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Statements on Standards for Accounting and Review Services (SSARS) have changed significantly ◦ The ARSC undertook a “clarity-like” revision of the SSARS, similar to what the ASB did with the SASs ◦ The result is SSARS 21, which effectively amends and supersedes all previous SSARS sections in the codification, except for Sec 120, Compilations of Pro Forma FS, which will be superseded by an additional clarity SSARS this year ◦ The following slides will take us through the changes for compilations, reviews, and a new(?) service labeled “preparation of financial statements” 2
STATEMENTS ON STANDARDS FOR ACCOUNTING AND REVIEW SERVICES 21 ◦ General Principles (Significant changes) ◦ Preparation of financial statements (New) ◦ Compilation engagements (Significant changes) ◦ Reviews (not much change) 3 Effective date would be for financial statement periods ending on or after December 15, 2015 (so effective for any financial statements)
Intended to help accountants better understand their professional responsibilities Sec 60 must be followed in additional to the section applicable to the type of work you are doing ◦ Covers things like ethical requirements, professional judgment, following the SSARS, quality control, and acceptance/continuance ◦ Also specifies a requirement that all SSARS engagements must have a signed engagement letter (signed by both parties) 4
Provides requirements and guidance when an accountant is engaged to prepare financial statements for an entity, BUT has NOT been engaged to perform a compilation, review or audit with respect to those financial statements DOES NOT apply in situations where the accountant is not in public practice This is a non-attest service (no assurance) 5
Why needed? ◦ In the past, compilations were required when an accountant was engaged to report on compiled financial statements, or submits” (presenting to management financial statements that the accountant has prepared) financial statements to a client or third parties ◦ Today, with the advent of new technology and other applications, it is becoming difficult to determine just “who” prepared the financial statements, and it was tough to tell when a third party might use them 6
No report is required, even if they are to be used by or presented to a third party Since it is non-attest (no assurance) ◦ Now in harmony with Yellow Book treatment of FS preparation ◦ Also more consistent with practitioners who have considered FS prep a “management responsibility” and an essential part of an entity’s system of internal control ◦ The accountant need no longer be concerned with who prepared the FS, or who is using the FS, when issuing a compilation 7
Other issues with preparation ◦ Each page of the FS needs include a statement or legend stating, at a minimum, that “no assurance is provided” ◦ The accountant’s name need not be included in the statement or legend ◦ If the accountant is unable to include an appropriate statement or legend described above, the accountant must issue a disclaimer report, OR may perform a compilation in accordance with Sec 80 requirements, OR may resign ◦ Oh, and by the way, these services are excluded from peer review, if this is the only service that your organization performs ◦ AICPA Code of Conduct prohibits a CPA from being associated with FS that are misleading, so be careful ◦ What if I’m just assisting management with the preparation of FS, and I’m not really preparing ? Am I following this SSARS? No, you are not 8
9 Examples
A written, and signed, engagement letter or other suitable form of written agreement is required A report is now required for all compilation engagements ◦ — It is no longer necessary to have the non-reporting exception that was previously afforded for financial statements that were prepared and presented by an accountant to management that were not intended for third party use. Such engagements will be covered by section
Single paragraph unless Additional paragraphs are required when — the financial statements are prepared in accordance with a special purpose framework. — management elects to omit substantially all disclosures required by the applicable financial reporting framework. — when the accountant’s independence is impaired. — there is a known departure from the applicable financial reporting framework. — supplementary information accompanies the financial statements and the accountant’s compilation report thereon. 11
Compilation report looks significantly different an audit or review report, i.e., one paragraph, no headings Accountant no longer concerned with FS being general use or not Management use only financial statements (SSARS 8 type stuff) will be eliminated When the accountant is not independent, a statement to that effect is still required in the compilation report Don’t have to disclose why the accountant isn’t independent, but if they voluntarily choose to disclose the why, ALL of the whys must be disclosed (not just part of them) 12
Primarily a clarity redraft of the pre-clarity review literature with very few changes SSARS No. 21 does make clear that section 90 may be applied to historical financial information other than historical financial statements, such as specified elements, accounts, or items of a financial statement; supplementary information; required supplementary information; and financial information included in a tax return 13
The accountant’s review report will look different as SSARS No. 21 requires the use of headings in the report. The accountant is also required to name the city and state of the issuing office Requirement will be met if the accountant’s review report is presented on the accountant’s letterhead and the letterhead contains the city and state of the issuing office 14
Although pre-clarity guidance stated that emphasis would never be added to a review report, this has now changed ◦ Emphasis of matter paragraph, or other matters paragraph will be required in certain situations Inclusion of supplemental information and required supplemental information Special reporting framework used Several others 15
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