SSARS 19 - Ed Zollars CPE Materials

1 SSARS 19. The Accounting & Review Services committee has issued Statement on Standards for Accounting & Review Services No. 19. Generally the standard is effective for compilations and reviews of financial statements for periods ending on or after December 15, The statement only allows early implementation of the provisions found in related to the optional reporting on the accountant's lack of independence. The standard modifies and supercedes AR sections 20, 50 and 100. The new Section 20 (found in paragraphs ) is entitled Framework for Performing and Reporting on Compilation and Review Engagements, Section 50 deals with Compilation of Financial Statements in paragraphs , and Section 100 deals with Review of Financial Statements in paragraphs I.

2 FRAMEWORK FOR PERFORMING AND REPORTING ON COMPILATION AND REVIEW. ENGAGEMENTS ( ). The framework is divided into the following sections: Relevant Definitions Objectives and Limitations of Compilation and Review Engagements Professional Requirements Hierarchy of Compilation and Review Standards and Guidance Elements of a Compilation or Review Engagement Materiality This standard primarily provides some basic definitions and concepts that apply throughout SSARS . It will apply for compilations and reviews of financial statements for periods ending on or after December 15, A. Definitions ( ). The definitions provisions outlines a number of definitions that are to be used throught the standards.

3 The standard adds verbiage to allow an ease of moving from US GAAP to another standard, presumably IFRS, by defining an applicable financial reporting framework to define such overarching accounting systems. 1 Statement on Standards for Accounting and Review Services No. 19, p. 3. 2 Statement on Standards for Accounting and Review Services No. 19, Statements on Standards for Accounting & Review Services No. 19. The definitions also define two categories of engagement a CPA may be performing. In an assurance engagement an accounting issues a report that is designed to enhance the degree of confidence of third parties and management about the outcome of an evaluation or measurement of financial statements against an applicable reporting framework (today normally GAAP or OCBOA).

4 An attest engagement is any engagement that requires professional independence, as defined in the Code of Professional The definition of submission of financial statements remains unchanged under SSARS 19, being defined as Presenting to management financial statements that an accountant has prepared.. B. Objectives and Limitations of Compilation and Review Engagements ( to ). The new standard goes on to define compilations and reviews in terms very similar to those we have been used to in the past, though detailing a bit more the limitations. The standard does tell us that a compilation is not an assurance engagement, but it is an attest engagement.

5 This may seem confusing, since the standard does not change the rule that a CPA. who is not independent may still perform a compilation engagement so long as the lack of independence is disclosed. However, the issue is that, unlike in a tax services engagement, the CPA is required to consult the applicable independence provisions of the Code of Professional Ethics to determine whether or not the CPA is independent. A CPA that does not disclose a lack of independence in a compilation report is effectively stating that the CPA is independent. Conversely, a review is both an assurance engagement and an attest engagement.

6 Reviews are meant to provide limited assurance that no material modifications need to be made to the statements to be in conformity with applicable reporting framework. C. Professional Requirements ( to ). A CPA has an obligation to consider the entire text of SSARS when performing a compilation or review However the use of terms in SSARS carries a special connotation about whether a CPA is required to perform a specific procedure. SSARS has two categories of professional requirements that are indicated by the use of certain terms. An unconditional requirement is triggered where, in the standards, the words must or is required are used in connection with a procedure.

7 Such procedures must always be complied with. 3 Statement on Standards for Accounting and Review Services No. 19, 4 Statement on Standards for Accounting and Review Services No. 19, Thomas, Zollars & Lynch, Ltd. 1-2 June 2, 2010. Statements on Standards for Accounting & Review Services No. 19. A presumptively mandatory requirement does not necessarily have to be followed in all cases, though it will be a rare event when it is not followed. If a CPA does depart from presumptively mandatory requirements, the CPA must adequately document the justification for departing from the requirement and how alternative procedures were sufficient to achieve the objectives of the requirement.

8 Such presumptively mandatory requirements are noted in the standards by the use of the words should. 5. As well, if a requirement is one that a CPA should consider the consideration of the requirement is presumptively required, but carrying out the action itself is not. Also, this wording convention applies only to SSARS and not to interpretive publications . thus, for those publications a should would simply mean the author finds it advisable to do something, not that it is presumptively required. D. Hierarchy of Compilation and Review Standards and Guidance ( to ). The framework outlines the hierarchy of standards for compilations and reviews.

9 This serves two purposes. First, it lets the CPA resolve conflicts between the various types of guidance, as those higher on the hierarchy take precedence over those on lower levels. Second, it also tells the CPAs those sources the CPA is expected to be aware of and those for which such knowledge is not required. For instance, a CPA is required to know the details found in AR 100 regarding compilations when performing a compilation engagement. But a CPA is not required, under professional standards, to be aware of what the authors at PPC. might have to say on an issue in their Blue Book Compilation and Review Engagements guide.

10 Similarly, if SSARS contains a provision that clearly conflicts with guidance found in that same PPC guide, the CPA is required to follow SSARS rather than the PPC guidance. That does not make the PPC guide worthless but it puts it into the proper perspective. The PPC guides are not the standards, but they a useful tool to be the CPA properly understands and is aware of the relevant provisions of the standards. Used that way, PPC manuals, CPE presentations, articles in publications, etc. are extremely useful sources for the CPA seeking to perform engagements in accordance with professional 1. Compilation and Review Standards At the top of the standards, subject to Rule 202 compliance by all CPAs, are the SSARS themselves, issued by the Accounting and Review Services 5 Statement on Standards for Accounting and Review Services No.