 Hello and welcome to this session in which we will discuss examination, which is part of the attestation engagement. In the prior session, we looked at the common concept that applies to all attestation engagement. In this session, we're going to be looking at the first level of service, which is examination engagement. And then we will look at review and review engagements and agreed upon procedures as attestation engagements later on. Then we have a separate recording for the subject matter. So what is an examination? An examination is basically when you express an opinion about an assertion or a subject matter, but you're expressing an opinion. So the practitioner here obtain reasonable assurance, notice, and reasonable is the highest level and it's considered positive assurance about whether a subject matter or an assertion about the subject matter is free from material error, free from material misstatement, whether due to error or fraud, and is in accordance with some criteria or the assertion is fairly stated. Simply put, this sounds much like the audit, but we are not auditing financial statements. Yes, we are providing reasonable assurance, but not about the financial statements because that will be called an audit, but it's the closest thing to it. So think of an audit, but think of an examination is very similar to an audit and you're going to see we're going to talk about basically the same thing as an audit. That's why it's very similar, but it's not about financial statement. That's how we cannot call it an audit. We call it examination. Now, what can we examine? We can examine some sort of a subject matter or some assertion. A company is making a claim and assertion about a subject matter, you know, or we can examine a subject matter like what could be an example. Think of a hospital. They want to make sure that the government billing is working properly and they might ask the CPA firm to conduct an examination about this subject matter. Do we need an engagement letter? Yes, you need an engagement letter or a suitable alternative. Basically, a contract is fell out the following. What type of work are we going to be doing and for what purpose? So the scope and the objective of the work as practitioner. What are we responsible for in this engagement? We need to know this. What is the engagement party or the responsible party responsible for? Again, if you don't know the difference between the engagement party and the responsible party, please see the prior recording because this is where I spent a few minutes explaining this. The work that will be done according to the AI CPA, we have to spell this out. I know it's obvious because we have to follow the AI CPA attestation standards, but we have to spell it out in the letter. We also have to explain the inherent risk just like with an audit report. At the end of the day, we have to let you know that there's always limitation inherent risk because we sample. We're only providing reasonable assurance. There could be some colluding. And what criteria being used? What are the measurements? Again, we talked about the criteria in the prior session. What are some good criteria for criteria to evaluate the subject matter? Now, also, we have to understand that we need a representation letter by the end of the engagement. So we have to tell the engaging party, look at the end of the day, at the end of the work, we need a representation letter from you. Tell us what you told us. This is what the representation letter is. And we need each an engagement letter for each engagement. So for next year, for doing the engagement, we also have to request an engagement letter or somehow communicate the renewal directly or indirectly, but somehow we have to show that there's a renewal for this engagement. 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. No obligation, no credit card required. Let's talk about assertion about the subject matter because remember, someone is making an assertion about the subject matter. Well, for an examination or review, if the engaging party is the responsible party and refuses to provide a written assertion, then you cannot provide insurance. Well, let's assume we're talking about a bank, a CPA company, and a client, a client for the bank. So basically the engaging party, the bank is engaging the CPA to audit or to examine, let's not use the word audit, to examine the loan agreement with this client. So the engaging party is also the responsible party for the written assertion. So they have to tell us what do they need to have assurance about because they're engaging us and they are giving us the claims, like follow the loan agreement. Those are the written assertions and we wanna make sure the client is in agreement. So we cannot provide an assurance without written assertions, we would draw. Now, when the engaging party is not the responsible party and the responsible party refuses a written assertion, then disclose in the report. So let's assume the same, let's have three parties, a CPA firm, a local government, local government, or a state government, it doesn't matter usually, it's state government, it's a better example, and a hospital, Lehigh Valley Hospital. Okay? Now here's what happened. The state engages us to examine their billing for governmental purposes. So when they build the government, when they build the state government, the state government wants to make sure that their billing is working properly. Well, the billing is the responsibility of the hospital. So the assertions are the hospital's assertion. The state, all what they want, they're engaging us to make sure the hospital is having all sorts of internal control, whatever they need to know about their billing process. So notice now, the engaging party is not the responsible party for the assertion and the responsible party refused to provide a written assertion, you will disclose this and you would restrict the report. So it's between the state and the hospital. Planning and examination, basically, when you plan an audit, there are certain steps you have to undertake. Set the overall strategy as to scope, timing and direction of the engagement. Review your resources, make sure you have enough people on board that you can allocate for the work. Specify also the nature. You have an overall strategy, but also you have to go down, specify the nature, timing and extent of the procedures to be performed. Also you should have a plan B, a revision plan in case of unexpected event or changes in conditions. Perform risk assessment procedures. Again, very similar to an audit to identify the risk of material misstatement and design appropriate procedures in response to these assessments, very much like an audit. Understand the internal control over the subject matter. For example, if we're talking about billing for the government, for reimbursement, what are we discussing here? But again, all the planning is done for a specific subject matter, not the overall audit. Engagement performance, once you engage, do you have to test control? Well, it depends. If you want to rely on them, then you have to test the operating effectiveness. If the evidence that can only be generated by relying on the report, then you have to also test them. So yes, you might have to test them if you're relying on them. Now how to test? You could either use test of details or analytical procedures. Again, don't think too much. We're always talking about the specific subject matter. So if it's a billing department, who authorizes the billing? What are the paperwork? Let's test the computer system. Is there a password on the computer system? So you're dealing with a specific area, specific subject matter. But the concept is the same. Review the responsible party's estimate. So we do have to review their estimates one, if there's any estimate, to see if they are appropriate and consistently used and applied. Consider the risk of material misstatement due to fraud or non-compliance with laws and regulation. Well, how do you do that? Ask questions with the appropriate parties. To see if any related parties or unusual relationship that might amount to a fraud. What should you communicate? Well, you should communicate any suspected fraud, any suspected of non-compliance with laws and regulations, especially if you are engaged to specifically deal with that. Any uncorrected misstatement, obviously if it's corrected, it's done, any internal control deficiencies. Now how do you perform all of this? Well, you do inspection, observation, analysis, inquiries, reproducibility, calculation, confirmation with outside party. Sounds like an audit to me, practically, but we cannot call it an audit. Can you use a specialist? And the answer is yes, you can. However, you have to review the specialist competencies and objectivity. Understand their expertise. You don't have to be the expert, but understand what they do. What can they do? What can they do? Agree on the scope of the work to be performed and the confidentiality requirement. Evaluate the specialist work for the practitioner's purposes. You have to kind of make sure you know what they are doing and they are competent for what you need. You don't have to know exactly what they're doing, but know enough. Engagement letter is option. You can have an engagement letter with the specialist. You may not do, that's between you and the specialist. Can you rely on internal control? We already answered that question, is yes, but you have to evaluate the internal control department, whatever that doesn't have to be for the whole company, maybe for a specific area. Evaluate the system. For example, billing, is it systematic? Do they process the billing the same way all the time? Have an understanding with the responsible party that internal control personnel follow our direction, the practitioner's direction. Need to review the work of internal auditor and their significant judgment. Again, about that specific subject matter. I know I keep repeating myself because I don't want you to think that you're back into auditing. So what is the responsibility about subsequent event and subsequently discovered fact? Well, you have to ask the responsible or the engagement party if it's the same about any subsequent event up to the report date. If yes, if they said there is, perform procedures about these events. But remember, we don't have any responsibility after the report date, unless subsequently discovered event would require a revision. So you find out about something that happens, that yes, now this happens, you're aware of it now, it affect your old report. You have to go back and revisit. What about documentation? Well, simply documentation you should comply with the EICPA and applicable legal and regulatory requirements. And the documentation should be good enough where it stands by itself on its own. So any practitioner should be able to follow your work. Some good characteristics, and we talked about documentation that apply to all engagement that those are specific to examination, who performed and who reviewed the work and the date it was completed. Any discussion that took place about significant finding or issues. Document any refusal for providing a written representation or when you don't think the written representation is reliable. Again, those plus what we did under the common will be a good list for all the documentation. What should you do now? Go to far hat lectures and work MCQs, true false that's gonna help you understand those attestation engagement, examination. We're gonna look at reviews. We're gonna look at agreed upon procedures. All of them under the umbrella of attestation engagement. Good luck, study hard, and of course, stay safe.