services provided
by CPAs, as CPAs have begun to provide services not just
on accounting information but on many other types of
information that people need in order to make decisions.

types provide services CPAs


A audit

An audit is the highest level of financial statement service a CPA can


provide. The purpose of having an audit is to provide financial statement
users with an opinion by the auditoron whether the financial statements
are prepared in accordance with the proper financial reporting framework.
An audit enhances the degree of confidence that intended users, such as
lenders or investors, can place in the financial statements.

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The auditor obtains reasonable assurance about whether the financial
statements as a whole are free from material misstatement, and whether
the misstatements are from error or fraud.

To obtain reasonable assurance, items are observed, tested, confirmed,


compared or traced based on the auditors judgment of their materiality
and risk. After gathering appropriate evidence through this process, the
auditor issues an opinion about whether the financial statements are free
from material misstatement.

As an additional benefit, the auditor may become aware of some


deficiencies in internal control or weaknesses in the organizations
systems and offer suggestions for improvement. Some of the more
important auditing procedures include:

Inquiring of management and others to gain an understanding of the


organization itself, including operations, financial reporting and known
fraud or error

Evaluating and understanding the internal control system

Performing analytical procedures as expected or unexpected variances in


account balances or classes of transactions appear

Testing documentation supporting account balances or classes of


transactions

Observing the physical inventory count

Confirming accounts receivable and other accounts with a third party

Ideally, auditors will provide an unqualified, or clean, opinion on the


companys financial statements. An unqualified opinion will contain

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language such as the financial statements present fairly in all material
respects and in conformity with accounting principles generally accepted
(GAAP) in the United States.

If an auditor is unable to render an unqualified opinion, a qualified opinion


may be issued. Some reasons opinions may be qualified include scope
limitations and departures from GAAP.

A qualified opinion due to a scope limitation alerts the reader that, except
for the matter to which the qualification relates, the financial statements
present fairly, in all material respects, the companys financial position. If
the scope limitation is severe enough, the auditors may disclaim an
opinion on the overall financial statements.

When an auditor issues a qualified opinion, the auditor believes the


financial statements are fairly stated in all material respects except for a
material departure from GAAP. But the auditor has concluded not to
express an adverse opinion.

However, if the auditor concludes that the departures from GAAP are so
significant that the financial statements as a whole are not fairly stated, an
adverse opinion must be issued. An adverse opinion will include language
describing what the auditor believes is materially misstated in the financial
statements, and the effects of the misstatements. If the effects are not
reasonably determinable, the auditors will state that.

A review
A review engagement is conducted to provide limited assurance that there
are no material modifications that should be made to the financial
statements for them to be in conformity with the financial reporting
framework.

A review differs significantly from an audit. Review engagements provide


less assurance to the reader of the financial statements because the CPA
does not perform many audit procedures. The broad review procedures
required to be performed by the CPA are:

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Inquiries as to the accounting practices and principles used by the
business

Procedures for recording and accumulating financial information

Actions taken at owners or directors meetings

Written representations from management regarding the accuracy of all


information given to the CPA

Receipt of all relevant information by the CPA

Managements responsibility for internal control

Managements responsibility to prevent and detect fraud

Knowledge of fraud

Information related to any significant subsequent events

Analytical procedures regarding comparisons

Expectations developed by the CPA of recorded amounts

1. Ratios from recorded amounts

2. Plausible relationships of recorded amounts

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These analytical procedures provide better understanding of key
relationships among certain numbers. This understanding gives more
assurance about the reasonableness of the financial condition presented in
the financial statements.

Based on the inquiries and analytical procedures, the CPA is able to


express only limited assurance that there are no material modifications
that should be made to the financial statements for them to be in
conformity with the applicable financial reporting framework. Because a
review engagement is substantially less intensive in scope than an audit,
the CPA cannot express an opinion on the fairness of the financial
statements taken as a whole.

A compilation

In a compilation engagement, the objective is to assist management in


presenting financial information in the form of financial statements without
undertaking to provide any assurance that there are no material
modifications that should be made to the financial statements so they will
conform to the acceptable financial reporting framework. Because of the
even more limited scope of compilation procedures, the CPAs report will
not express an opinion or provide any assurance regarding the financial
statements.

A compilation involves (1) gaining a general understanding of your


business, accounting principles used and financial reporting system and
(2) presenting financial information in the accepted format of proper
financial statements. The CPA expresses no assurance about the accuracy
of the financial statements presented. The report attached to the financial
statement emphasizes that the service is a compilation.

While independence is required at the other levels of service, the CPA does
not have to be independent of your organization to perform a compilation.
The report must state that the accountant is not independent.

Further options lie within the compilation level of service. The compilation
report may be a full disclosure report with complete footnote explanations
of certain amounts and policies contained in the financial statements. Or,

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these otherwise required disclosures may be omitted. Omission of this
information is not permissible under the other levels of service.

It is important to find the proper balance between the cost of the CPAs
services and the level of assurance the users of the financial statements
require.

non-auditing services
Non-audit services may be any services other than audit provided by an
auditor to an audit client. Public accounting firms expanded the scope of
their services to include corporate and individual tax planning, internal
audit outsourcing and consulting related to mergers and acquisitions,
information system (Salehi, 2009 s more economic for auditors to provide
other additional services to their clients, since the auditor already has a
good knowledge of their clients business (Islam et al., 2005a).

November 2002- -Prior to the adoption of the Sarbanes-Oxley Act


("SOA"), there was some confusion over what types of non-auditing
services the outside accountant could perform for a public corporation. In
fact, some of the major accounting firms sold their consulting units in
recent years in order to avoid any possible conflicts of interest

Non-audit services provided by auditors to their


clients
fall into categories:
1. . Services required by legislation or contract to be undertaken by
the auditors of the business. These include:

regulatory returns e.g. to the Prudential Regulation Authority

legal requirements to report on matters such as share issues for non-cash


consideration, expenditure for grant application purposes, etc

contractual requirements, for example to report to lenders or vendors on


net assets, covenant requirements, etc.

2. Services that it is most efficient for the auditors to provide because


of their existing knowledge of the business, or because the
information required is a by-product of the audit process. These
include:

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services such as those listed in category (1) above that the auditors are
not required by law to undertake, but where the information largely
derives from the audited financial records

tax compliance, where much of the information derives from the audited
financial records

'short form' or other reports in acquisition or reorganisation situations


where completion is necessary in a very short time.

.3 Services that could be provided by a number of firms. In this case, the


fact that the firm is the auditor is incidental and it would generally only be
chosen because, for example, it had won a tender process. Examples of
such services include:

nine audit services


Salehi and Moradi (2010) stated that the Sarbones Oxley Act of 2002
in the United States of America implemented the ban of nine audit
services which include:

Bookkeeping and other services related to the audit clients accounting


records
Financial information systems design and implementation
Valuation services and fairness opinions
Actuarial services
Internal audit services
Management functions
Human resource planning
Broker-dealer services
As Legal services

bookkeeping or other services relating to the


accounting records
A) Payroll Services.

B) Debt collection services.

C) Assistance or advice with preparation of the Financial Report.

D) Prepare source documents.

E) Create or change journal entries in parent

or consolidated entity.

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F) Create or change journal entries in divisions or subsidiaries of the
parent

company.

G) Cash handling services.

H) Custody of assets.I) Audit firm staff secondments to the areas

responsible for preparation of financialrecords.

J) Corporate recovery (insolvency) services.

K)Debt recovery and management, such asbad debt assessment.

L) Independent business reviews.

Financial Information System Design and Implementation

provided to audit clients.


A) Is the auditor permitted to design financial Information Technology

B) Is the auditor permitted to implement financial IT systems

C) Is the auditor permitted to design or implement non-financial IT


systems?

D) Is the auditor permitted to design and/or implement directly any of the

following

i. Impairment modelling software

ii. Post employment benefits calculation software.

iii. Net present value software.

iv. Tax effect accounting software.

v. People management software.

Appraisal or Valuation Services, Fairness Opinions or

Contribution-In-Kind Reports provided to audit clients.


A) Valuation services that are material may mean something different in

different jurisdictions and situations

B) Valuation services that are neither separately nor in aggregate material


to

the Financial Report.

C) Any of the following valuation services that may be provided to audit


clients:

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i. Valuations for tax related items

i.e., tax value of inventory.

ii. Employee stock plans.

iii. Business combinations.

iv. Impairment testing valuations.

v. Debt.

vi. Equity shares in privately held

entities.

vii. Pricing studies.

viii. Financial investments.

ix. Tax allocations.

x. Derivatives.

Actuarial Services provided to audit clients


A) Financial Statement related services provided to the audit client:

i. Calculating post employment

benefit liabilities.

ii. Impairment modelling.

iii. Employee share plans.

iv. Share-based payments.

v. Prospective information.

vi. Self-insured workers compensation

liabilities.

vii. General and specific insurance

claims.

viii. Acquisition analysis including

fair value accounting.

ix. Superannuation/pension.

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B) Non-Financial Statement related services to the audit client:

i. Forecasting cash-flow

ii. Preparing prospective information

iii. Preparing analyses/reports for due

diligence assignments Answer

Internal Audit Services provided to audit clients.


A) Performing internal accounting controls testing.

B) Providing assistance in implementation of internal controls.

C) Setting the scope, risk and frequency of the internal audit work.

D) Assisting in determining which recommendations from internal audit

the entity implements.

E) Coordinating and reporting internal audit's findings to management or


the

Audit Committee.

F) Performing internal controls testing on non-accounting controls


(i.e.controls system interfaces)

G) Is the auditor staff providing the internal audit service permitted to


assist in the Financial Statement audit

H) Audit firm staff secondments to the internal audit division of the audit
client

Management Functions provided to audit clients.


A) Is the audit staff permitted to act in the capacity of management for an
audit client

B) Is the auditor permitted, in any circumstance, to approve or sign


documents on behalf of the audit client

C) Is the auditor permitted, outside of the statutory audit function, to


delegate/supervise work of staff of the audit client?

D) Is the auditor permitted, in any circumstance, to influence the client's


accounts or financial report(i.e. request journal entries and transactions)

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Human Resources services provided to audit clients.

A) Reviewing the professional qualifications of a number of applicants


and providing advice

on their suitability for the position.

B) Conduct and attend candidate interviews on behalf of the audit client.

C) Create selection criteria for candidate suitability for a position.

D) Undertake reference checks for potential candidates.

E) Act as a negotiator in determiningposition, status, compensation.

F) Draft employment contracts.

G) Sign an employment contract and engage the candidate to commence


employment.

H) Assist in the performance appraisals of audit client staff.

I) Recommend bonuses and offer incentives (employee stock options).

J) Attend and conduct performance counselling sessions.

K) Recommend the termination of audit client staff based on performance

L) Prepare and/or assist in termination remuneration/salary

M) Provide other Human Resource

Broker Dealer Services provided to audit clients.


A) Buy and sell shares on behalf of the audit client both on exchange and
private sale.

B) Identify and introduce an audit client to acquisition target entities.

C) Identify and introduce an audit client to possible acquirers of audit


subsidiaries/investments.

D) Promote or underwrite shares of an audit client's or its subsidiary.

E) Provide transaction advice on acquiring or disinvesting of divisions or


entities.

F) Provide Due-Diligence services.

G) Provide acquisition analysis and advise on the basis of Fair Value

H) Provide analysis of accounting and financial reporting effects of


transactions.

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I) Provide opinions on corporate

Legal Services provided to audit clients.

A) Act as an expert witness.

B) Calculate estimated damages.

D) Contract support

E) Legal due diligence

F) Mergers and acquisition advice and support

G) Restructuring advice and support.

H) Act for the audit client in dispute resolution or litigation

I) Negotiate contract terms for the audit client

J) General advocacy services for client

Post employment benefits Plan and administration


services provided to audit clients.

A) Can the auditor act in a fiduciary duty capacity on the audit client's
employment benefit plan? ('theplan').

B) Can the auditor act as administrator of the plan?

C) Can the auditor make disbursements and calculate on behalf of the


plan?

D) Can the auditor provide assurance services to the plan?

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Tax Services provided to audit clients.

A) Prepare and lodge of tax returns.

B) Assist in the resolution of tax disputes with Tax Authorities.

C) Prepare the calculation for taxes payable/receivable

Tax Opinions and Advice

D) Prepare advice on Tax Planning opportunities.

E) Prepare an opinion or reasonably arguable position papers on the

taxation treatment of a transaction.

F) Provide advice on tax implications for acquiring or selling investments

or subsidiaries.

G) Prepare the calculation of the tax effect accounting balances.

H)Prepare the income tax calculation for tax compliance and then use this

calculation for auditing the tax effect

Other Services provided to audit clients.


In addition to the other services listed below, please
specify and explain any service that

you permit or prohibit that has not appeared elsewhere in


this survey.

A) Share-registry services

B) Company secretarial services including lodging documents with the


Company's

Office and stock exchanges on behalf of the audit client.

C) Provide accounting advice on treatment or application of accounting

standards for the audit client.

D) Provide an audit on wages declarations which is given to third parties.

(i.e. Workers Compensation Audits)

E) Provide any service that involves client funds?

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F) Corporate Recovery Services.

G) Regulatory Reviews or audits.

H) Independent Business Reviews.

I) Other Bankruptcy Services.

References
1. Survey On The Regulation Of Non-Audit Services Provided By
Auditors To Audited Companies MARCH 2007 OICU IOSCO
2. Salehi, M. and M. Moradi, 2010. Iranian angle to non-audit
services: Some empirical evidence. Managing Global Transitions
3. Islam, A., W. Karim, M. Khaled and T. van Zijil, 2005. Non-audit
services and auditor independence: An analysis using the
informativeness of earnings.
4. https://en.wikipedia.org
5. http://accounting.smartpros.com/x35824.xml
6. https://www.linkedin.com/in/fareedsiddiqui1

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An-Najah National University
Faculty of Graduate Studies
Master in Accounting
Search for other services provided by
the CPAs
Under the kind supervision:
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Dr: Muiz Abu Alia
Prepared By: Assi out

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