written by Aaron Spencer
During its August meeting, the AICPA Accounting and Review Services Committee voted to approve clarified and revised standards for reviews, compilations, and engagements to prepare financial statements.
These clarified standards are scheduled to be issued as Statement on Standards for Accounting and Review Services (SSARS) No. 21 in coming days and they are effective for engagements on financial statements for periods ending on or after 12/15/15. The clarity project is similar in nature to the project that the AICPA applied to Generally Accepted Auditing Standards several years ago.
SSARS No. 21 includes significant revisions that affect standards for accountants in public practice who prepare financial statements for their clients. These new standards attempt to create more clear division between accounting services and reporting services. The guidance adds a new level of service (Preparation) that can be released by an accountant when financial statements are issued that have not been audited, reviewed, or compiled.
SSARS No. 21 results in four major AR-C sections. They will supersede all the existing AR sections of SSARS (except for AR Section 120, Compilation of Pro Forma Information, which will have a clarified format out for public comment in 2015).
- AR-C Section 60, General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting Review Services. This section will include general principles for engagements performed in accordance with SSARSs.
- AR-C Section 70, Preparation of Financial Statements. Perhaps the biggest changes and most attention come from this section which centers around guidance for accountants engaged to prepare financial statements but not engaged to perform audit, review, or compilation on those financial statements. The service of preparation is clearly defined in the guidance. Preparation differs from a compilation in that an accountant is not required to be independent of the client nor is a report required. The accountant must state on each page of the financial statements that no assurance is being provided.
- AR-C Section 80, Compilation Engagements. Performance requirements for compilation engagements are largely unchanged. The compilation report is streamlined so that the standard report is just one paragraph with no headings to further differentiate the report from those providing assurances such as a review or audit.
- AR-C Section 90, Review of Financial Statements. AR-C 90 is basically a clarity redraft of the review literature of SSARS No. 19 with few changes
The new level of service known as “Preparation” is expected to have an immediate impact. The AICPA anticipates that many firms will opt to have such engagements for interim statements followed by higher service levels at year end. It is possible to have full year preparation level services and not provide any higher level of service until management or creditors insist.
If you think that your business could benefit from these changes or have questions regarding the changes to SSARS, please contacts us.