Which Organization Issues the Statements on Standards for Accounting and Review Services?

Accountants in public exercise who prepare financial statements for clients volition detect significant changes in new standards for accounting and review services that were issued in October.

Statement on Standards for Bookkeeping and Review Services (SSARS) No. 21, Statements on Standards for Accounting and Review Services: Clarification and Recodification, is the issue of efforts past the AICPA Accounting and Review Services Committee (ARSC) to clarify and revise the standards for reviews, compilations, and engagements to prepare financial statements.

Click here to read the standard.

The basic standard for accountants who set up and nowadays financial statements to their clients or to tertiary parties was issued as SSARS No. 1, Compilation and Review of Financial Statements, in Dec 1978. Paragraph 7 of SSARS No. 1 stated that "the accountant should non submit unaudited financial statements of a nonpublic entity to his client or others unless, as a minimum, he complies with the provisions of this argument applicable to a compilation engagement." The SSARS divers "submission" every bit "presenting to management financial statements that the accountant has prepared." The bottom line is that accountants in public exercise who prepared fiscal statements were required to, at a minimum, perform a compilation engagement with respect to those financial statements.

Submission worked well as a trigger for the compilation service when SSARS No. 1 was issued. At that time, paper fiscal statements were prepared, bound, and presented to clients by the CPA. Nevertheless, in today's electronic surroundings, financial data are typically recorded and organized across multiple computer platforms, including some in the cloud. The employ of calculator software by the client and by the CPA makes information technology difficult to determine who (or what) has prepared the financial statements and thus whether the accountant is required to perform a compilation engagement.

For instance, take a situation where an accountant performs bookkeeping services for a client. Possibly the auditor has access to the client's cloud-computing system and makes a number of journal entries to tape payroll tax payments, sales tax payments, depreciation expense, and revenue adjustments for a given period. The visitor's internal bookkeeper records amounts billed and sure recurring expenses such as utilities and role expenses. At the end of each month, the bookkeeper prints, from the cloud bookkeeping software, a copy of the financial statements for presentation to the owner. Has the accountant prepared those financial statements? The bookkeeper? The application itself? The reply is difficult to determine, and oftentimes accountants will come to unlike conclusions given the same set up of circumstances. This diverseness in practice is not in the public interest.

SSARS No. 21 eliminates the need for the accountant to determine an answer to that question by eliminating the submission requirement and making the compilation literature employ when the auditor is engaged to perform a compilation service.

Prior standards are superseded

SSARS No. 21 supersedes all existing AR sections with the exception of AR Department 120, Compilation of Pro Forma Financial Data. Proposed standards regarding compilation of pro forma information and compilation of prospective financial data are expected to be exposed for public comment in 2015.

Format of SSARS No. 21

SSARS No. 21 is formatted into four sections:

• Section threescore, Full general Principles for Engagements Performed in Accordance With Statements on Standards for Bookkeeping and Review Services.
• Section 70, Preparation of Financial Statements.
• Section lxxx, Compilation Engagements.
• Section 90, Review of Fiscal Statements.

These sections will exist codification with the prefix "AR-C" to distinguish them from the extant AR sections.

Department threescore

Section 60 of SSARS No. 21 replaces AR Section 60, Framework for Performing and Reporting on Compilation and Review Engagements, and provides full general principles for engagements performed in accordance with SSARSs. Section lx is intended to help accountants better understand their professional responsibilities when performing an appointment in accordance with SSARSs.

An accountant engaged to perform a review, a compilation, or an engagement to set up financial statements is required to adhere to the requirements in Section lx equally well as the requirements in the advisable engagement section.

Section lx includes requirements and guidance with respect to:

• Upstanding requirements.
• Professional judgment.
• Comport of the date in accordance with SSARSs.
• Engagement-level quality control.
• Credence and constancy of customer relationships and engagements.

Requirement to obtain a signed appointment alphabetic character

The accountant is required to agree upon the terms of the engagement for all SSARSs engagements with management or those charged with governance, as appropriate. The agreed-upon terms of the engagement are required to exist documented in an engagement alphabetic character or other suitable grade of written agreement. The engagement letter or other suitable form of written agreement is required to be signed by the auditor or the accountant's firm and management or those charged with governance. The requirement that management sign the engagement letter is to improve ensure that management has read the alphabetic character and understands the terms of the date.

Section 70

Section seventy of SSARS No. 21 is intended to exist brusk (but 22 requirement paragraphs and 19 awarding paragraphs) and easy to apply for accountants who are engaged to gear up financial statements for their clients without reporting on those statements. The department is specially helpful for accountants who prepare interim financial statements and perform accounting services using a cloud-computing application. Also, accountants who currently set up fiscal statements that are not expected to be used by a tertiary political party (commonly referred to equally management-use-just financial statements or SSARS 8 financial statements) should find that an engagement to prepare fiscal statements in accord with Section seventy now is better suited to their clients' needs.

Department lxx applies when an accountant in public practice is engaged to fix fiscal statements. It does not utilize when the accountant is engaged to perform an audit, review, or compilation of those financial statements that the accountant prepared. Even when Section 70 does non apply to the preparation of fiscal statements because the accountant is engaged to perform an audit, review, or compilation, Ideals Interpretation No. 101-iii, "Performance of Nonattest Services," would all the same utilize since the training of—or profitable in the preparation of—fiscal statements is a nonattest service. The department also does not apply when the accountant has been engaged to just assist in preparing fiscal statements or when the accountant prepares fiscal statements as a byproduct of another engagement, such every bit when the accountant prepares financial statements:

• Solely for submission to taxing authorities;
• For inclusion in written personal fiscal plans prepared past the accountant;
• In conjunction with litigation services that involve awaiting or threatened legal or regulatory proceedings; or
• In conjunction with business valuation services.

The accountant is required to apply professional person judgment in determining whether he or she is engaged to set up financial statements. The accountant will need to have a discussion with the client to determine the customer's specific needs, including whether the client expects the accountant to fix fiscal statements as part of the date—either for internal or external apply.

Click here for boosted guidance on when Section seventy applies.

Because the engagement to prepare fiscal statements is a nonattest service, the accountant is not required to make a determination as to whether he or she is independent of the entity.

The accountant may prepare financial statements that omit substantially all disclosures required by the applicable financial reporting framework. In such instances, the accountant is required to disclose such an omission in the fiscal statements. The disclosure of the omission of substantially all disclosures required by the applicative financial reporting framework may exist made on the financial statements or in a selected note to the fiscal statements (see Exhibit one).

The accountant may prepare financial statements that include disclosures nearly only a few matters in the notes to the financial statements. Such disclosures may be labeled "Selected Information—Substantially All Disclosures Required by [the applicable fiscal reporting framework] Are Not Included."

The accountant is precluded from preparing fiscal statements that omit substantially all disclosures if the omission was undertaken with the intent of misleading users of such fiscal statements (see Exhibit 1).

If the accountant becomes aware that the financial statements include a deviation or departures from the applicable financial reporting framework, he or she is required to either correct the deviation or, subsequently discussions with direction, disclose the fabric misstatement or misstatements in the financial statements. The disclosure of the cloth misstatement or misstatements may exist fabricated on the face up of the financial statements or in a note to the financial statements.

When SSARS No. 1 was issued, the requirement that the accountant report on fiscal statements that the accountant submitted to a customer or to 3rd parties was included considering users should be able to readily identify the degree of responsibility the accountant is taking with respect to such financial statements. To ensure that users can readily identify that the auditor is not providing any assurance on the financial statements, the accountant is required to include a statement on each folio of the fiscal statements indicating, at a minimum, that "no assurance is provided" on the fiscal statements. The accountant'south proper name is not required to be included in the statement (see Exhibit 2). Vendors are already working to include the legend in their accounting software.

If the auditor is unable to include a argument on each page of the financial statements, he or she is required to practice one of ii things:

Issue a disclaimer that makes clear that no balls is provided on the financial statements; or

Perform a compilation appointment in accordance with Section 80 of SSARS No. 21.

See Exhibit three for an example of a disclaimer that an accountant may issue.

When preparing financial statements in accordance with a special-purpose framework (also commonly referred to every bit an other comprehensive footing of accounting, or OCBOA), the auditor is required to include a clarification of the fiscal reporting framework on the face of the financial statements or in a note to the financial statements. A description of the special-purpose framework is usually placed adjacent to or under the title of the financial statements. For case, "Statement of Assets and Liabilities—Modified Cash Basis."

It is non expected that accountants volition observe the implementation of Section 70 to exist a significant challenge. However, since the section can be implemented early on, accountants demand to make sure that they empathize the full text of the new section and have a thorough discussion with their clients to ensure that both the accountant and the customer understand what the client needs and what service the accountant will provide—including whether the auditor's service will event in the issuance of a study.

Section 80

Like Department lxx, Section 80 of SSARS No. 21 is intended to exist brusk (38 requirement paragraphs and 43 application paragraphs) and easy to apply for accountants. Section 80 applies when the accountant is engaged to perform a compilation engagement. This contrasts with prior compilation standards, which applied when the auditor submitted (defined equally "prepared and presented") financial statements to a client or to third parties.

Other than the applicability of the literature, the compilation standard is largely unchanged from previous standards. The accountant's objective in a compilation date is to apply accounting and financial reporting expertise to aid management in the presentation of financial statements and study in accordance with Section fourscore without undertaking to obtain or provide any assurance that there are no material modifications that should be fabricated to the financial statements in order for them to be in accordance with the applicable financial reporting framework.

Section lxxx retains the requirement that the accountant decide whether he or she is independent of the entity. The auditor can however perform a compilation date on financial statements that omit substantially all disclosures.

The primary alter in the literature relates to reporting on fiscal statements that take been subjected to a compilation appointment. Starting time of all, a report is now required for all compilation engagements. The nonreporting exception that previously practical when financial statements that were prepared and presented past an accountant to management were not intended for third-party apply is no longer necessary because such engagements would be covered by Section 70. Also, to differentiate a written report in which the accountant provides no assurance from assurance reports (i.eastward., review and audit reports), the study is streamlined. The standard report is just one paragraph with no headings. Additional paragraphs would exist added when the financial statements are prepared in accordance with an OCBOA; when direction elects to omit essentially all disclosures required past the applicable financial reporting framework; when the accountant's independence is impaired; when there is a known departure from the applicable financial reporting framework; and when supplementary data accompanies the financial statements and the accountant's compilation report. See Exhibit iv for a comparison of the standard compilation written report in accordance with Section 80 to the previous standard compilation written report.

See Exhibit 5 for differences between a compilation engagement and an engagement to gear up financial statements in accordance with SSARS No. 21. The bottom line is that SSARS No. 21 provides a vivid line between bookkeeping services (preparation) and reporting services (compilation or review). The auditor no longer has to be concerned nigh whether the financial statements will be used but by management or by third parties.

Section 90

Section 90 of SSARS No. 21 is primarily a clarity redraft of the extant 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 fiscal data included in a taxation return.

The accountant's review report will await different as SSARS No. 21 requires the use of headings in the auditor's review written report. The accountant is also required to name the city and state of the issuing part. The requirement will be met if the accountant'southward review report is presented on the auditor's letterhead and the letterhead contains the city and state of the issuing office.

Effective date of SSARS No. 21

ARSC is allowing early implementation for SSARS No. 21, with a required effective date a year out to allow for education and training for those in do who need more time. SSARS No. 21 is effective for reviews, compilations, and engagements to prepare financial statements for periods ending on or after Dec. 15, 2015.

Accountants should be aware that early implementation has drawbacks as well as benefits. Accountants should ensure that staff is appropriately trained and that business firm methodologies are updated before the implementation of whatsoever new standard.

Other SSARS No. 21 guidance

ARSC discussed many issues in the deliberations of SSARS No. 21. It was concerned about the length of the standard for a straightforward, no-assurance compilation or engagement to set up financial statements. ARSC decided to endeavor to keep the standards and application paragraphs short and put much of the application guidance in an administrative interpretive guide.

That interpretive guidance is expected to be bachelor during the second quarter of 2015.

SSARS No. 21 Results From Years of Professionwide Collaboration

by Michael P. Glynn, CPA, CGMA

Argument on Standards for Accounting and Review Services (SSARS) No. 21 was issued by the AICPA Accounting and Review Services Committee (ARSC) in October, merely it took years to develop with the consideration of extensive comments from stakeholders in the accounting profession. ARSC consists of seven volunteer members, all of whom are in public practice, are with smaller or regional firms, and perform SSARSs engagements regularly.

ARSC is the senior committee of the AICPA that is designated by AICPA Quango to issue standards with respect to unaudited financial statements or other unaudited financial information of a nonpublic entity. The "Compliance With Standards Dominion" of the AICPA'south Code of Professional Conduct requires members who perform professional services to comply with standards promulgated past bodies designated by Quango.

The project was undertaken considering:

• The applicability of the compilation standard was based on a trigger of submission that was no longer practical in today's electronic surroundings. Therefore, ARSC sought to create an engagement-driven standard that would exist applicable in the same style every bit the review and auditing standards. In other words, information technology would use when a CPA was engaged to perform a compilation service.
• The AICPA Auditing Standards Board (ASB), every bit role of its project to clarify the literature for audit engagements, had deleted the association section from the auditing literature and had asked ARSC to consider including it in SSARSs since it dealt with unaudited financial statements.
• ARSC was committed to have a look at whether the review standard should be amended in lite of a new international review standard.
• ARSC was committed to clarifying the SSARSs literature in a manner like to that used by the ASB in clarifying the auditing standards.

Based on comments from stakeholders, ARSC in January 2013 withdrew its initial exposure drafts from June 2012. Commenters had told ARSC that the compilation service should exist positioned as a nonattest service consistent with the positioning of preparation of financial statements. They also said the standards needed to be combined and simplified.

ARSC later paved the way forward for SSARS No. 21 with a proposal that the auditor would be required to comply with the compilation SSARS when the accountant is engaged to perform a compilation engagement—as opposed to when the accountant submits (defined equally "prepares and presents") financial statements to a client or to third parties.

The standard was created with the help of substantial comments from a wide range of parties. Ninety-two respondents submitted comments on the initial exposure draft, and 62 comment letters—the overwhelming bulk of which were supportive—were received on the reproposed standards.

ARSC and the AICPA give thanks all of the members, firms, state societies, state boards, and other organizations that provided input. Special thanks are due to the National Conference of CPA Practitioners, CAMICO, the AICPA Technical Issues Committee, and the National Association of State Boards of Accountancy for their aid and perspectives with respect to the problems addressed by SSARS No. 21.

For more information on how SSARS No. 21 was developed, click hither.

Executive Summary

Clarified, revised standards for reviews, compilations, and engagements to ready financial statements have been issued by the AICPA Accounting and Review Services Committee in SSARS No. 21.

The new standards brand the compilation literature apply when the accountant is engaged to perform a compilation service. This eliminates the submission requirement that was contained in the previous compilation standard and had become a source of confusion and diversity in practice.

SSARS No. 21 creates a brilliant line between accounting services (preparation) and reporting services (compilation or review). A report is now required for all compilation engagements, and the standard report is merely one paragraph with no headings.

Michael L. Make (mbrand@jfnb.net) chairs the AICPA Accounting and Review Services Commission (ARSC) and is partner in charge of audit, adjure, and quality control at Johnson, Feigley, Newton & Brand LLP in Athens, Ala. Michael P. Glynn (mglynn@aicpa.org) is a senior technical manager with the AICPA Auditing and Attest Standards team and is staff liaison to ARSC. Charles J. McElroy (chas.mcelroy@claconnect.com) served as chair of ARSC's Clarity Task Forcefulness for the SSARS 21 project and is master quality officer at CliftonLarsonAllen LLP.

To comment on this commodity or to propose an thought for another article, contact Ken Tysiac, editorial director, at ktysiac@aicpa.org or 919-402-2112.

AICPA RESOURCES

JofA articles

• "A Makeover for Compilations," Jan. 2014, page 12
• "Compilation Reports for Valuation Engagements?" May 2012, folio 52
• "Changes on Tap for Compilation and Review Standards," May 2010, folio 32

Publications

• Developments in Review, Compilation, and Financial Argument Preparation Engagements: Engagements Performed in Accordance With SSARSs—AICPA Warning (#ARACRV14P, paperback; #ARACRV14E, ebook; #ARACRVO, one-year online access)
• SSARS No. 21, Statements on Standards for Bookkeeping and Review Services: Clarification and Recodification (#ASSARSST21P, paperback)

CPE self-study

Compilation, Review, and Accounting Service Update (sound webcasts: #VCL4COMP021, Dec. sixteen; #VCL4COMP022, January. 21)

Video webcast

"Understanding the SSARS 21 Clarification and Revision" web consequence rebroadcasts (#WBC14273I, Dec. 4; #WBC14274I, Dec. 17)

For more information or to make a buy, go to cpa2biz.com or call the Found at 888-777-7077.

Webpages

• ARSC Clarity Project
• SSARS No. 21 resources folio

venturaeverned.blogspot.com

Source: https://www.journalofaccountancy.com/issues/2014/dec/ssars-21-compilations-engagements.html

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