Phi Motorcyle Sales Inc. (PMS) is privately owned. It wants to expand its business and has approached its bank for a loan. PMS wants the funds to purchase additional inventory and will be able to provide excellent security to the bank. The bank has agreed that since PMS can provide good security for the loan, an external audit will not be required. The bank manager had insisted that PMS hire a firm of professional accountants to examine PMS's financial records and provide some level of assurance.
Required:
a. What type of engagement is required by the bank? Explain your answer.
b. The owner of PMS contacts Kris & Lia, CPAs, to perform the required services but asks whether any other type of report is possible if no assurance is required. Identify this type of assurance service and describe 4 similarities and 4 differences between the two assurance services identified.