The professional credibility in accounting and tax

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compilation reports on unaudited financial statements are in Chapter 16.) The professional credibility in accounting and tax services provided by PAs is the main reason for the rules of association. These rules provide guidance on avoiding association with misleading information and, thereby, assist in maintaining the reputation of the public accounting profession. The levels of assurance are shown in Exhibit 3–2. It should be noted that audit, review, and compilation engagements are intended to provide the specified assur- ance levels given in Exhibit 3–2. As we will see when discussing the disclaimer of opinion, under some conditions not even an audit engagement can provide much assurance. The most important aspect of the concept of assurance levels is that it reflects the separate levels of evidence the PA has gathered to support the conclusions in the various types of assurance engagements. The reason there is less assurance in a review engagement is because the PA is required to gather less evidence. The reason compilations are con- sidered a no assurance engagement is because PAs are not required to gather any evidence EXHIBIT 3–2 LEVELS OF ASSURANCE Audit Review Co m pilatio n Type o f e n gage m e n t No assura n ce Negative assura n ce Positive assura n ce Levels o f assura n ce
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70 PART I Introduction to Auditing, Public Practice, and Professional Responsibilities on the financial information. In any of these engagements, however, a PA’s responsibility is to not be associated if they become aware that there is a reporting deficiency associated with the financial information. We cover PA responsibilities for review and compilations in more detail in Chapter 16. 2 What is the most important distinction between an auditor’s opinion on financial state- ments and other PA communications? 3 What is negative assurance? When is negative assurance permitted? 4 What is the difference between assurance and accounting credibility? STANDARD UNQUALIFIED REPORT AND VARIATIONS In this section we cover the various audit reports on management’s financial statements. There are two broad categories: the standard unqualified report covered in CAS 700 (5400) and report reservations. The standard unqualified report contains four basic segments: (1) introductory paragraph, (2) management (or other preparer) responsibility paragraph, (3) auditor responsibility paragraphs, and (4) opinion paragraph. An example is given in Exhibit 3–3. The technical R E V I E W C H E C K P O I N T S L E A R N I N G O B J E C T I V E 4 Compare and contrast the scope and opinion paragraphs in a standard unqualified audit report. EXHIBIT 3–3 AUDITOR’S REPORT To the Shareholders of ........................ We have audited the accompanying fi nancial statements of ABC Company, which comprise the balance sheet as at December 31, 20X1, and the income statement, statement of changes in equity, and cash fl ow statement for the year then ended, and a summary of signifi cant accounting policies and other explanatory notes.
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