The compilation and review professional literature has been revised and clarified by Statement on Standards for Accounting and Review Services (SSARS) No. 21, Statements on Standards for Accounting and Review Services: Clarification and Recodification.
Released in October 2014, SSARS No. 21 introduces new requirements and guidance when an accountant is engaged to prepare financial statements but is not engaged to perform an audit, review or compilation of those financial statements. It supersedes all existing AR sections in the American Institute of CPAs Professional Standards except for AR Section 120, Compilation of Pro Forma Financial Information.
SSARS No. 21 is composed of four sections, as follows:
- Section 60, General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting and Review Services
- Section 70, Preparation of Financial Statements
- Section 80, Compilation Engagements
- Section 90, Review of Financial Statements
SSARS No. 21 is effective for reviews, compilations and engagements to prepare financial statements for periods ending on or after Dec. 15, 2015. However, early implementation is permitted.
AR-C Section 60
Section 60 of SSARS No. 21 provides general principles for engagements performed in accordance with SSARSs. Section 60 is intended to help accountants better understand their professional responsibilities when performing an engagement in accordance with SSARSs.
An accountant engaged to perform a review, a compilation or an engagement to prepare financial statements is required to adhere to the requirements in Section 60 as well as the requirements in the appropriate engagement section.
AR-C Section 70
Section 70 of SSARS No. 21 applies when an accountant in public practice is engaged to prepare financial statements but is not engaged to perform an audit, a review or a compilation on those financial statements.
An engagement to prepare financial statements in accordance with Section 70 does not include a requirement for the accountant to verify the accuracy or completeness of the information provided by management or otherwise gather evidence to express an opinion or a conclusion on the financial statements. A report is not required, even if financial statements are expected to be used by, or presented to, a third party.
If the accountant becomes aware that the records, documents, explanations or other information, including significant judgments, used in the preparation of the financial statements are incomplete, inaccurate or otherwise unsatisfactory, the accountant should bring that to the attention of management and request additional or corrected information.
When, after discussions with management, the accountant prepares financial statements that contain a known departure or departures from the applicable financial reporting framework (including inadequate disclosure), the accountant should disclose the material misstatement or misstatements in the financial statements.
No assurance is provided. To ensure that users can readily identify that the accountant is not providing any assurance on the financial statements, Section 70 requires the accountant to include a statement on each page of the financial statements saying, at a minimum, that “no assurance is provided” on the financial statements.
The accountant’s name is not required to be included in the statement. If the accountant is unable to include a statement on each page of the financial statements, the accountant is required either to:
- Issue a disclaimer that makes clear that no assurance is provided on the financial statements or
- Perform a compilation engagement in accordance with Section 80 of SSARS No. 21
Independence. A preparation engagement performed in accordance with Section 70 is a nonattest service. Therefore, the accountant is not required to make a determination as to whether he or she is independent of the entity.
AR-C Section 80
Section 80 of SSARS No. 21 applies when the accountant is engaged to perform a compilation engagement. This contrasts with prior compilation standards, which applied when the accountant submitted (defined as “prepared and presented”) financial statements to a client or to third parties.
Other than the applicability of the literature, the compilation standard is largely unchanged from prior standards. Section 80 retains the requirement that accountants determine whether they are independent of the entity. If their independence is impaired, they are required to state that fact in the compilation report.
AR-C Section 90
Section 90 of SSARS No. 21 is primarily a clarity redraft of the pre-clarity review literature with very few changes. The accountant’s review report undergoes some changes since SSARS No. 21 requires the use of headings in the report.
The accountant is also required to name the city and state of the issuing office. The requirement can be met if the accountant’s review report is presented on the accountant’s letterhead and the letterhead contains the city and state of the issuing office.