New SSARS to Usher in Big Changes for Compilation and Review Engagements

The AICPA issued SSARS no. 19, Compilation and Review Engagements. Significant improvements brought about by the standard include:

• The introduction of the term review evidence. This change to the review literature clarifies that a review requires the accumulation of review evidence to provide a reasonable basis for obtaining limited assurance that there are no material modifications that should be made to the financial statements for the statements to be in accordance with the applicable financial reporting framework. The standard states that evidence from analytical procedures and inquiries will ordinarily provide that evidence but that the accountant should use professional judgment in making that determination.
• A discussion of materiality in the context of a review engagement.
• A requirement that an accountant document the establishment of an understanding with management through a written communication (that is, an engagement letter) regarding the services to be performed for all SSARS engagements.
• Enhanced documentation requirements for compilation and review engagements.
• The removal of the prohibition against allowing an accountant to include a description in the accountant’s compilation report regarding the reason(s) for an independence impairment.
• The recodification of SSARS literature into separate sections for compilation and review engagements.

The effective date is for compilations and reviews of financial statements for periods ending on or after Dec. 15, 2010. Early application is prohibited except for the section permitting an accountant to disclose the reasons for a lack of independence in a compilation report.

The AICPA’s Accounting and Review Services Committee (ARSC) excluded from the final standard the nonindependent review that was included in the April 2009 exposure draft (see “A Fresh Approach for Compilation and Review,” JofA, July 09, page 24). Through the comment letter process, it became apparent to ARSC that confusion exists about what it means to establish or maintain internal controls. Therefore, ARSC determined that with respect to that portion of the proposed SSARS, it should take more time to consider the appropriate course of action, including further outreach to interested stakeholders (including the AICPA’s Professional Ethics Executive Committee and the National Association of State Boards of Accountancy) to clarify ARSC’s intent with respect to the proposed revision and how such revision is in the public interest.

ARSC also decided to retain the concept of limited assurance as compared to the term moderate assurance, which was introduced in the ED to harmonize with the international review standard. The decision to stay with limited assurance was due to international developments, which indicate that the international review standard will likely be changed from moderate assurance to limited assurance.

For an executive summary of the new standard, a white paper on the compilation reporting option and other resources, visit aicpa.org/reliability.