Last week, the AICPA Accounting and Review Services Committee (ARSC) issued a new Statement on Standards for Accounting and Review Services (SSARS) No. 21. The new standard is effective for engagements on financial statements for periods ending on or after Dec. 15, 2015. Early implementation will be permitted. It follows several years of work by the ARSC to develop a proposal to deal with the real-world issues that CPAs face in serving their clients and assisting them with financial statement preparation. You can find a copy of the new SSARS and relevant information about it at the AICPA website link here:
The new SSARS No. 21 creates a distinction between accounting (preparation) services and reporting (compilation or review) services, adapting the standards to today’s practice environment. Today, financial statements are likely prepared and shared by CPAs and their clients electronically, which is much different than the practice world that existed in 1978 when the SSARS standards were first developed.
Under the new standard’s section on “Preparation of Financial Statements,” a CPA may assist a client in the preparation of financial statements without issuing a report on the financial statements. Under the previous SSARS, that was a requirement. However, if a CPA does prepare financial statements, he or she must include a legend on every page that, at a minimum, states that no assurance is being provided on the statements. Also, the CPA is required to obtain an engagement letter from the client’s management, acknowledging that the CPA is only being engaged to prepare financial statements and not report on them or provide any assurance.
Like all other nonattest bookkeeping/accounting services engagements, the CPA is not required to consider whether he or she is independent if solely preparing financial statements. The standard can also be applied to financial statements with or without disclosures.
In the “Compilation Engagements” section of new SSARS No. 21, there are requirements and guidance for when a CPA is engaged to perform a compilation engagement on historical financial statements. Previously, AR Section 80, Compilation of Financial Statements, applied when an accountant was engaged to report on compiled financial statements or submitted financial statements to the client or to third parties.
The performance requirements for compilation engagements are largely unchanged. A report is always required (non-reporting management-use-only engagements would be covered by the new preparation standard). To differentiate the nonassurance compilation report from assurance (review and audit) reports, the compilation report is streamlined so that the standard report is just one paragraph with no headings. The requirement that the CPA modify the CPA’s compilation report whenever the CPA’s independence is impaired still applies. And there is a requirement to obtain an engagement letter from the client detailing exactly what services the CPA is being hired to perform.
Of course, not everyone is in agreement about these new standards, especially allowing CPAs to prepare financial statements without issuing a report. That debate played out over a several-year period as the ARSC tried to deal with the associated issues. The AICPA Peer Review Board has also recently proposed changes to the peer review requirements that would exclude the new preparation service from the scope of peer review. Exempting these services from peer review is somewhat controversial and will also likely have an impact on our statutory requirement for peer review in Texas, as well as in other states.
Change is never easy, and I am sure it will take time for this new approach to SSARS to be absorbed and accepted by the profession. But it appears the ARSC has come up with a reasonable solution to the practical issues that face CPAs in today’s practice environment.