Statements on Standards for Accounting and Review Services Are Issued by the

Significant changes to the standards for compilation and review engagements will soon accept event. The AICPA's Accounting and Review Services Committee (ARSC) issued Statement on Standards for Accounting and Review Services no. xix, Compilation and Review Engagements, in December. The standard's effective date is for compilations and reviews of financial statements for periods ending on or after Dec. 15, 2010, with early on implementation permitted for the new reporting selection for compilation engagements when the auditor's independence is impaired. This commodity discusses the major changes made past the standard.

DISCLOSURE OF REASONS FOR LACK OF INDEPENDENCE

SSARS no. nineteen contains the most significant changes to the professional literature for compilation and review engagements since SSARS no. 1, Compilation and Review of Financial Statements, was issued in Dec 1978. For more 30 years, accountants accept been required to disembalm in the compilation study if they are non independent merely take been prohibited from disclosing the reasons. It was thought that while it was of import for users to know whether the auditor was contained, the reasons were not relevant and, in fact, could crusade defoliation among financial statement users.

However, with the increasing complexity of new accounting standards, many smaller companies are asking for their accountant'southward assistance in preparing high-quality, reliable fiscal statements. This assistance, which often includes preparing and posting payroll and payroll reports, maintaining the full general ledger, and preparing and recording journal entries, may cause the auditor to impair his or her independence.

As a consequence, members advised ARSC that 3rd-party users (primarily bankers) wanted to know and understand the reasons for the damage. What ARSC constitute out is that many bankers view a technical impairment caused past the accountant'southward involvement in a customer's system of internal control different from an impairment acquired past a financial interest or a relationship with the client.

Afterwards studying the issue, ARSC adult the new standard and so that the accountant has the option, simply is not required, to disclose the reasons for an independence damage in a compilation report. The simply caveat is that, if the auditor does determine to disclose the reasons for an independence harm, all reasons must be disclosed. The result will be reports that are more transparent and useful to users of compiled financial statements.

Applicable Fiscal Reporting Framework

The applicative fiscal reporting framework is the financial reporting framework adopted by management and, when advisable, those charged with governance in the preparation of the financial statements that is adequate in view of the nature of the entity and the objective of the financial statements, or that is required by law or regulation. They include, for case, bookkeeping principles more often than not accustomed in the U.s.a., the cash footing of accounting, or the income taxation basis of accounting.

SEPARATING COMPILATION GUIDANCE FROM REVIEW GUIDANCE

Another significant alter is the separation of the compilation guidance from the review guidance. SSARS no. 19 supersedes AR sections 20 (Defining Professional Requirements in Statements on Standards for Accounting and Review Services), fifty (Standards for Accounting and Review Services) and 100 (Compilation and Review of Financial Statements). In the place of those AR sections, the requirements and guidance volition be separated into the post-obit sections:

• Framework for Performing and Reporting on Compilation and Review Engagements.

• Compilation of Financial Statements.

• Review of Financial Statements.

This modify was in directly response to member comments that they had difficulty in researching the existing literature since the requirements and guidance for compilation and review engagements were presented together. For example, under the pre-SSARS no. 19 standards, an accountant looking to understand the compilation standards would have to sort through both compilation and review guidance considering they were presented together. Now, the framework and compilation sections contain all the necessary requirements and guidance. In fact, an accountant who just performs compilations can rip the framework and compilation sections out of the SSARSs Codified and have all of the professional literature that he or she needs.

Description OF REVIEW PERFORMANCE PROCEDURES

Another important change was fabricated in the review standards where ARSC felt more guidance around the planning of review procedures was needed. ARSC noted that, to properly plan the nature and extent of review procedures, an auditor cannot merely use a canned list of analytical and enquiry procedures. Rather, an accountant should tailor those procedures, taking into consideration those areas where the accountant believes there are increased risks of misstatements. In that respect, a review appointment is not but a compilation appointment with a few additional procedures layered on top. A review is an assurance engagement and needs to be planned and performed to obtain a limited level of assurance that the financial statements are free of material misstatement.

A review date requires the accumulation of review evidence that will provide the accountant with a reasonable footing for obtaining express 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. That compares to an accountant's objective, which is to accumulate greater evidence to obtain a reasonable or high level of assurance. Limited assurance can generally be obtained by performing analytical and research procedures whereas an audit contemplates much greater testing through inspection, observation, confirmation and the examination of source documents.

While SSARS no. 19 does non require the auditor to ordinarily perform procedures across analytical procedures and inquiries, it does crave the accountant to utilize professional judgment in determining the specific procedures and tailor those procedures accordingly. A tendency analysis may be an advisable belittling procedure for client A; however, that same assay may not be appropriate for client B. Additionally, the inquiries that are fabricated to management should be tailored. The accountant should tailor his or her belittling procedures and inquiries to that specific client based on an understanding of the industry, knowledge of the customer, and awareness of the take a chance that the accountant may unknowingly fail to alter his or her review report on financial statements that are materially misstated.

SSARS no. 19 also attempts to clear up the misconception that a review engagement is ever limited to analytical procedures and inquiries. If the accountant performs a trend analysis and the results indicate that accounts receivable increased by an unexpected corporeality and the client's response to the auditor'south inquiry does non satisfy the accountant, other procedures should be performed. Such other procedures may include making boosted inquiries of client direction or personnel, performing additional analyses or confirming sure receivables. A mistaken supposition is that once an "audit-type" process is performed, the accountant is required to perform an audit. Although certain procedures are ordinarily performed in an audit and not in a review, the accountant should perform boosted procedures he or she believes necessary to obtain limited assurance that the financial statements are free of material misstatement when the accountant becomes aware that at that place may be a material misstatement.

DOCUMENTING THE Agreement WITH Management

SSARS no. 19 does not alter the accountant'south requirement to institute an understanding with the client'southward management regarding the services to be performed with respect to both compilation and review engagements. However, whereas previous standards stated that it is preferable that the understanding be in writing, SSARS no. 19 requires that the understanding exist in writing. For accountants who have established the agreement verbally with their clients in the by, this will exist a change in practice and may necessitate discussions with the client.

Accountants should be enlightened that SSARS no. 19 leaves open the "engagement" that the written understanding should comprehend. For example, if the accountant is to compile monthly financial statements and and so review the yr-finish financial statements, the accountant can obtain one engagement letter. That letter would embrace the entire year. Therefore, SSARS no. xix does not require a separate date letter for the compilation and another letter for the year-end review.

The accountant can fifty-fifty obtain an engagement letter that covers multiple years, however, such documentation is discouraged since the understanding would exist less clear as time goes on. It is recommended that the accountant document the agreement with the client's management regarding the services to exist performed at to the lowest degree annually.

ENHANCED REQUIREMENTS FOR COMPILATION DOCUMENTATION

Prior to SSARS no. nineteen, in a compilation engagement, the accountant was but required to document the understanding with the customer's management regarding the services to be performed if the accountant availed himself or herself of the nonreporting pick provided for compiled financial statements not intended for third-party use and any communications to the appropriate level of direction with respect to suspected fraud or illegal acts. SSARS no. 19 expands the documentation requirements for compilation engagements, requiring documentation of the agreement with the client's management regarding the services to be performed for all engagements and whatever findings or bug that, in the accountant'south judgment, are significant. The accountant is nonetheless required to document any communications to the appropriate level of management regarding fraud or illegal acts.

A compilation is limited to profitable direction in presenting financial data in the course of financial statements without undertaking to obtain or provide whatever assurance that in that location are no material modifications that should exist fabricated to the fiscal statements for the statements to suit to the applicable fiscal reporting framework. In the cleanest of compilations, the accountant merely takes the client'south data and puts it in the grade of fiscal statements. However, if during the procedure, the auditor questions whether some of the amounts in the financial statements may exist misstated, so those questions and how they're resolved are likely to exist significant issues that should be documented. The documentation could be the outcome that the auditor raised and direction's response to the accountant's inquiry.

Impact on Compilation Engagements

• Requirement to obtain a written understanding (for example, an engagement letter) for all compilation engagements.

• Modified documentation requirements.

• Allows accountants to disembalm a description of the reasons for the lack of independence.

REVIEW DOCUMENTATION CHANGES

The documentation procedures for a review appointment are likewise enhanced and expanded. The accountant is at present required to document the institution of an understanding with the client's direction regarding the services to be performed for all review engagements.

The auditor is now also required to document direction'due south responses to inquiries regarding fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values past a significant amount. The auditor is required to certificate the significant matters covered in his or her inquiry procedures and the responses received. This may be accomplished past using a memorandum, checklist or other means. Any findings or issues that, in the accountant's judgment, are pregnant must be documented, such as the results of review procedures that indicate the financial statements could exist materially misstated, including deportment taken to address such findings, and the basis for the final conclusions reached.

Impact on Review Engagements

• Requirement to obtain a written understanding (for example, an engagement letter) for all review engagements.

• Expanded guidance with respect to analytical procedures in a review date.

• Requirement to certificate management's responses to inquiries:

  • Belittling procedures.

  • Significant matters.

NEW COMPILATION AND REVIEW REPORTS

SSARS no. 19 revises the reporting requirements for compilation and review engagements to make the reports clearer as to management's responsibilities and the accountant'due south responsibility. In addition to the new compilation reporting option when the accountant's independence is impaired, the compilation reporting requirements require a title that conspicuously indicates that it is the accountant'southward compilation report. The accountant may indicate that he or she is contained in the championship, if appropriate. Examples of appropriate titles would be "Accountant's Compilation Study" or "Independent Auditor's Compilation Written report." The report is also required to be addressed as appropriate in the circumstances.

The revised illustrative compilation report splits the report into three articulate paragraphs. The introductory paragraph identifies the entity whose financial statements have been compiled; states that the fiscal statements have been compiled; identifies the financial statements that have been compiled; specifies the date or period covered by the financial statements; and includes a statement that the accountant has not audited or reviewed the financial statements and, accordingly, does not express an opinion or provide whatsoever balls about whether the financial statements are in accord with the applicative fiscal reporting framework.

The second paragraph states management's responsibility for the financial statements and for internal command over financial reporting. The third paragraph states the accountant's responsibleness to carry the compilation in accordance with SSARSs issued by the AICPA and the objective of the compilation. To see a comparison of the pre-SSARS no. 19 compilation report with the new written report, click here.

With respect to the review report, SSARS no. 19 requires that the accountant'southward review report accept a title that clearly indicates that it is the accountant's review written report and includes the discussion "independent." An appropriate title would exist "Contained Accountant's Review Report." In addition, the accountant's study should be addressed as required by the circumstances of the engagement.

The illustrated review study is separated into four paragraphs. The introductory paragraph identifies the entity whose financial statements have been reviewed; states that the financial statements have been reviewed; identifies the financial statements that have been reviewed; specifies the date or menses covered by the fiscal statements; and includes a argument that a review consists of primarily applying belittling procedures to management's fiscal information and making inquiries of company management. Information technology too includes a statement that a review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole, and that, appropriately, the accountant does not express such an opinion.

The second paragraph states management's responsibility for the fiscal statements and for internal control over financial reporting. The third paragraph states that the accountant'due south responsibility is to conduct the review in accord with SSARSs issued by the AICPA; that those standards crave the auditor to perform the procedures to obtain limited assurance that in that location are no material modifications that should exist fabricated to the financial statements; and that the auditor believes that the results of his or her procedures provide a reasonable basis for his or her report.

The quaternary paragraph states that, based upon his or her review, the accountant is not aware of any material modifications that should be made to the financial statements for them to be in conformity with the applicative financial reporting framework, other than those modifications, if any, indicated in the report. To see a comparison of the pre-SSARS no. 19 review report to the new report, click here.

CHANGES FROM APRIL 2009 EXPOSURE DRAFT

In Apr 2009, ARSC exposed for public comment a trio of proposed standards that eventually became SSARS no. xix. During the comment flow, the committee received 169 annotate letters.

SSARS no. 19 differs from the exposure draft in ii major ways. Showtime, ARSC decided to retain the concept of limited balls rather than moderate assurance every bit proposed in the exposure draft. ARSC had proposed using the term moderate assurance to describe the level of balls that the accountant aims to obtain in a review appointment in club to harmonize with the terminology used in the international review standards. However, after the exposure draft was issued, the International Inspect and Assurance Standards Board began a project to revise the international review standards. ARSC determined that it would exist inappropriate to adjust to a certificate currently under revision and, accordingly, tabled the proposed change.

The other major difference is that the proposed nonindependent review is not role of the final standard. ARSC received a number of comments on this proposal, both for and against. As a result of the not bad interest in this topic, ARSC decided to defer this issue so it could concord boosted meetings with key stakeholders. These boosted meetings volition be used to further discuss with stakeholders the problems that many smaller firm accountants face in trying to serve their small business clients.

At issue is whether performing a nonattest service to help smaller businesses establish or maintain aspects of their internal control over financial reporting, the purpose of which is to better the reliability of the customer's financial statements, impairs an accountant'southward independence. ARSC will revisit the topic during its public meetings in 2010 but remains committed to allowing practitioners to review fiscal statements when they also perform services that are intended to assist the client in preparing reliable, high-quality financial statements.

To read a serial of questions and answers about the new standard, click hither.

To view a previous illustrative compilation written report compared to a new illustrative report, click here.

EXECUTIVE SUMMARY

  In December, the AICPA'due south Accounting and Review Services Committee (ARSC) issued Argument on Standards for Accounting and Review Services no. 19, Compilation and Review Engagements, representing the most significant changes since 1978.

  The standard permits, but does not require, an auditor to disclose the reasons for a lack of independence in a compilation report. This amendment tin be implemented immediately.

  Other than the compilation reporting option that may be implemented immediately, the standard is constructive for compilations and reviews of fiscal statements for periods ending on or afterward Dec. fifteen, 2010.

  In response to comments received from smaller firm practitioners, the standard separates the compilation guidance from the review guidance. This should brand the standards easier to use.

  The standard as well includes a word of how the accountant obtains limited balls through the performance of tailored review procedures.

Carolyn H. McNerney (cmcnerney@ssandg.com) is the co-director of the SS&1000 Financial Services Inc. assurance services department and is chairperson of the AICPA Accounting and Review Services Committee. Charles Due east. Landes (clandes@aicpa.org) is vice president–Professional Standards and Services for the AICPA. Michael P. Glynn (mglynn@aicpa.org) is a technical manager for the AICPA Audit and Adjure Standards team.

To comment on this article or to suggest an idea for another article, contact Loanna Overcash, senior editor, at lovercash@aicpa.org or 919-402-4462.

AICPA Resources

JofA article

"A Fresh Approach for Compilation and Review," July 09, folio 24

Standard

Statement on Standards for Accounting and Review Services no. 19, Compilation and Review Engagements (#060657)

Guide

Compilation and Review Engagements , providing the most updated guidance for accountants performing compilation and review engagements. The guide features information on implementing SSARS no. 19, Compilation and Review Engagements, including illustrative engagement and representation letters, sample compilation and review reports, detailed illustrations and case studies. (#0128110)

Webcasts

• "Compilation and Review Strategic Briefing—2009/2010" (#780207)

• "Early Adopting the New Compilation Reporting Option" (#780209)

CPE Self Study

InSight: SSARS19—The New Compilation and Review Standard (#154230)

For more information or to place an order, get to cpa2biz.com or call the Institute at 888-777-7077.

On-Site Training

• Advanced Update for Compilation, Review and Accounting Services (#RPCR)

• Compilation and Review Engagement Essentials (#ICRE)

To access courses, get to aicpalearning.org and click on "On-Site Training" then search by "Acronym Index." If you demand assistance, delight contact a training representative at 800-634-6780 (option ane).

An Empirical Test of the Reliability Framework

See the results of research on commercial bankers' perceptions of CPAs' integrity, expertise, independence, objectivity and reliability, and how they affect judgments about risk. The enquiry besides delves into whether the type of engagement and the CPAs' provision of nonattest services had an impact on the banker'southward impression of fiscal statement reliability. To read the written report, go to tinyurl.com/q8z47p.

Web sites

Private Companies Practice Section

The Private Companies Exercise Department (PCPS) is a voluntary firm membership section for CPAs that provides member firms with targeted practice management tools and resources, as well as a strong, collective voice within the CPA profession. Visit the PCPS House Practice Center at aicpa.org/PCPS.

Exhibit ane: Comparing of Previous Illustrative Compilation Report and New Illustrative Report

	Previous Compilation Report	New Compilation Written report
Title	Non required	Auditor'south Compilation Report
Leaseholder	Non required	[Appropriate Salutation]
Introductory paragraph	I (nosotros) have compiled the accompanying balance sail of XYZ Company as of Dec 31, 20X1, and the related statements of income, retained earnings, and cash flows for the year then ended, in accord with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants.	I (nosotros) have compiled the accompanying residual canvas of XYZ Visitor equally of Dec 31, 20XX, and the related statements of income, retained earnings, and greenbacks flows for the year so ended. I (we) have non audited or reviewed the accompanying fiscal statements and, accordingly, do not express an opinion or provide any assurance about whether the fiscal statements are in accord with accounting principles more often than not accepted in the Usa of America.
Paragraph outlining management's responsibilities	None	Direction (owners) is (are) responsible for the training and fair presentation of the fiscal statements in accordance with accounting principles generally accepted in the Us of America and for designing, implementing, and maintaining internal control relevant to the training and off-white presentation of financial statements.
Paragraph outlining the auditor'south responsibilities	None	My (our) responsibility is to conduct the compilation in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. The objective of a compilation is to assist direction in presenting financial information in the form of financial statements without undertaking to obtain or provide whatsoever assurance that in that location are no material modifications that should exist fabricated to the financial statements.
Conclusion paragraph	A compilation is limited to presenting in the form of financial statements information that is the representation of direction (owners). I (we) have not audited or reviewed the accompanying financial statements and, appropriately, do not express an opinion or whatever other grade of assurance on them.	The communication is moved to the introductory paragraph.
Paragraph disclosing independence damage	I am (we are) not contained with respect to XYZ Company. The accountant is precluded from disclosing the reasons for the independence impairment.	I am (we are) not contained with respect to XYZ Company. The accountant is not precluded from disclosing the reasons for the independence harm.

Exhibit 2: Comparison of Previous Illustrative Review Report and New Illustrative Written report

	Previous Review Report	New Review Report
Title	Non required	Independent Accountant's Review Report
Addressee	Not required	[Advisable Salutation]
Introductory paragraph—in the new report, the telescopic of the engagement is described (it was included in the 2nd paragraph of the previous review report). Management'due south responsibilities are moved to a separate paragraph.	I (We) take reviewed the accompanying residual sheet of XYZ Company as of December 31, 20X1, and the related statements of income, retained earnings, and cash flows for the year and then ended in accordance with Statements on Standards for Accounting and Review Services issued by the American Establish of Certified Public Accountants. All data included in these fiscal statements is the representation of direction (owners) of XYZ Visitor.	I (Nosotros) have reviewed the accompanying balance canvass of XYZ Company as of Dec 31, 20XX, and the related statements of income, retained earnings, and greenbacks flows for the twelvemonth then concluded. A review includes primarily applying belittling procedures to management's (owners') financial information and making inquiries of company management (owners). A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, I (we) do not express such an opinion.
Second paragraph–the new report describes direction's responsibilities. The scope of the engagement is included in the introductory paragraph.	A review consists principally of inquiries of visitor personnel and analytical procedures applied to financial data. Information technology is substantially less in scope than an audit in accordance with by and large accepted auditing standards, the objective of which is the expression of an stance regarding the financial statements taken as a whole. Accordingly, I (we) exercise not limited such an stance.	Direction (owners) is (are) responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles by and large accepted in the United States of America and for designing, implementing, and maintaining internal command relevant to the preparation and off-white presentation of the fiscal statements.
Paragraph describing the accountant's responsibilities	None	My (our) responsibility is to conduct the review in accordance with Statements on Standards for Accounting and Review Services issued past the American Institute of Certified Public Accountants. Those standards require me (us) to perform procedures to obtain express assurance that there are no material modifications that should exist made to the financial statements. I (Nosotros) believe that the results of my (our) procedures provide a reasonable basis for our report.
Paragraph describing the results of the engagement	Based on my (our) review, I am (we are) non enlightened of any material modifications that should exist made to the accompanying financial statements in guild for them to be in conformity with by and large accepted accounting principles.	Based on my (our) review, I am (nosotros are) non aware of whatsoever cloth modifications that should be fabricated to the accompanying fiscal statements in lodge for them to be in conformity with bookkeeping principles generally accepted in the United States of America.

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Source: https://www.journalofaccountancy.com/issues/2010/may/20102466.html

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