In all three types of engagements, the CPA is supposed to smell. As a matter of fact in all his work, the CPA is supposed to sniff. Sniffing is not a procedure. It is a pervasive requirement and attitude. It is called professional skepticism.

In a compilation engagement, the compiling CPA is supposed to sniff. But he is not required to perform any procedures unless he smells something "funny”, or worse, in a financial statement. In that case he is supposed to look into what smells and get some more information or, as the need may be, cause management to make or agree to corrections. Otherwise, he is not required to go beyond sniffing.

In a review engagement the CPA goes beyond sniffing and is required to perform so-called inquiries and analytical procedures, i.e., he is supposed to ask some questions and compare this year’s numbers in the financial statements with other numbers.

If the answers to his questions, or the comparison of the numbers, cause him to wonder about some of the figures in the financial statements, he is supposed to follow through with other procedures and, if need be, cause management to make or agree to corrections. Following through may consist only of asking some more questions. On the other hand, if he doesn’t get good answers, it may cause him to perform some verification procedures. But these additional procedures are performed only in connection with the figures he is wondering about. Otherwise he is only required to ask questions and compare numbers.

In an audit engagement, the CPA also sniffs, asks questions and compares numbers. But, in addition, he has to feel, touch and taste, so to speak. He has to examine the evidence; he has to get the facts.

But, for the greatest part, he only has to examine a portion of the evidence, a sample of it, sometimes a very small sample. He must do some testing. For example: usually he reconciles (tests the reconciliations of) some bank accounts; he asks some customers to verify their balances; he observes and test-counts some inventory items; he searches for some unrecorded liabilities; he examines and compares with the accounting records, some sales invoices, some purchase invoices and some expense invoices. When he performs these types of auditing procedures, sometimes he may be required to dig deeper, depending on his findings.

Upon completion of his engagement, the CPA renders his report. This report broadly states what he has done and the conclusions he has reached. In an auditors’ standard report, the auditing CPA expresses an opinion that the statements "present fairly, in all material respects...”. That is called reasonable assurance because he cannot express absolute assurance since he has only examined a portion of the evidence, sometimes a very small portion.

In a reviewers’ standard report, the reviewing CPA only expresses limited assurance that insofar as he is aware, the statements do not require any material modifications. The assurance is limited because the procedures are so limited.

In the compilers’ standard report, the compiling CPA expresses no assurance since he has performed no procedures upon which any assurance can be based.

None of these reports offers complete or absolute assurance that the financial statements are fairly presented.


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