Solutions Manual
Auditing: The Art and Science of
Assurance Engagements
16th Canadian Edition
Alvin A. Beebe
Randal J. Elder
Mark S. Beasley
Chris E. Hogan
Joanne C. Jones
All Chapters Arranged Reverse: 20-1
Chapter Wise Solutions Manual
Download Link at the end of PDF file.
, Chapter 20: Other Audits, Assurance Engagements, and Related Services
Chapter 20
Other Audits, Assurance Engagements, and Related
Services
Concept Check Questions
C20-1 Provide examples of when an entity would prepare financial statements using a special
purpose framework.
Entities prepare financial statements using special purpose frameworks that are based upon
specific users’ needs. Users could be investors, lenders, creditors, regulators, or granting agencies.
In the case of non-profits, this could also include donors and members who have specific reporting
needs.
Some examples are:
• Cash flow information prepared on a cash receipts and disbursement basis for the entity’s
creditors;
• Financial statements prepared based upon financial reporting provisions established by a
regulator; and
• Financial statements prepared based upon the reporting provisions of a contract (such as a
loan agreement or a project grant).
C20-2 Why might a public accountant recommend a different type of engagement when asked to
perform an audit of gross sales for retailer?
Since gross sales represents a specific financial statement item, based upon Figure 20-1, it would
appear that CAS 805 (Audits of Single Financial Statements and Special Elements, Accounts or
Other Items of a Financial Statement) would apply. However, this type of engagement is only
practical if the public accountant (PA) is also the financial statement auditor. That is because the
public accountant would be required to perform a level of audit effort that is disproportionate to
the element being audited (CAS 805 A6).
If the PA had performed the financial statement audit, as part of that engagement the PA would
have addressed significant risks, such as going concern and related parties, and consideration of
the inter-related accounts as required by Canadian Auditing Standards.
So if the PA has been asked to perform an audit of gross sales for a retailer and the PA is not the
financial statement auditor, then the PA would suggest a different type of engagement. The most
likely option is a CSRS 4400 (agreed-upon procedures) engagement. Although the PA does not
provide an opinion or conclusion, the PA will perform audit procedures and report the findings.
For example, if as part of a lease agreement, the retailer is required to provide his/her landlord a
gross sales report (since part of the rent is based upon this), the landlord is concerned that the gross
sales report is accurate and complete. The landlord and the PA can agree upon certain audit
Copyright © 2024 Pearson Canada Inc.
20-1
, Chapter 20: Other Audits, Assurance Engagements, and Related Services
procedures to be performed that will address those two assertions.
C20-3 Explain how the determination of materiality is different for CAS 800 or 805
engagements than an audit of a complete set of historical financial statements.
The key difference is that materiality for CAS 800 or 805 is determined based upon the specific
users of the report. In contrast, the materiality for the audit of historical financial statements is
based upon the users as a group.
C20-4 What is an important difference between a compilation engagement and a review
engagement?
In a compilation engagement, no assurance is provided, whereas for a review engagement,
moderate assurance is provided.
C20-5 Evaluate the following statement: “For a compilation engagement, the accountant does
not check the financial statements, so they are very likely to contain material misstatements.”
It is possible that a compiled financial statement could be materially misstated, it is the
practitioner’s responsibility to investigate further if there are warning signs of potential
misstatement.
C20-6 If reviews provide less assurance than audits, and compilations provide no assurance,
why is there a demand for these types of services?
A close look at Table 20-1 suggests that the underlying reason is information risk. If the users are
able to manage their information risk (say, a closely held company with family members involved),
then they are less likely to want high assurance. Although cost is a factor, it usually revolves around
some sort of cost-benefit analysis. Although compilations do not provide any assurance, users
often would like the added credibility that a professional accountant (there is no requirement to be
a public accountant) provides to the information.
C20-7 What is the difference between the review reports for a private company under CSRE
2400 and the interim financial statements for a public company?
There is essentially very little difference. Although the chapter does not go into detail about the
rationale for the changes in the new review standards, one factor that the AASB took into
consideration was whether or not public company reviews should be included in the umbrella
review standard. The board decided it should, since the PA should carry about both types of
engagements in the same manner. Perhaps the biggest difference is that the review report for a
public company interim review is clearly restricted in its distribution—it is only issued to the audit
committee.
C20-8 Why is it so difficult to determine materiality for assurance engagements involving
nonfinancial information?
Copyright © 2024 Pearson Canada Inc.
20-2
, Chapter 20: Other Audits, Assurance Engagements, and Related Services
Unlike financial statement audits, where quantitative rules of thumbs exist, due to the subject matter
and the variety of users, there is no clear consensus on what is “material.” It is partially due to the
subject matter itself, which is usually more qualitative in nature; often there is not a clear set of
criteria or the criteria is not based upon a rigorous standard-setting process; and the variety of users
and their reason for relying upon the report all make it much more difficult to determine what is
“material.” As a result, many companies use matrices to define materiality.
20-9 Why do you think limited assurance engagements are the most common type of GHG
emissions engagement?
Since many of these engagements are voluntary, companies often choose them because they are
less costly.
20-10 If the PA does not issue an opinion or conclusion based upon the audit findings, why
would a user request a specified audit procedures engagement?
Although the practitioner does not issue an opinion or conclusion, audit procedures are performed
and the findings are included in the report—which can provide assurance to the users regarding
their specific use of the information. The user would have to decide if the findings provide the
assurance necessary.
C20-11 How does an engagement to report on supplemental matters differ from a
specified audit procedures engagement?
The key difference is that the supplemental matters standard applies to those engagements where
the practitioner is also engaged to perform the financial statement audit or review engagement and
has been asked to report on supplemental information. In the case of specified procedures, the
practitioner has not engaged to perform the financial statement audit or review. Both engagements
are similar in that the practitioner does not issue an audit opinion or review conclusion on the
supplemental matter.
C20-12 What is greenwashing and what role does sustainability assurance play in
reducing the possibility of greenwashing.
“Greenwashing” in sustainability reporting refers to when management presents only the positive
aspects of their ESG performance Greenwashing can involve omitting misrepresenting or even
falsifying information with the intent to mislead users. Assurance can play a role in detecting
greenwashing and; therefore, inhibit the preparer from making false and/or misleading
statements. However, the best way to prevent greenwashing is through appropriate controls and
processes.
C20-13 Read Auditing in Action 20-2, do you think providing assurance over only objective
measures in an integrated report is meaningful to users? Why or why not?
Assurance providers focus on objective measures since they are readily identifiable subject matter
according to clearly defined criteria. For example, providing assurance over a company’s water
Copyright © 2024 Pearson Canada Inc.
20-3
Auditing: The Art and Science of
Assurance Engagements
16th Canadian Edition
Alvin A. Beebe
Randal J. Elder
Mark S. Beasley
Chris E. Hogan
Joanne C. Jones
All Chapters Arranged Reverse: 20-1
Chapter Wise Solutions Manual
Download Link at the end of PDF file.
, Chapter 20: Other Audits, Assurance Engagements, and Related Services
Chapter 20
Other Audits, Assurance Engagements, and Related
Services
Concept Check Questions
C20-1 Provide examples of when an entity would prepare financial statements using a special
purpose framework.
Entities prepare financial statements using special purpose frameworks that are based upon
specific users’ needs. Users could be investors, lenders, creditors, regulators, or granting agencies.
In the case of non-profits, this could also include donors and members who have specific reporting
needs.
Some examples are:
• Cash flow information prepared on a cash receipts and disbursement basis for the entity’s
creditors;
• Financial statements prepared based upon financial reporting provisions established by a
regulator; and
• Financial statements prepared based upon the reporting provisions of a contract (such as a
loan agreement or a project grant).
C20-2 Why might a public accountant recommend a different type of engagement when asked to
perform an audit of gross sales for retailer?
Since gross sales represents a specific financial statement item, based upon Figure 20-1, it would
appear that CAS 805 (Audits of Single Financial Statements and Special Elements, Accounts or
Other Items of a Financial Statement) would apply. However, this type of engagement is only
practical if the public accountant (PA) is also the financial statement auditor. That is because the
public accountant would be required to perform a level of audit effort that is disproportionate to
the element being audited (CAS 805 A6).
If the PA had performed the financial statement audit, as part of that engagement the PA would
have addressed significant risks, such as going concern and related parties, and consideration of
the inter-related accounts as required by Canadian Auditing Standards.
So if the PA has been asked to perform an audit of gross sales for a retailer and the PA is not the
financial statement auditor, then the PA would suggest a different type of engagement. The most
likely option is a CSRS 4400 (agreed-upon procedures) engagement. Although the PA does not
provide an opinion or conclusion, the PA will perform audit procedures and report the findings.
For example, if as part of a lease agreement, the retailer is required to provide his/her landlord a
gross sales report (since part of the rent is based upon this), the landlord is concerned that the gross
sales report is accurate and complete. The landlord and the PA can agree upon certain audit
Copyright © 2024 Pearson Canada Inc.
20-1
, Chapter 20: Other Audits, Assurance Engagements, and Related Services
procedures to be performed that will address those two assertions.
C20-3 Explain how the determination of materiality is different for CAS 800 or 805
engagements than an audit of a complete set of historical financial statements.
The key difference is that materiality for CAS 800 or 805 is determined based upon the specific
users of the report. In contrast, the materiality for the audit of historical financial statements is
based upon the users as a group.
C20-4 What is an important difference between a compilation engagement and a review
engagement?
In a compilation engagement, no assurance is provided, whereas for a review engagement,
moderate assurance is provided.
C20-5 Evaluate the following statement: “For a compilation engagement, the accountant does
not check the financial statements, so they are very likely to contain material misstatements.”
It is possible that a compiled financial statement could be materially misstated, it is the
practitioner’s responsibility to investigate further if there are warning signs of potential
misstatement.
C20-6 If reviews provide less assurance than audits, and compilations provide no assurance,
why is there a demand for these types of services?
A close look at Table 20-1 suggests that the underlying reason is information risk. If the users are
able to manage their information risk (say, a closely held company with family members involved),
then they are less likely to want high assurance. Although cost is a factor, it usually revolves around
some sort of cost-benefit analysis. Although compilations do not provide any assurance, users
often would like the added credibility that a professional accountant (there is no requirement to be
a public accountant) provides to the information.
C20-7 What is the difference between the review reports for a private company under CSRE
2400 and the interim financial statements for a public company?
There is essentially very little difference. Although the chapter does not go into detail about the
rationale for the changes in the new review standards, one factor that the AASB took into
consideration was whether or not public company reviews should be included in the umbrella
review standard. The board decided it should, since the PA should carry about both types of
engagements in the same manner. Perhaps the biggest difference is that the review report for a
public company interim review is clearly restricted in its distribution—it is only issued to the audit
committee.
C20-8 Why is it so difficult to determine materiality for assurance engagements involving
nonfinancial information?
Copyright © 2024 Pearson Canada Inc.
20-2
, Chapter 20: Other Audits, Assurance Engagements, and Related Services
Unlike financial statement audits, where quantitative rules of thumbs exist, due to the subject matter
and the variety of users, there is no clear consensus on what is “material.” It is partially due to the
subject matter itself, which is usually more qualitative in nature; often there is not a clear set of
criteria or the criteria is not based upon a rigorous standard-setting process; and the variety of users
and their reason for relying upon the report all make it much more difficult to determine what is
“material.” As a result, many companies use matrices to define materiality.
20-9 Why do you think limited assurance engagements are the most common type of GHG
emissions engagement?
Since many of these engagements are voluntary, companies often choose them because they are
less costly.
20-10 If the PA does not issue an opinion or conclusion based upon the audit findings, why
would a user request a specified audit procedures engagement?
Although the practitioner does not issue an opinion or conclusion, audit procedures are performed
and the findings are included in the report—which can provide assurance to the users regarding
their specific use of the information. The user would have to decide if the findings provide the
assurance necessary.
C20-11 How does an engagement to report on supplemental matters differ from a
specified audit procedures engagement?
The key difference is that the supplemental matters standard applies to those engagements where
the practitioner is also engaged to perform the financial statement audit or review engagement and
has been asked to report on supplemental information. In the case of specified procedures, the
practitioner has not engaged to perform the financial statement audit or review. Both engagements
are similar in that the practitioner does not issue an audit opinion or review conclusion on the
supplemental matter.
C20-12 What is greenwashing and what role does sustainability assurance play in
reducing the possibility of greenwashing.
“Greenwashing” in sustainability reporting refers to when management presents only the positive
aspects of their ESG performance Greenwashing can involve omitting misrepresenting or even
falsifying information with the intent to mislead users. Assurance can play a role in detecting
greenwashing and; therefore, inhibit the preparer from making false and/or misleading
statements. However, the best way to prevent greenwashing is through appropriate controls and
processes.
C20-13 Read Auditing in Action 20-2, do you think providing assurance over only objective
measures in an integrated report is meaningful to users? Why or why not?
Assurance providers focus on objective measures since they are readily identifiable subject matter
according to clearly defined criteria. For example, providing assurance over a company’s water
Copyright © 2024 Pearson Canada Inc.
20-3
