The AICPA’s Accounting and Review Services Committee (ARSC) issued an exposure draft that would revise the standards for compilation and review engagements. The changes would affect the interplay between the standards and independence rules, permitting an accountant to issue a review report on financial statements when the accountant’s independence is impaired by performing nonattest services that were designed to improve the reliability of the client’s financial information.
The draft includes a trio of proposed standards: Framework and Objectives for Performing and Reporting on Compilation and Review Engagements; Compilation of Financial Statements; and Review of Financial Statements . In drafting the proposed standards, the ARSC considered recommendations from the Private Company Practice Section (PCPS) Reliability Task Force. ARSC and PCPS believe the proposed standards will respond to many concerns of smaller business owners, users of small business financial statements and CPAs that serve smaller entities.
The PCPS task force recommended ARSC consider revising its standards for situations in which an accountant’s independence is impaired in connection with the performance of a nonattest service relating to the design or operation of an aspect of internal control over financial reporting. These nonattest services help management prepare higher quality or more reliable financial statements.
The proposed standards would also harmonize the AICPA’s review standard with the International Auditing and Assurance Standards Board’s (IAASB) review standard ISRE No. 2400.
Significant proposed changes to the Statements on Standards for Accounting and Review Services (SSARSs) include:
- The introduction the new terms such as moderate assurance, review evidence and review risk to the review literature to harmonize with international review standards.
- A discussion of materiality in the context of a review engagement.
- The establishment of enhanced documentation requirements for compilation and review engagements.
- Guidance for practitioners who are engaged to perform a compilation or review engagement when they have also been engaged to perform nonattest services. The guidance includes reporting requirements for instances in which the accountant’s independence is impaired due to the performance of these services.
- The ability for an accountant to include a general description in the accountant’s compilation report regarding the reason(s) for an independence impairment.
The comment deadline is July 31. The proposed effective date is for compilations and reviews of financial statements for periods beginning on or after Dec. 15, 2010. Early application would be permitted.