AUD, Auditing and Attestation
Sources for Nature and Scope of Audit and Assurance Engagements
Last reviewed
The standards and authorities behind PocketCPA's AUD lessons on Nature and Scope of Audit and Assurance Engagements. The topic rests on AU-C 200.
About this topic
An accountant can do several different jobs on the same set of financial statements, and each job promises the reader a different amount of comfort. Naming the job comes before any procedure.
Stated technically, public accountants offer a ladder of services. The rungs differ in the level of assurance provided and in the practitioner's responsibilities. Assurance is the level of confidence the practitioner's report gives a user about the statements. This lesson orients the whole AUD section around those distinctions.
Key points
- An audit provides reasonable assurance (high but not absolute) that the financial statements are free from material misstatement.
- Three inherent limitations of an audit: judgment, sampling, and the nature of internal control.
- GAAS requirements are either unconditional (must), presumptively mandatory (should), or explanatory/interpretive.
- An audit differs from a review (limited assurance) and a compilation (no assurance) in the level of evidence gathered.
What the lessons cover
- Levels of service and assurance
- Reasonable assurance and inherent limitations
- Attestation and other engagements
- Professional requirements: must versus should
- The premise of an audit and who owns the statements
- Professional skepticism and due professional care
- Engagement-level quality and the engagement quality review
- When reasonable assurance cannot be obtained
- GAAS and PCAOB standards side by side
Authoritative references
Where these requirements sit in the literature. Each entry names the standard, then breaks it out paragraph by paragraph.
- AU-C 200.05 carries the auditor's overall objectives: reasonable assurance, high but not absolute, about whether the statements as a whole are free from material misstatement whether due to fraud or error, and reporting on them. AU-C 200.A53 explains why absolute assurance is unattainable.
- AU-C 200.14 is where the audit risk model is worked from: audit risk is the risk of material misstatement times detection risk, and that risk is inherent risk times control risk. AS 1101 is the PCAOB counterpart, calling audit risk a function of those two at .04, splitting the risk of material misstatement at .07, and giving the inverse relationship with substantive procedures at .10 and .11.
- AU-C 200.17 requires professional skepticism, with .A24 adding that a belief in management's honesty neither relieves the auditor of it nor permits satisfaction with less than persuasive evidence. AU-C 200.18 separately requires professional judgment.
- AU-C 210.06 states the premise of an audit, management's acknowledgment of responsibility for the statements, for internal control relevant to preparing them, and for access to information and people. AU-C 210.07 and .08 bar accepting an engagement carrying a scope limitation the auditor believes will cause a disclaimer, or an unacceptable framework, each unless law or regulation requires it.
- AU-C 220.13 makes the engagement partner responsible for managing and achieving quality, and AU-C 220.36d bars releasing the report until a required engagement quality review is complete, and SQMS No. 2 (QM section 20 .24b) withholds release until the reviewer notifies the partner that it is. The only dating bar in AU-C 220 is .38c, for unresolved differences of opinion. SQMS No. 2 governs those reviews for nonissuers.
- AT-C 105 is Concepts Common to All Attestation Engagements, with definitions at AT-C 105.10 feeding examination (AT-C 205), review (AT-C 210) and agreed-upon procedures (AT-C 215). It confines the attestation standards to subject matter other than the historical statements covered by the SASs or SSARS, and requires suitable and available criteria.
- AR-C 80.17 sets the compilation report's content, and AR-C 80 requires disclosure of a lack of independence. AR-C 90.39 is the review report, the only one of the three SSARS reports titled "Independent." The auditor's report is of course the Independent Auditor's Report; the contrast being drawn is with the compilation and preparation reports, not with an audit. AR-C 70.01 gives the compilation priority where the accountant is engaged to prepare and compile the same statements.
- PCAOB AS 1000.09 carries due professional care, professional skepticism included, as reasonable care and diligence, skepticism, integrity, and compliance with applicable professional and legal requirements. AS 1000.10 adds the engagement partner's five duties, AS 1000.11 the five components of skepticism, AS 1000.12 professional judgment. AS 1000 (General Responsibilities of the Auditor in Conducting an Audit) consolidated and superseded the older foundational standards, AS 1015 among them, so a citation to AS 1015 is now to a superseded standard.
- PCAOB AS 1000.13 requires planning and performing the audit to obtain sufficient appropriate evidence, and its Note puts the statements, including their preparation, on management while the auditor expresses an opinion.
- AS 1000.14 bounds reasonable assurance to material misstatement.
- AS 1000.15 requires compliance with applicable professional and legal requirements.
- AS 1000.17 through .19 carry the opinion, or an assertion that none can be expressed, and the departures from an unqualified opinion.
- PCAOB AS 1220.01 requires an engagement quality review and concurring approval of issuance for an audit, an interim review, and broker-dealer compliance and exemption-report attestations.
- AS 1220.07 bars the reviewer from deciding for the team.
- AS 1220.08 disqualifies the engagement partner of either of the two preceding audits.
- AS 1220.12 conditions approval on no awareness of a significant engagement deficiency.
- AS 1220.13 bars the client's use of the report until approval is given.
- AU-C 705.06, .08 and .10 hold the reporting consequence.
- .06 defines pervasive.
- .08 gives the qualified opinion for a material but not pervasive matter.
- .10 gives the disclaimer where an inability to obtain evidence has material and pervasive possible effects.
How PocketCPA uses these sources
Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.