Statement on Auditing Standards – SRS 4400
Scope and objectives
The Standard on Related Services (SRS) provides guidance and standards for auditors when they undertake engagements to perform agreed-upon procedures regarding financial information. This means that the auditor is engaged by the client to perform certain procedures concerning specific financial data, such as accounts payable, accounts receivable, purchases from related parties, and sales and profits of a segment of an entity or a financial statement, such as a balance sheet or a complete set of financial statements. The auditor then issues a report of factual findings based on the specified procedures performed on the specified subject matter.
The SRS 4400 is primarily directed towards engagements regarding financial information, but it may also provide guidance for engagements to perform agreed-upon procedures regarding non-financial information, provided the auditor has adequate knowledge of the subject matter and reasonable criteria exist on which to base their findings.
The objective of an agreed-upon procedures engagement is for the auditor to carry out procedures of an audit nature that the auditor, the entity, and any appropriate third parties have agreed upon, and to report on factual findings. However, the auditor does not provide any assurance in their report since they simply report on the factual findings of the agreed-upon procedures. Instead, users of the report assess the procedures and findings reported by the auditor and draw their own conclusions based on the work done by the auditor.
The report issued by the auditor is restricted only to those parties that have agreed to the procedures to be performed, since others who are unaware of the reasons for the procedures may misinterpret the results. However, in certain circumstances, such as for government organizations, the report of the engagement may be made available to a wider range of entities or individuals.
Overall, the SRS 4400 provides a framework for auditors to follow when undertaking engagements to perform agreed-upon procedures, which helps to ensure that the auditor performs their professional responsibilities in a consistent and appropriate manner.
General Principles of an Agreed-upon Procedures Engagement
The General Principles of an Agreed-upon Procedures Engagement state that the auditor should comply with the Code of Ethics issued by the Institute of Chartered Accountants of India. This means that the auditor must follow the ethical principles and guidelines set out by the professional organization when conducting an agreed-upon procedures engagement.
The ethical principles that govern the auditor’s professional responsibilities for this type of engagement include integrity, objectivity, professional competence and due care, confidentiality, professional conduct, and technical standards. These principles ensure that the auditor conducts the engagement with integrity, objectivity, and professionalism while maintaining the confidentiality of the information being reviewed.
The SRS 4400 does not require the auditor to be independent for an agreed-upon procedures engagement. However, the terms or objective of the engagement may require the auditor to comply with the independence requirements of the Code of Ethics issued by the Institute of Chartered Accountants of India. If the auditor is not independent, a statement to that effect should be made in the report of factual findings.
Finally, the auditor should conduct an agreed-upon procedures engagement in accordance with the SRS 4400 and the terms of the engagement. The SRS 4400 sets out the standards and guidance for the auditor’s professional responsibilities and the form and content of the report issued in connection with such an engagement. The auditor must ensure that the procedures performed and the findings reported are in compliance with these standards and the agreed-upon terms of the engagement.
Defining the Terms of the Engagement
The auditor is responsible for ensuring that there is a clear understanding between the parties involved regarding the agreed procedures and the conditions of the engagement. The following matters need to be agreed upon:
(a) Nature of the engagement – The parties should understand that the procedures performed will not constitute an audit or review and that no assurance will be expressed.
(b) Purpose of the engagement – The reason why the agreed-upon procedures are being conducted should be stated.
(c) Identification of financial information – The specific financial information to which the agreed-upon procedures will be applied should be identified.
(d) Nature, timing, and extent of the procedures – The auditor should specify the nature, timing, and extent of the agreed-upon procedures to be applied.
(e) Limitations on distribution – The parties should agree on any limitations on the distribution of the report of factual findings. If any such limitation conflicts with legal requirements, the auditor should not accept the engagement.
In some cases, the auditor may not be able to discuss the procedures with all parties who will receive the report. For example, when the procedures have been agreed to between the regulator, industry representatives and representatives of the accounting profession. In such cases, the auditor may consider discussing the procedures with appropriate representatives of the parties involved or reviewing relevant correspondence from such parties.
It is in the interests of both the client and the auditor that the auditor sends an engagement letter documenting the key terms of the appointment. An engagement letter confirms the auditor’s acceptance of the appointment and helps avoid misunderstandings regarding such matters as the objectives and scope of the engagement, the extent of the auditor’s responsibilities, and the form of reports to be issued. The letter should include a listing of the procedures to be performed and a statement that the distribution of the report of factual findings would be restricted to the specified parties who have agreed to the procedures to be performed. An example of an engagement letter is included in the appendix of this SRS.
Planning
The objective of planning is to ensure that the engagement is conducted effectively and efficiently. The auditor should have a clear understanding of the nature, timing, and extent of the procedures to be performed, as well as the financial information to which the procedures will be applied.
Effective planning enables the auditor to identify the resources required for the engagement, such as the necessary skills and experience of the audit team. This helps to ensure that the engagement is conducted in accordance with the applicable technical standards, and that the procedures are sufficient to meet the stated purpose of the engagement.
In addition, planning helps the auditor to identify any risks that may affect the engagement, and to develop appropriate responses to those risks. By considering the risks associated with the engagement, the auditor can develop procedures that are tailored to the specific circumstances of the engagement.
Overall, effective planning is a critical component of an agreed-upon procedures engagement, as it helps to ensure that the procedures are performed effectively, efficiently, and in accordance with the applicable technical standards.
Documentation
In an agreed-upon procedures engagement, the auditor is required to maintain documentation to support the report of factual findings and to demonstrate that the engagement was performed in accordance with the SRS and the terms of the engagement. This documentation may include, among other things, evidence of the procedures performed, the results of those procedures, and any conclusions drawn from the procedures.
Maintaining proper documentation is important not only to support the report of factual findings but also to ensure that the auditor can defend his or her work in case of a challenge. It also helps the auditor to ensure that all necessary procedures have been performed and to identify any issues that need to be addressed. The auditor should document matters that are important in providing evidence and in demonstrating compliance with the requirements of the engagement. The documentation should be complete, clear, concise, and appropriately organized, so that it can be easily understood and used by others.
Procedures and Evidence
The auditor is responsible for carrying out the agreed-upon procedures and using the evidence obtained as the basis for the report of factual findings. The procedures that are applied in such an engagement may include inquiry and analysis, recompilation, comparison and other clerical accuracy checks, observation, inspection, and obtaining confirmations.
It is important for the auditor to document the procedures performed and the evidence obtained as this provides support for the report of factual findings and shows that the engagement was carried out in accordance with the SRS and the terms of the engagement.
The SRS 4400 provides an example report that includes an illustrative list of procedures that may be used as part of a typical agreed-upon procedures engagement. The specific procedures to be performed should be agreed upon by the auditor and the entity’s representatives and other specified parties involved in the engagement.
Reporting
The report should provide sufficient detail to enable the reader to understand the nature and extent of the work performed. It should also clearly state that no audit or review has been performed.
The report should contain several key elements, including a title, addressee, identification of specific financial or non-financial information to which the agreed-upon procedures have been applied, a statement that the procedures performed were those agreed-upon with the recipient, and a description of the auditor’s factual findings including sufficient details of errors and exceptions found.
The report should also include a statement that the procedures performed do not constitute an audit or review, and as such, no assurance is expressed. It should also mention that had the auditor performed additional procedures, an audit or review, other matters might have come to light that would have been reported.
The report should be signed by the accountant in their personal name, and where the firm is appointed, the report should be signed in the personal name of the accountant and in the name of the firm. The partner/proprietor signing the report should also mention the membership number assigned by the Institute of Chartered Accountants of India.
Finally, the standard is applicable to all agreed-upon procedures engagements beginning on or after April 1, 2004.
Compatibility with the International Standard on Auditing
The Standard on Related Services (SRS) is generally consistent with the International Standard on Auditing (ISA) 920, which outlines guidelines for engagements to perform agreed-upon procedures regarding financial information. This means that the SRS 4400 and ISA 920 are similar in their approach and requirements for performing agreed-upon procedures engagements and auditors can use either standard as a reference when conducting such engagements. However, there may be some minor differences between the two standards, so auditors should always refer to the specific standard applicable in their jurisdiction for detailed guidance.
Quiz: Engagements to Perform Agreed-upon Procedures regarding Financial Information
1. True or False: The objective of an agreed-upon procedures engagement is for the auditor to provide assurance on the financial information.
Answer: False
2. What is the primary purpose of an agreed-upon procedures engagement?
a) To express an opinion on the financial statements
b) To report on factual findings based on agreed-upon procedures
c) To provide assurance on the internal control system
d) To conduct a comprehensive review of the entity’s operations
Answer: b)
3. Who assesses the procedures and findings reported by the auditor in an agreed-upon procedures engagement?
a) The auditor
b) The client
c) Third-party experts
d) Users of the report
Answer: d)
4. In an agreed-upon procedures engagement, the auditor’s report is restricted to:
a) All interested parties
b) The client only
c) The client and third-party experts
d) Those parties who have agreed to the procedures to be performed
Answer: d)
5. Which of the following principles governs an agreed-upon procedures engagement?
a) Materiality
b) Independence
c) Completeness
d) Integrity
Answer: d)
6. True or False: Independence is a requirement for an agreed-upon procedures engagement according to SRS 4400.
Answer: True
7. Which of the following matters need to be agreed upon in an engagement to perform agreed-upon procedures?
a) Nature of the engagement
b) Timing of the engagement
c) Extent of the engagement
d) All of the above
Answer: d)
8. Why is effective planning important in an agreed-upon procedures engagement?
a) To identify risks and develop appropriate responses
b) To determine the financial statements’ accuracy
c) To ensure independence of the auditor
d) To provide assurance on the internal control system
Answer: a)
9. True or False: Proper documentation is not necessary in an agreed-upon procedures engagement.
Answer: False
10. Which of the following should be included in the report of factual findings in an agreed-upon procedures engagement?
a) Detailed audit procedures performed
b) Expressing an opinion on the financial statements
c) Identification of specific financial or non-financial information
d) Personal recommendations for improving the entity’s operations
Answer: c)
Additional questions:
11. True or False: The Standard on Related Services (SRS) primarily provides guidance for engagements to perform agreed-upon procedures regarding financial information.
Answer: True
12. In an agreed-upon procedures engagement, what does the auditor’s report provide assurance on?
a) Internal control effectiveness
b) Accuracy of financial statements
c) Factual findings based on specified procedures
d) Compliance with legal requirements
Answer: c)
13. True or False: The SRS 4400 applies only to engagements regarding financial information.
Answer: False
14. Which of the following principles does NOT govern an agreed-upon procedures engagement?
a) Objectivity
b) Professional competence and due care
c) Materiality
d) Confidentiality
Answer: c)
15. Can an auditor perform agreed-upon procedures regarding non-financial information?
a) Yes, but only with approval from the regulatory authorities.
b) No, agreed-upon procedures are limited to financial information only.
c) Yes, if the auditor has adequate knowledge and reasonable criteria exist.
d) No, agreed-upon procedures engagements are exclusively for financial audits.
Answer: c)
16. In an agreed-upon procedures engagement, what should the auditor ensure regarding the procedures performed and the findings reported?
a) Compliance with the SRS 4400 and the terms of the engagement.
b) Conformity with international auditing standards.
c) Alignment with the client’s internal control system.
d) Accuracy of the financial statements.
Answer: a)
17. True or False: The auditor’s independence is always required for an agreed-upon procedures engagement.
Answer: False
18. What should be included in an engagement letter for an agreed-upon procedures engagement?
a) A listing of the financial statements to be audited.
b) Details of the auditor’s fees and expenses.
c) A statement restricting the distribution of the report of factual findings.
d) A summary of the auditor’s qualifications and experience.
Answer: c)
19. What is the purpose of effective planning in an agreed-upon procedures engagement?
a) To identify potential conflicts of interest.
b) To develop recommendations for process improvements.
c) To ensure compliance with legal requirements.
d) To conduct the engagement effectively and efficiently.
Answer: d)
20. True or False: The SRS 4400 is compatible with the International Standard on Auditing (ISA) 920.
Answer: True
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