The AICPA Accounting and Review Services Committee (ARSC) voted during its August meeting to approve clarified and revised standards for reviews, compilations, and engagements to prepare financial statements.
The clarified and revised standards for compilations and engagements to prepare financial statements create a bright line between accounting (preparation) services and reporting (compilation) services. The clarified and revised standards were scheduled to be issued as Statement on Standards for Accounting and Review Services (SSARS) No. 21 in the fourth quarter of 2014 and are effective for engagements on financial statements for periods ending on or after Dec. 15, 2015. Early implementation will be permitted.
SSARS No. 21 will supersede all existing AR sections except for AR Section 120, Compilation of Pro Forma Financial Information, which is expected to be exposed for public comment in clarified format in 2015 along with a proposed standard on assembly/compilation of prospective financial information. Requirements and guidance with respect to assembly/compilation of prospective financial information is currently codified in the AT section of Professional Standards.
SSARS No. 21 will result in the following AR-C sections:
- AR-C Section 60, General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting and Review Services.
- AR-C Section 70, Preparation of Financial Statements.
- AR-C Section 80, Compilation Engagements.
- AR-C Section 90, Review of Financial Statements.
AR-C Section 60 will include the general principles for engagements performed in accordance with SSARSs and is intended to replace AR Section 60, Framework for Performing and Reporting on Compilation and Review Engagements.
The standards for engagements to prepare financial statements will be codified as AR-C Section 70. AR-C Section 70 applies when the accountant is engaged to prepare financial statements but is not engaged to perform an audit, review, or compilation on those financial statements. The accountant is required to include a legend on each page of the financial statements stating that no assurance is being provided. The accountant is required to obtain an engagement letter signed by both the accountant and the client’s management. Like all other nonattest bookkeeping/ accounting services engagements, the accountant is not required to consider whether he or she is independent. The standard can be applied to financial statements with or without disclosures.
The compilation standard will be codified as AR-C Section 80 and will provide requirements and guidance when an accountant 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 preparation standard). To differentiate the nonassurance compilation report from assurance (review and audit) reports, the report is streamlined so that the standard report is just one paragraph with no headings. The requirement that the accountant modify the accountant’s compilation report whenever the accountant’s independence is impaired is retained. The accountant is required to obtain an engagement letter signed by both the accountant and the client’s management. The standard can be applied to financial statements with or without disclosures.
The standards for review engagements will be codified as AR-C Section
90 and are basically a clarity redraft of the review literature with
few changes to SSARS No. 19.