For years, the CPA profession has wrestled with some inconsistency and confusion in application of the SSARS (Statements on Standards for Accounting and Review Services) to certain compilation engagements. Since the basic standard was issued back in 1978, CPAs in public practice have been required to abide by the compilation and review standards whenever submitting unaudited financial statements to management or others. Submission was defined in the original standard as presenting the accountant-prepared statements to management.
Clarifications Required for the SSARS
Over time, questions arose among practitioners in instances in which a CPA in public practice provided bookkeeping services for a client. The client may have an internal bookkeeper who, along with the CPA, has access to and may record certain journal entries in the accounting software. In this case, when financial statements were printed and provided to management, practitioners differed on whether the CPA, the bookkeeper, or the software prepared the financial statements, which would dictate whether or not the CPA’s compilation standards would apply. Did the answer depend on who actually printed the reports, who recorded the majority of the journal entries, or who physically handed the report to management?
In response to this, the Accounting and Review Services Committee (ARSC), a committee of the American Institute of CPAs (AICPA), issued an exposure draft in June 2012 to attempt to clarify confusion in these types of engagements. This also dealt with whether certain requirements should apply when an accountant’s name is “associated” with unaudited financial statements, even though no accountants’ report was issued on those statements. Over the following two years, the ARSC took comments from practitioners, held several public meetings and lengthy discussions, and made revisions to the exposure draft based on this input. The final standard, SSARS 21, was issued in October 2014.
What are the New Changes Published in the SSARS 21?
SSARS 21 contains four main sections which cover general principles, preparation engagements, compilation engagements, and review engagements. Here are some of the key modifications to the prior standard:
- The decision of when certain standards apply is driven by what the CPA is engaged to perform. Thus, the compilation standards only apply when the CPA is engaged by management to perform a compilation.
- A new service, the preparation engagement, is created. This is a nonattest service, and no accountants’ report is required to be issued. This will be common when CPAs prepare interim financial statements and help with bookkeeping in accounting software such as QuickBooks™.
- As a nonattest service, the CPA is not required to evaluate independence to perform a preparation engagement.
- The preparation standards do not apply when the CPA “assists” in preparing financial statements or prepares financial statements solely to assist in another engagement, such as tax return preparation or performing a business valuation.
- An accountants’ report is now required for all compilations. Previously, a CPA could compile management-use-only financial statements without issuing a report. Now, if statements are prepared strictly for management’s use only, the preparation standards rather than the compilation standards should be followed.
- While an accountants’ report is not required in a preparation engagement, each page of the financial statement must contain a statement that no assurance is provided. Otherwise, a disclaimer report must be issued.
SSARS 21 represents a significant landmark in the evolution of the standards for accounting and review services. The AICPA website and the Journal of Accountancy provide numerous helpful resources to explain and assist with implementation. This new standard is effective for year-ends of December 15, 2015 and later, with early implementation permitted.
Please contact our office with any questions about this new standard.
ABOUT THE AUTHOR
Brian W. Rosenberg, CPA
Brian has over 15 years of public accounting experience and specializes in providing accounting and auditing services to companies in a variety of industries. His responsibilities include planning, performing, and supervising audits, reviews, and compilations and presenting results to owners and audit committees.