The AICPA Accounting and Review Services Committee recently issued Statement on Standards for Accounting and Review Services (SSARS) No. 21 that revises the standards for reviews, compilations, and engagements to prepare financial statements. So what are the important takeaways from the new standard? The new standard provides increased clarity as to whether a CPA is simply preparing financial statements—a nonattest, non-assurance service—or is performing services such as a compilation or review.
SSARS No. 21 separates the preparation of financial statements from the reporting on those financial statements. The decision to report on the financial statements, by way of either a compilation or review report, is based solely on what type of service the CPA has been engaged to perform.
SSARS No. 21 consists of four (4) sections: 60, 70, 80, and 90.
Section 60 provides general principles for professional responsibilities related to engagements performed in accordance with the SSARSs. It is foundational for the other three sections related to the preparation, compilation, and review of financial statements and provides guidance related to ethical requirements, professional judgment, and engagement level quality control.
Section 70 applies whenever a CPA is engaged to prepare financial statements, but is not engaged to perform a compilation, review, or audit on those financial statements. The CPA will need to apply professional judgment in making the determination as to whether the CPA has been engaged to prepare financial statements or to simply assist in preparing financial statements (bookkeeping services not subject to SSARSs). As the engagement to prepare financial statements is a nonattest service, the CPA is not required to be independent. Also, a CPA can omit disclosures if the client does not need them.
A report is not required, even if the financial statements may be used by a third party. The CPA should include a legend on each page of the financial statements stating “no assurance is being provided.” Alternative procedures are provided should management not allow the use of the legend.
Section 80 applies whenever a CPA is engaged to perform compilation services. The old language referring to the submission of financial statements to a third party has been eliminated. The new compilation report language has been simplified to distinguish it from assurance reports for audit and review services. The section can be applied to financial statements with or without disclosures and provides that CPAs add additional paragraphs for explanatory purposes.
Section 90 applies whenever a CPA is engaged to perform review services. The accountant’s review report has been updated, as SSARS No. 21 requires the use of headings in the report and requires that the CPA name the city and state of the issuing office (accomplished through CPA letterhead).
SARS No. 21 also brings in the use of emphasis-of-matter or other-matter explanatory paragraphs that were not previously required.
Other Items of Importance
CPAs are required to use SSARS No. 21 for financial statements with periods ending December 15, 2015, and for periods thereafter; however, SSARS No. 21 can be used now as the standard allows for early implementation.
A signed engagement letter is required for all SSARSs engagements. The agreed-upon terms of the engagement should be stated—engaged to prepare, compile, or review. The letter should be signed by both the CPA and management or those charged with governance.
CPAs should continue to follow the Code of Conduct which prohibits a CPA from being associated with misleading financial statements—even if only performing a preparation service SSARS No. 21 removed the requirements and language regarding “management use only” financial statements.
The Board’s current rules provide that a CPA or CPA firm providing audits; reviews of financial statements; compilations of financial statements; or agreed-upon procedures or engagements to be performed in accordance with the Statements on Standards for Attestation Engagements shall participate in a peer review program. SSARS No. 21 preparation services do not fall within any of the above categories.
All CPAs should be aware of the changes now in place due to the issuance of SSARS No. 21. These changes impact CPA’s practice management and quality control.
The Board has seen where the failure of CPAs to familiarize themselves with changes in the Standards and to obtain appropriate CPE is reflected in peer review results down the line.
The above information is a simplified summary; the Board encourages all CPAs to seek out other helpful information and resources to ensure a thorough understanding of SSARS No. 21 and its changes. If you have questions about SSARS No. 21, please contact the Board’s Deputy Director, David R. Nance, CPA, by email at [email protected].
Activity Review, 02-2015
North Carolina State Board of CPA Examiners