 Hello and welcome to this session. This is Professor Farhad in which we will discuss assurance services, non-assurance services and attestation services. Companies make claim all the time such as the best customer service, the safest car on the road, the fastest, most reliable website. Now how would you trust those claims? Well what companies do, sometimes they rely on a third party to assess their claim and this is what an assurance service is. When a third party supposed to be independent it means it's they have no interest in the company, unbiased and that's the value of the assurance service, it's unbiased. This information that's provided by this party enhances, improves the quality of information for you the users. So if you want to buy the safest car you are not going to believe the company that's telling you we are selling the safest car. What you do is you might rely on consumer reports and this is from 2013 for the sake of illustration and the consumer reports is an independent from the manufacturer. It's going to test this car, it's going to enhance the quality of your information and the assumption here is consumer reports is knowledgeable and competent, they know what they are doing, they're testing the safety features of various vehicles and giving you an independent unbiased opinion. Now CPAs because this is an auditing course provide many types of assurance services of which one of them is audited financial statements, which is the topic of this course, we auditing course. Audited financial statement is a form of attestation service. What is attestation service? Just hold on we're going to see what's attestation service on the next slide. Now assurance services as we just established it's provided by CPAs and non CPAs. So for example consumer reports is a form of assurance services. CPA provide an assurance service. Better Business Bureau for online shoppers also is a form of assurance services. So assurance services as a broad umbrella. Now we need to see how does CPAs fit under assurance services. Let's go ahead and get started. Before we proceed any further I have a public announcement about my company farhatlectures.com. Farhat accounting lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true false questions as well as exercises. Go ahead start your free trial today. So what do CPAs fit? Well a form of assurance services is called attestation services. So notice attestation is a form of assurance service. So what is attestation? Attestation services is a subset is a category of assurance services provided by CPAs. Well here the CPA deliver a report an opinion to be more specific an opinion listed in a report regarding a particular subject matter or a claim we call assertion or assertions many assertions put forth by another party presented by another party. So the company makes a claim for example our financial statements are in compliance with GAAP which generally accepted accounting principle that's the claim that's the assertion. The auditor will provide a service a form of assurance services that's called attestation service the reason it's called attestation because I'm going to be issuing a report whether the financial statements that I'm auditing is in compliance with the subject matter happens to be issuer report for example in the United States we use generally accepted accounting principle. There are many types of assurance services attestation services like a review we'll talk about this internal control over financial reporting information technology other engagement all these services are form of what? Are form of attestation services which is a subset of assurance services. Now let's kind of clarify which one are non-assurance services because if we if we're saying this is what the auditor provides which is assurance services audit is one of them under attestation what is non-assurance tax services consulting now we have to be careful with consulting because sometimes consulting could could be under assurance services as long as we are providing a recommendation to the client recommendation then it's not an assurance service because assurance services and when we issue an opinion about a subject matter bookkeeping is a non-assurance services management consulting helping them run their company is not an assurance service because we're not providing an opinion now what we're going to do i'm going to look at each one of these attestation services separately audit review internal control it just they're going to give you a little bit more of a feeling about what attestation services are but rest assured each one of these topics will be covered in depth in separate recordings let's go ahead and get started to discuss briefly what is in audit once again audited financial statement is an attestation service under the assertion services here as i mentioned earlier the management makes a claim makes a claim that are they are in compliance with either us or international financial reporting standard the auditor will assure report after they collected evidence that these statements whether they are fairly presented or not according to gap so the primary this is the primary assurance service that's offered by cpa firm so when you think of assurance well it's well think about attestation services a form of an assurance services where you issue an opinion think about the audit audit is the most common assurance service or attestation service which is subset of assurance service audit offer the highest level of assurance which is a reasonable assurance that's the highest level of assurance and we'll talk about that later on what does reasonable assurance is and audited financial statements are mandatory for public companies like apple microsoft any company that's publicly traded texical walmart you can buy their stock they have to have an audit therefore cpas is the only people that can provide this audit private companies they do have audit for either accountability purposes or for finance purposes for example if they want to borrow money the bank might ask them to get an audit same thing with governmental entities they get an audit because they need funding they need money therefore the lender would say well get an audit and we will take a look at your financial statement and determine whether we should grant you the loan or not another form of assurance services specifically attestation where we assure report is audit of internal control over financial reporting well what we do for audit of internal control management makes a claim that they are in compliance with certain criteria specifically we're going to see later compliance with something called COSO well if they are in compliance with COSO what we need to do we need to evaluate whether they are in compliance or not now for publicly traded companies again you are mandated to have this report so the auditor will issue an opinion about the internal control effectiveness according to COSO the established criteria just same thing as you do a financial statement audit according to GAAP you will conduct an audit to determine the effectiveness of the internal control according to COSOs again large public not large companies public public companies they have to have this and usually they're large companies but public all public companies they have to have this report and this is called an integrated integrated audit because you are both auditing the financial statements as well as the plus the internal control this is called a an integrated approach which if you have an effective internal control it's with less than the chances of material financial misstatement review another type of attestation service review is a is a form of assurance but it's a lower assurance you're not giving the highest level of assurance like an audit but it's a lower lower assurance you review financial statements and when I was in practice I did mostly reviews like a few between audit and reviews for example I did 80 percent of my work was reviews and 20 percent audit because I work in a small CPA firm and we do more reviews than audit we have less audits more reviews because we deal with small companies small companies don't require an audit mostly some banks they ask them for an audit but mostly banks would accept a review reviews offer a lower level of assurance than an audit that require less evidence and we'll talk about reviews later on and obviously it costs less that's why companies would like to opt for that many non-public companies which is private companies opt for reviews as long as the bank or whoever they're dealing with they they they accept the review given them limited assurance without the expense of a full audit so and as I mentioned a bank might require a review rather than an audit or you will try to kind of negotiate like would you mind you know accepting a review rather than an audit and if they accept it as a form of evidence then you'd save yourself a lot of money other attestation services many many other attestation services and these usually providing written assurance on management assertions these services often extend beyond traditional financial statement order so this is other attestation services for example of a bank lends money to a company now what you're looking at is you are getting an assurance about the loan agreement whether the client is in compliance with the loan agreement so you are not only thing the financial statements you are not providing a review what they're asking is they said hire a cpa to determine whether you are in compliance with loan agreement what do we mean by this when a when a bank lend money they often they put they put conditions such as your current ratio should not feel a fall below two your current ratio your asset to liabilities has to be a certain percentage your inventory turnover your retained earning has to be above a certain amount you have to be in compliance so what they do they rely on the cpa firm to conduct an assurance engagement to make sure you are in compliance so this is not an audit insurance compliance so the company must first assert these provisions before a cpa so the cpa can gather evidence and issue an attestation report according to whatever we are doing here which is in compliance with the loan agreement other attestation services would be would include internal control at service companies this is important this is called sock one two and three will have separate recordings now this topic is covered a lot on the new cpa exam sock one sock two and three which is providing an attestation service about the internal control of a of a provider companies often outsource accounting tasks for example payroll to a third party so rather than handling the payroll you would give this payroll task to a third party they're called providers these providers might have auditors attest their internal control design so what you do is you is you as you ask a company to do what to attest to audit their internal control because you're relying on them what's going to happen such a report assure companies of accurate payroll processing now you're like great they have good internal control I have a report that's saying they have a good internal control so that's what sock one two and three companies then rely on this report reducing their extensive payroll testing so once you know that this third party is being audited and another auditor is giving you some sort of an assurance then you have to do less testing less testing now we could have many other assurance services but those other assurance services don't require a written report or concern another party's compliance reliability so you're not doing a compliance according to a standard you're not issuing a report so we have to be very careful here those are assurance services that are not attestation remember when it comes to attestation you issue an opinion in a report instead this type of assurance services the goal of it is to enhance the information quality for decision makers now bear in mind many other companies other than CPAs provide assurance services remember at the beginning I showed you consumer reports so CPA firms in this industry face more competition in the broader assurance service market because there are other companies now CPAs can only the only party specifically licensed CPAs can handle audits they can provide an attestation assurance about financial statement however other assurance services other than attestation they they will face competition from non CPAs like market research firms and customer surveys why because it's anyone can provide assurance services as long as they are competent independent trustworthy and if the market trusts them then they can provide assurance service but CPAs they have a monopoly over financial audited financial statements and other attestation services I showed you earlier nonetheless CPA firms have a competitive edge why because of the reputation rigourness independence competency this is why companies rely on CPAs to give them the opinion now CPAs offer a vast range of assurance services ranges from organic food ingredient for example if you're claiming your food is an organic food the CPA can attest to it I saw 9 000 certification mystery shopping they can send secret shoppers to see how well your customer service is handling shopping corporate social responsibilities and many many many other assurance services that has nothing to do with financial reporting let's take a look at this multiple choice questions from farhat lectures which of the following services require a CPA firm to issue a report about the reliability of an assertion that is made by another party okay so this is we're looking at an assertion reliability of an assertion well it means we're dealing with assurance services remember just to kind of review we have assurance services and under assurance services we have attestation services and within the attestation services this is where we issue the report so you have to understand this big picture assurance attestation is a form of assurance where you issue a report so we're dealing with an attestation service well immediately if this is an attestation service tax service is not an attestation service is not a form of assurance services accounting and bookkeeping also could be crossed out because they are not form of assurance and definitely not form of attestation because attestation let me write the whole word out i'm gonna try to do it with my mouse here attestation service is a form of assurance that issue a report so we're left with two we are left with assurance service and attestation service hold on a second you just told me attestation is a form of assurance so on these the same well we have to be very careful attestation service is a form of assurance service where you issue a report about the claim of another party so which of the following service require a CPA firm to assure a report about the reliability of an assertion attestation service now attestation service is a form of assurance service but not not all assurance service would require a report so it's very important to understand the big picture we have assurance services within assurance services we have attestation as a form of assurance and attestation would require a report now we have other assurance services no report is required that's that that's not the question the question is we need a report what should you do now you should go to pharah lectures work more mcqs true false to understand the difference between assurance services attestation services and non-assurance services it's a little bit confusing but as long as you can get to the big picture then dive into the details you would learn it good luck study hard stay safe and invest in yourself