| FYI -
The Statements on Standards for Accounting and Review Services (SSARS) are issued by the AICPA's Accounting and Review Services Committee (ARSC) and are applicable to certain financial statement-related services that a CPA may provide to nonissuers.
Historically, the SSARSs involved two types of engagements: (1) reviews; and (2) compilations. The clarified SSARSs added a third type of engagement: engagements to prepare financial statements for a client without issuing an accompanying report.
**Compliance with the SSARSs is enforceable under the AICPA Code of Professional Conduct, including the Rule of Conduct dealing with Compliance with Standards.** | Requirements—The General Principles retained the two categories of requirements for SSARSs: (1) unconditional and presumptively mandatory.
1. Unconditional Requirements—Indicated by the word must, the accountant is required to comply with such a requirement without exception whenever the requirement is relevant.
2. Presumptively Mandatory Requirements—Indicated by the word should, the accountant is expected to comply with such a requirement, except in rare circumstances.
**Noncompliance is allowed if a required procedure would be ineffective in achieving the intent of the requirement for a specific engagement.
When not complying with such a requirement, the accountant should perform alternative procedures to achieve the intent of the presumptively mandatory requirement.** |
| FYI -
Application and Other Explanatory Material (Including Appendices of the SSARSs)—These are not requirements and are presented separately within the SSARSs. Indicated by the words may, might, or could, they may explain what a requirement means or provide examples of appropriate procedures.
The Statements on Standards for Accounting and Review Services are not applicable when: 1) preparing a working trial balance; 2) assisting in adjusting the books of account; 3) consulting on accounting, tax, and similar matters; 4) preparing tax returns ; 5) providing bookkeeping or data processing services, and 6) processing financial data for clients of other accounting firms. | The Role of Interpretive and Other Publications
Interpretive Publications—The accountant should consider the guidance of applicable interpretive publications in performing the engagement. These are recommendations on the application of the SSARSs in particular circumstances as issued by ARSC after ARSC members have had the opportunity to comment on the proposed interpretations.
Other Preparation, Compilation and Review Publications—The accountant should evaluate the relevance and appropriateness of such guidance to the engagement.
**These other publications may be useful in understanding the SSARSs, but they have no authoritative status and the accountant is not required to be aware of all such other publications.** |
| Unconditional requirements in the clarified Statements on Standards for Accounting and Review Services are indicated by the word | Must |
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Note
In the past, the SSARSs dealt with only two types of engagements: (1) reviews; and (2) compilations. The clarified SSARSs added a third type of engagement: engagements to prepare financial statements for a client without issuing an accompanying report, which is the focus of AR-C 70, Preparation of Financial Statements. When engaged to prepare financial statements, the accountant is also required to comply with the requirements of AR-C 60, General Principles, including meeting the preconditions for accepting the engagement. The accountant is not required to be independent for a preparation engagement. | Prepare the Financial Statements
Each page of the financial statements should include a statement that “no assurance is provided” (or other words to that effect). The accountant's name (or firm) need not be identified. If that statement cannot be added to each page, the accountant should issue a disclaimer as to any assurance or perform a compilation engagement in accordance with AR-C 80 or withdraw from the engagement. |
| True or False
The SSARSs make a distinction between "assisting with preparing" financial statements (such as performing bookkeeping services) to which the SSARSs do not apply and "preparing" financial statements to which the SSARSs do apply. | True |
| Compilation, defined | A “compilation” engagement involves assisting management in presenting the financial statements (or other historical, pro forma, or prospective financial information) along with the accountant's accompanying report, which provides no assurance about those financial statements (or other financial information). The accountant is also required to comply with the requirements of AR-C 60, General Principles, including meeting the “preconditions” for accepting the compilation engagement. The accountant is not required to be independent for a compilation engagement, since no assurance is provided. Guidance is provided in the Clarified SSARSs, specifically by AR-C 80, Compilation Engagements. |
| FYI -
Compilations engagement:
1. Performance Responsibilities for a Compilation Engagement
2. Understanding the Applicable Reporting Framework—The accountant should obtain an appropriate understanding of the financial reporting framework and the significant accounting policies applicable to the entity's financial statements.
3. Read the Financials—The accountant should read the financial statements to evaluate whether they are free of obvious material misstatements.
Incomplete/Unsatisfactory Records—If the accountant believes that the records or other information is incomplete or inaccurate, the accountant should request further or corrected information.
4. Revisions Required—If the accountant discovers a need for revision to the financial statements, the accountant should propose appropriate revisions to management.
Withdrawal—If management has failed to provide records or information as requested or if management does not make appropriate adjustments as proposed by the accountant, the accountant should withdraw (and inform management of the reasons for withdrawing).
**In summary, the compilation report normally consists of four sentences** | Compilation Report when Financial Statements Use a Special-Purpose Framework
a. When using a special-purpose framework, the report should include a separate paragraph stating that the financial statements are prepared in accordance with the particular special-purpose framework and that refers to the note to the financial statement describing the framework.
Reporting when the Accountant Is Not Independent
a. The last paragraph of the report should state that the accountant was not independent [either a single sentence without indicating the reason or with additional commentary indicating the reason(s) for the impairment].
Reporting when Substantially All Disclosures Are Omitted
a. If the omission of disclosures appears to be intended to mislead financial statement readers, the accountant should not issue a compilation report.
b. When the financial statements omit substantially all disclosures, the compilation report should include a paragraph pointing out that fact, including a statement that the financial statements are not designed for those who are uninformed about such matters. (The accountant should not issue a report on “comparative” financial statements of one year that omit substantially all disclosures along with financial statements of another year that include applicable disclosures. Such financial statements would not be viewed as comparable.)
Reporting Known Departures from the Applicable Financial Reporting Framework
a. Material departures that are not disclosed in the notes should be reported in a modified compilation report in a separate paragraph. (If the accountant believes that modification of the report is not an adequate way to communicate the deficiencies, the accountant should withdraw.)a. |
| True or False
Compilation Engagement -
When engaged to compile an entity's financial statements, the accountant may request that each page of the financial statements include a statement such as "See Accountant's Compilation Report," but such a statement is not actually required. | True |
| True or False
Compilation Engagement -
The accountant is prohibited from compiling individual elements of a financial statement, since that constitutes an incomplete presentation. | False |
| Which of the following services, if any, may an accountant who is not independent provide?
Compilation, Review, Both, or None? | An accountant may perform a compilation even if not independent. An accountant may not perform a review unless he/she is independent. |
| FYI
Review Engagement -
Designing and Performing Review Procedures—The accountant should design and perform analytical procedures and make inquiries (and perform any other procedures as needed) to obtain “sufficient appropriate review evidence” as a basis for the review report; if unable to obtain sufficient appropriate review evidence, the accountant should withdraw from the engagement.
Risk Assessment—The accountant should focus the review procedures in the areas believed to be at higher risk of material misstatements. However, the accountant does not obtain an understanding of internal control for purposes of assessing control risk.
Analytical Procedures—The accountant should use analytical procedures as a basis for inquiry about relationships that appear unusual and should investigate significant differences relative to expectations by inquiring of management and performing other review procedures as needed. | Written Representations—The accountant should obtain written representations from the appropriate members of management (usually the chief executive officer and chief financial officer); the representations letter should have the same date as the review report. (If management does not provide the required representations, the accountant should withdraw.)
Reporting Responsibilities for a Review Engagement
The accountant's review report having an unmodified conclusion consists of the following:
1. A title, such as “Independent Accountant's Review Report”
2. An appropriate addressee
3. An introductory paragraph (without a label) that identifies the financial statements that were reviewed (and dates/periods involved), that states that a review consists primarily of analytical procedures and inquiries, and that states that a review is substantially less in scope than an audit (with a disclaimer of opinion)
4. A section entitled “Management's Responsibility for the Financial Statements” that identifies management's responsibilities for the financial statements and internal control
5. A section entitled “Accountant's Responsibility” that references the SSARSs promulgated by the ARSC of the AICPA and refers to “limited assurance” as a basis for reporting
6. A section entitled “Accountant's Conclusion” that provides negative assurance on the financial statements and
7. The signature of the accountant or the accountant's firm, the city and state where the accountant practices, and the date of the report. |
| FYI
Review Engagement -
Review report when financial statements use a special-purpose framework.
When using a special-purpose framework, the report should include an “emphasis-of-matter” paragraph stating that the financial statements are prepared in accordance with the special purpose framework and referencing the note to the financial statement describing the framework.
Going Concern Section and Emphasis-of-Matter and Other-Matter Paragraphs
1. “Going Concern” section—When there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time (and disclosure of those uncertainties are adequate), add a “Going Concern” section to the review report labeled “Substantial Doubt About the Entity's Ability to Continue as a Going Concern”; if disclosure is not adequate, the matter would be addressed in the “Basis for Qualified (Adverse) Conclusion” section of the review report.
2. Emphasis-of-matter paragraphs—The accountant may add an emphasis-of-matter paragraph to the review report to draw readers' attention to a matter that is appropriately reported or disclosed in the financial statements; the accountant should add an emphasis-of-matter paragraph when the financial statements have been restated to correct a misstatement in previously issued financial statements.
3. Other-matter paragraphs—The accountant may add an other-matter paragraph to the review report to draw readers' attention to a matter that is relevant to their understanding of the review, the review report, or the accountant's responsibilities. | Modified conclusion—When the accountant determines that the financial statements are materially misstated
Qualified conclusion—
1. The accountant should express a qualified conclusion using the phrase “… except for the effect of the matter described in the Basis for Qualified Conclusion paragraph …” when the misstatement is material but not pervasive to the financial statements; see the sample review report with a qualified conclusion below.
2. Adverse conclusion—The accountant should express an adverse conclusion using the phrase “… due to the significance of the matter described in the Basis for Adverse Conclusion paragraph, the financial statements are not in accordance with …” when the misstatement is material and also pervasive to the financial statements; see the sample review report with an adverse conclusion below. |
| Review, defined | A “review” engagement involves obtaining “limited assurance” (primarily by analytical procedures and inquiry of management) as to whether material modifications should be made to an entity's financial statements to be presented in accordance with the applicable financial reporting framework. The accountant is also required to comply with the requirements of AR-C 60 (General Principles), including meeting the “preconditions” for accepting the review engagement.
**The accountant is required to be independent for a review engagement, since limited assurance or “negative assurance” is provided.** |
| FYI
Review Engagement -
In general, the documentation should permit an experienced accountant with no prior connection to the engagement to understand the following:
1.The nature, timing, and extent of review procedures performed in compliance with the SSARSs
2. The evidence obtained from the procedures performed and
Significant findings, conclusions reached, and significant professional judgments involved | Specifically, the documentation should include the following
1. The engagement letter (or other written documentation)
2. Communications with management about emphasis-of-matter or other-matter paragraph(s) in the accountant's review report
3. Communications with management and those charged with governance about significant matters during the engagement
4. Communications with other accountants associated with the financial statements of significant components
5. Any identified information that is inconsistent with the findings regarding significant matters (and how the inconsistency was addressed)
6. The representation letter obtained from management and a copy of the financial statements and the review report |
| True or False
Review Engagement -
In a review engagement in accordance with the SSARSs, the accountant's primary procedures consist of applying analytical procedures and making inquiries of management and other entity personnel. | True
**The evidence-gathering procedures for a review engagement consist primarily of applying analytical procedures and making inquiries of management and other appropriate entity personnel. The accountant is required to document these important inquiries (and responses) in a management representation letter.**
**An accountant's review report is specifically required to disclaim an opinion to avoid any confusion with an audit.** |
| True or False
Review Engagement -
The accountant would assess control risk in connection with a review engagement for a non-public company. | False
**An accountant performing a review engagement is not required to assess control risk or the risk of fraud. Such risk assessment is associated with an audit engagement.** |
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The term “emphasis-of-matter paragraph” applies to topics that are appropriately reported in the financial statements to which the accountant wishes to draw attention. | FYI -
The term “other-matter paragraph” applies to topics that are not reported in the financial statements |
