[Anonymous]

I recently took Becker’s Final Exam 2 for AUD and have since been going through all of the errors I’ve made. Currently I’m going through Simulation #6 which is gives examples of types of reports and asks you what level of assurance is given and whether there is any restriction on the report. I got the whole simulation right except for question 6. which asked the type of assurance given on Compilations on Financial Forecasts. My answer was “no assurance” but Becker says the correct answer is “Negative Assurance”. This really makes no sense to me at all. I went back to the book to double check and page A2-98 right at the bottom “There is no assurance of any kind that statements have been prepared in accordance with AICPA guidelines or that the assumptions used are reasonable.”

Is the simulation answer a mistake or am I just overlooking something? Any help about this would be much appreciated.

[Anonymous]

I think Becker says negative assurance b'cos compilation includes a ‘disclaimer'. So in fact it is a negative assurance b'cos the auditor need not be independent. Another reason why negative assurance is more relevant to compilation is to distinguish it from agreed upon procedures. They provide no assurance but only the result of procedures.

[Anonymous]

Thanks for the response anjali7464. I appreciate any feedback I can get on this matter. However, I'm going to have to disagree (respectfully of course) with your explanation for a couple of reasons:

(1) Agreed upon procedures include a disclaimer as well so I can't see how Becker could justify using that terminology to distinguish between the Agreed-upon and Compilations.

(2) I've always been under the impression that Compilations provide “no assurance” so based on that “negative assurance” would never be relevant to a Compilation because “negative assurance” is a form of assurance.

(3) I can't see how it can be a form of negative assurance since the accountant need not be independent. Independence is always needed when any type of “assurance” is being given (even negative assurance).

(4) If negative assurance was allowed to be given then Reviews would be allowed on Prospective F/S

[kb24]

I agree with dvasta1. My understanding has always been

Audits – positive assurance because the audit plan consists of tests designed to detect material misstatements

Reviews – negative assurance because even if no evidence of material misstatements found they might exist since the only procedures done are inquiry and analytical procedures

Compilation – no assurance

FAR 4/1/11 - 89
AUD 4/15/11 - 85
REG 4/29/11 - 80
BEC 5/13/11 - 85

[Anonymous]

I agree with both of you. I went online and studied further about negative assurances. And it does relate to reviews. Since my review material says reviews are limited assurance, I hastily concluded that compilations can be termed negative assurances. But now I understand better. Thanks for clearing this point for me.

[jbeans2009]

In a review, negative assurance is given by the words ‘based on our review nothing came to our attention…'. That is negative assurance-nothing came to our attention. In a compilation-all that they say is-We have compiled the statements.' That's it. No assurance at all, whether positive or negative.

[Author]

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