The Accounting and Review Services Committee of the AICPA released the Standards for Accounting and Review Services (SSARS) No. 21, Statements on Standards for Accounting and Review Services: Clarification and Recodification, in October 2014. There are substantive changes to the standards for engagements to prepare financial statements (Section 70) and compilations (Section 80).
Section 70 – Preparation of Financial Statements
Section 70 of SSARS No. 21 provides guidance for accountants in public practice who are engaged by the client to prepare financial statements, but are not engaged to perform an audit, review, or compilation on the financial statements. Section 70 is a non-attest service, which an accountant is not required to verify independence from the client. Please note “Management-use only” financial statements will no longer be prepared and valid. An accountant’s report is not required under Section 70. However, the accountant should include a statement on each page of the financial statements that, at a minimum, “no assurance is provided” to ensure the end users that the accountant is not providing any assurance on the financial statements. If the accountant cannot include the statement, the accountant must issue a disclaimer or engage in Section 80 – Compilation. Another requirement of the Section 70 is the accountant must identify on a separate page if there is a departure of U.S. GAAP on the financial statements.
Section 80 – Compilation Engagements
Section 80 of SSARS No. 21 provides guidance for accountants who are engaged by the client to perform a compilation on the financial statements. Section 80 requires a report for all compilation engagements. There are major changes to the compilation report. For example, there is change in the language/wording to make the compilation report more streamlined to differ from review and audit reports. Also, the current three paragraph compilation report will be reduced to one paragraph with no headings. Additional paragraphs in the compilation report are required when financial statements are prepared in accordance with a special purpose framework, management elects to substantially omit all disclosures as required, accountant’s independence is impaired, departure of applicable financial reporting framework, and/or supplementary information.
Please note an engagement letter must be obtained by the accountant for all compilations and engagements to prepare financial statements, which must be signed by both the accountant and the client. SSARS No. 21 is effective for engagements on financial statements for periods ending on or after December 15, 2015. However, early implementation is permitted.
For more information please contact your LSL Advisor at 714.672.0022.
