CA Final · Advanced Auditing, Assurance and Professional Ethics

Related Services: formula sheet

Full chapter guide

Key formulas

Audit vs review vs related services: Audit = reasonable assurance; Review = limited assurance; AUP and compilation = no assurance; This is the first line of any comparison answer.
SRS 4400 (Revised) scope: AUP = agreed procedures + factual findings report, no opinion or conclusion; Users form their own conclusions from the findings.
SRS 4400 (Revised) procedures: Procedures are agreed with the engaging party and are described in the terms of engagement; Procedures should be described in specific terms. Vague terms such as 'satisfy' or 'check generally' should not be used unless they are defined. Procedures should be clear and specific.
SRS 4410 (Revised) scope: Compilation = assist management in preparing and presenting financial information using accounting expertise; No obligation to verify or test the information, and no assurance is given.
Compilation report: Report states that it is not an audit or review and expresses no opinion or conclusion; It also identifies the financial reporting framework used for compiling.
Independence: Neither standard makes independence a condition of the engagement. SRS 4400 (Revised): the AUP report must include a statement either that the practitioner complies with the independence requirements or that the practitioner is not required to be independent. SRS 4410 (Revised): the compilation report must state if the practitioner is not independent, and may state that the practitioner is independent.; For AUP, a statement on independence is always needed in the report. For compilation, disclosure is mandatory only when the practitioner is not independent. Law or the Code of Ethics may still require independence.
Basic structure of an assurance engagement: Practitioner + responsible party + intended users + subject matter + criteria; Use it to show why AUP and compilation are not assurance.
Objective of the engagement: Help management prepare and present financial information using accounting and financial reporting expertise, and report in line with SRS 4410 (Revised); No assurance is obtained or expressed. Quote this idea first in a definition question.
Nature of the report: Compilation report = description of work done + statement that no assurance is provided; There is no opinion and no conclusion in the report. Do not use words like true and fair.
Core preconditions for acceptance: Ethics and quality management requirements met + management accepts its responsibilities + engagement letter agreed; Also understand the purpose, the intended users and the applicable framework before accepting.
Engagement letter contents: Objective and scope + management responsibilities + practitioner responsibilities + framework + expected form and content of report + no-assurance statement; Use these as headings when asked what the letter should include.
Unsatisfactory information: Ask management for corrected or additional information; if not given, withdraw where possible and inform management of the reasons; If withdrawal is not possible, the practitioner determines professional and legal responsibilities, which may include communicating with those charged with governance or regulators.
Report elements: Title + addressee + statement that the practitioner compiled the information + identification of the financial information and the applicable framework + management's responsibilities + practitioner's responsibilities + no-assurance statement + practitioner's signature/name + date + place; Cover all these elements in a report. Do not present them as a fixed sequence. The report date is the date the compilation is completed.
Ethics requirement: Compilation engagement → comply with the relevant ethical requirements (ICAI Code of Ethics); Fundamental principles apply. Independence is not mandatory for this engagement.
Independence rule in compilation: Not independent → say so in the compilation report; The report states that the practitioner is not independent. The practitioner may give a reason for the lack of independence, but is not required to.
Quality control requirement: Practitioner is a member of a firm subject to SQC 1 (or requirements at least as demanding); The firm's system sits behind every engagement. The engagement partner takes responsibility for the engagement's quality.
Engagement partner responsibility: Engagement partner → overall quality, direction, supervision and review; Work delegated to team members is still the partner's responsibility.
Professional judgment: Plan and perform with professional judgment, taking account of the circumstances; Judgment does not replace compliance with requirements.
Assurance position: Compilation = no assurance expressed; Lower assurance does not reduce ethics or quality duties.
Nature of the engagement: AUP = agreed procedures performed + factual findings reported; no assurance, no opinion; Users draw their own conclusions from the findings.
Terms of engagement: Written terms: purpose, procedures, nature of report, any restriction on use or distribution; Agree these before starting. Procedures must be clear, not vague.
Independence: Independence not required; terms and report must state whether you are independent or describe the lack of independence; If you are not independent, you describe that lack of independence. Ethical requirements and quality control still apply.
Findings: Report factual findings only; avoid terms of judgment or assurance; Words like "fairly stated" or "satisfactory" do not belong in the findings.
Distribution: Restriction on use or distribution: may be applied where appropriate; not mandatory; Restrict where others could misunderstand the purpose of the procedures. Otherwise the report may be made available to other parties.

Quick revision

Related services engagements are not audits or reviews and give no assurance.
SRS 4410 (Revised) deals with compilation engagements.
SRS 4400 (Revised) deals with agreed-upon procedures engagements.
In a compilation, the practitioner uses accounting expertise to help management prepare and present financial information.
In agreed-upon procedures, the practitioner reports factual findings from procedures agreed with the engaging party.
A compilation report must state that the engagement was performed in accordance with SRS 4410 (Revised). It must identify the financial information and the applicable financial reporting framework. It must describe management's responsibilities and the practitioner's role. It must say that the practitioner has not audited or reviewed the financial information and therefore does not express an audit opinion or a review conclusion on it.
An agreed-upon procedures report gives factual findings only and must not express an opinion or conclusion that implies assurance.
Terms of engagement must be agreed clearly with management or the engaging party before the work begins, in both engagements.
The practitioner must comply with relevant ethical requirements. The firm applies quality management under SQM 1 (which replaced SQC 1) at the firm level, SQM 2 covers engagement quality reviews, and the SRSs add their own engagement-level requirements.
In agreed-upon procedures, the procedures and the purpose of the report must be clearly described so users understand what was done.
Documentation must show the work performed and support the report issued.
Always state the nature of the engagement and the limits of the work in the report.

Common mistakes

Treating AUP as a limited assurance engagement because procedures are performed. Fix: Ask whether a conclusion is expressed. In AUP you report only factual findings, so no assurance is given.
Writing that the practitioner gives an opinion in a compilation report. Fix: State that the report only says the information was compiled and that no assurance is expressed.
Writing that the practitioner expresses an opinion or limited assurance on the compiled information. Fix: Remember that compilation gives no assurance. The report has no opinion and no conclusion.
Saying the practitioner is responsible for the accuracy and completeness of the records supplied. Fix: State that management remains responsible for the records, the information supplied and the final financial information.
Saying SQC 1 and ethics do not apply because a compilation gives no assurance. Fix: Remember that the practitioner's name is relied on. Ethics and SQC 1 apply to compilations too.
Saying the practitioner must be independent to accept a compilation. Fix: Independence is not required. If the practitioner is not independent, the report must say so.
Giving an opinion or negative assurance in the AUP report Fix: Report only factual findings and state clearly that no assurance is given.
Saying independence is mandatory in an AUP engagement, or that the report need not mention it Fix: Independence is not required, but the terms and the report must include a statement on whether you are independent or, if not, a description of the lack of independence. Ethical requirements still apply.

Exam tips

Draw a three-line comparison of audit, review and related services whenever the question says 'differentiate' or 'distinguish'. Use the headings level of assurance, output and report.
Case-scenario MCQs often disguise the engagement. Look for the verbs 'agreed procedures', 'factual findings' and 'assist in preparing', and pick the standard from those.
Do not write opinion or conclusion language in any answer on AUP or compilation. This one error loses marks.
Read the current ICAI material for effective dates, and quote them only when the question asks for them.
Link related services to ethics and quality management in the last line of the answer. Examiners reward that link.
Open every answer by saying that a compilation gives no assurance. Examiners reward this point.
For the difference between compilation and review, use a two-column comparison in words: purpose, procedures, assurance and report. Compilation uses no assurance procedures; review gives limited assurance.
In scenario MCQs, look for management's refusal, a request for assurance, or a missing engagement letter. These are the usual traps.