Understanding Attestation Engagements for CPA Exams
Attestation engagements are a crucial part of auditing and assurance services, forming a significant portion of the Auditing and Attestation (AUD) section of the CPA exam. These engagements involve a practitioner issuing an examination, review, or agreed-upon procedures report on a subject matter that is the responsibility of another party.
Key Concepts in Attestation Engagements
Attestation engagements are built upon a foundation of specific principles and standards. Understanding these core concepts is vital for success on the CPA exam.
Types of Attestation Engagements
The AICPA's Attestation Standards (AT-C sections) define several types of attestation engagements. For CPA exam purposes, it's essential to distinguish between them.
| Engagement Type | Subject Matter | Level of Assurance | Practitioner's Report |
|---|---|---|---|
| Examination (Assurance Engagement) | Assertions about a subject matter | Reasonable assurance | Positive assurance |
| Review (Assurance Engagement) | Assertions about a subject matter | Limited assurance | Negative assurance |
| Agreed-Upon Procedures (AUP) | Specific subject matter | No assurance | Factual findings report |
Examination Engagements
An examination engagement provides the highest level of assurance among attestation services. The practitioner aims to obtain sufficient appropriate evidence to express an opinion on whether the subject matter is presented fairly, in all material respects, in accordance with agreed-upon criteria.
To obtain reasonable assurance and express an opinion on the subject matter.
Review Engagements
In a review engagement, the practitioner performs procedures and inquiries to obtain limited assurance. The report expresses negative assurance, meaning the practitioner is not aware of any material modifications that should be made for the subject matter to be in accordance with the criteria. This is less assurance than an examination but more than agreed-upon procedures.
Think of a review as saying, 'Based on our procedures, we haven't found anything wrong, but we're not guaranteeing everything is perfect.'
Agreed-Upon Procedures (AUP) Engagements
AUP engagements are different because the practitioner does not provide any assurance. Instead, they perform specific procedures agreed upon by the practitioner and the responsible party (and any specified third parties). The practitioner then issues a report detailing the procedures performed and the factual findings. The user of the report draws their own conclusions.
No assurance is provided; the report details factual findings.
Standards Governing Attestation Engagements
Attestation engagements are governed by specific standards issued by the AICPA. These standards ensure consistency, quality, and comparability of services.
The AICPA's Attestation Standards (AT-C sections) are the primary guidance for practitioners performing attestation engagements. These standards cover general principles, specific engagement types (examinations, reviews, AUP), and reporting requirements. Key principles include practitioner independence, professional competence, due professional care, and the need for sufficient appropriate evidence. The standards also address the responsibilities related to the subject matter, the criteria used for evaluation, and the practitioner's report.
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Independence and Professional Skepticism
Independence is paramount in all attestation engagements. Practitioners must be independent in fact and appearance. Professional skepticism, an attitude that includes a questioning mind and a critical assessment of audit evidence, is also essential to obtain reasonable assurance and identify potential misstatements or non-compliance.
Common Subject Matters in Attestation Engagements
Attestation engagements can be applied to a wide array of subject matters, making them versatile tools for businesses and stakeholders.
Common subject matters include:
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Financial Forecasts and Projections
Practitioners can examine or review financial forecasts and projections. Forecasts are based on expected conditions, while projections are based on hypothetical assumptions. The practitioner's report will indicate whether the forecast/projection is presented fairly in conformity with AICPA guidelines.
Internal Control Systems
An examination of an entity's internal control over financial reporting (ICFR) provides assurance on the effectiveness of those controls. This is often performed in conjunction with a financial statement audit.
Compliance with Laws and Regulations
Practitioners can perform examinations or AUP engagements to report on an entity's compliance with specific contractual agreements or regulatory requirements.
Preparing for the CPA Exam
To excel on the AUD section, focus on understanding the differences between the types of attestation engagements, the reporting requirements for each, and the underlying standards. Practice applying these concepts to various scenarios presented in multiple-choice questions and simulations.
Mastering attestation engagements requires a solid grasp of the AT-C standards and the ability to differentiate between reasonable assurance, limited assurance, and factual findings.
Learning Resources
The official source for AICPA Attestation Standards, providing the foundational rules and guidance for practitioners.
A blog post that breaks down attestation engagements, their types, and key concepts relevant to CPA exam preparation.
Explains the core differences between examination, review, and agreed-upon procedures engagements with clear definitions.
A video tutorial that visually explains attestation engagements and their importance for the CPA AUD exam.
The AICPA's central hub for all professional standards, including attestation, audit, and accounting standards.
Provides a general overview of attestation services, their purpose, and common applications in the financial world.
Another helpful video resource that delves into the specifics of attestation standards and their application in CPA exam questions.
A comprehensive guide to attestation engagements, covering definitions, types, and exam-specific tips.
This blog post offers insights into the attestation standards and how they are tested on the CPA exam.
A toolkit from the AICPA that provides practical resources and guidance related to attestation engagements.