Recent activity with Statement on Standards for Accounting and Review Services (SSARSs) issued by the Accounting and Review Services Committee’s (ARSC) have attempted to clarify and revise standards for preparation of financial statements, compilations, and reviews. To help you understand this complex issue, we're providing an overview of SSARS 21 and the sections within it.
Understanding SSARS 21
SSARS 21 completely superseded almost all previously outstanding SSARS to revise the standards for reviews, compilations, and engagements when preparing financial statements to provide greater clarity. One of the improvements was to apply the same drafting conventions as the Statements on Auditing Standards to improve the ability of users to read, understand, and apply. Since its issuance, the ARSC has provided continued clarifications, enhancements, and improvements to build upon that initiative.
SSARS 21 – Section 60
Section 60 – General Principles provides a framework and overarching requirements that all SSARS engagements must abide by, such as following the Code of Professional Conduct, ensuring quality management, and similar requirements.
All guidance related to preparing or issuing a compilation report on any historical or prospective financial information, including pro forma financial information, is covered within the SSARS.
SSARS 21 – Section 70
Section 70 – Preparation of Financial Statements created a nonattest service for when accountants are engaged to prepare financial statements for an entity without the need for an accompanying report. This is true whether the financial statements are expected to be used internally or provided to a third party. A “no assurance is provided” statement is required to clarify the fact that no accountant has performed procedures to verify the financial information presented.
The AICPA recently released an interactive decision tree to assist practitioners with determining when Section 70 applies, which most fundamentally relies on whether the practitioner has been engaged to perform such services. Assisting management with accounting and bookkeeping does not automatically trigger the need to comply with Section 70 requirements. Voluntarily complying with certain aspects of Section 70 also does not mean the practitioner must fully comply with all the provisions of Section 70. The engagement letter is key to defining the nature of your work.
SSARS 21 – Section 80
Section 80 – Compilation Engagements continues to provide the option to issue a report that may be provided to third parties on general purpose financial statements without any form of assurance. Compilations are not providing any form of conclusion or opinion, and no verification of the completeness and accuracy of the financial information presented can be assumed. The compilation report is useful to clarify the context of the engagement, as well as providing other important clarifications.
For both Section 70 and Section 80 engagements, since no assurance is being provided, financial statements may present substantially omitted disclosures -as long as that is made clear to the reader. In addition, since no assurance is being provided, independence is not required. However, lack of independence must be disclosed in a compilation report.
SSARS 21 – Section 90
Section 90 – Review of Financial Statements provides guidance for issuing a report with limited assurance based primarily on inquiry and analytical procedures (with additional procedures as deemed necessary). The ARSC has taken strides to appropriately converge audit concepts with review requirements, including modifying the definition of materiality, expanding reporting requirements related to going concern, clarifying the use of analytical procedures for evidence, and more.
In all cases, if a practitioner is aware of a material departure from the applicable financial reporting framework, it can’t be ignored. In a preparation engagement, the departure would be noted directly on the prepared financial information. In a compilation engagement, the departure would be noted in the compilation report. In a review, the departure would be considered when issuing the limited assurance review conclusion – which may be qualified or adverse.
SSARS 21 – Section 100
Finally, Section 100 was created to provide special considerations when handling International Reporting Issues. As we continue to operate in a global economy, many practitioners are being faced with complying with more than one set of professional standards or issuing reports using a non-U.S. applicable financial reporting framework. The ARSC must support these instances.
In summary, recent ARSC activity has been focused on improving the quality of SSARS engagements, while converging principles and concepts across professional standards.
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