AN UPDATE

ON:

Statem

ents

on Stan

dards

for Acco

unting an

d Review

Service

s (SS

ARS) 21

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AMIT JAIN, CPAAUDIT AND ACCOUNTING PRINCIPAL, GUMBINER SAVETT

• Extensive experience with privately held clients in consumer finance, distribution, entertainment, retail and manufacturing industries

• Specializes in working with privately held entities that are diversified in size

• Member of Gumbiner Savett’s QC Committee• Has worked at BDO India as an Audit

Manager, and has over 10 years of experience in assurance and accounting in both the US and India

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LEARNING OBJECTIVES• Identify general principles applicable to all services performed under

SSARS 21 (Section 60)• Identify specific principles and evaluate applicability of the new

financial statement preparation service (Section 70)

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STATEMENTS ON STANDARDS FOR ACCOUNTING AND REVIEW SERVICES (SSARS) 21• Accounting and Review Services Committee (ARSC) of the AICPA

issued new standard SSARS 21 in October 2014• The most significant change to the SSARS since 1978• SSARS 21:• Clarifies and revises the SSARS (SSARS 21)• Introduces a new level of service – the financial statement

preparation service• Does away management use only financial statements• Effective for periods ended on or after December 15, 2015, with

early implementation allowed.

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Easier to read Easier to understand Easier to apply

HOW DOES IT CLARIFY?

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DRAFTING CONVENTION• States the objectives• Includes a definition section• Separate requirements from the application and other explanatory

materials• Numbers the application and other explanatory materials

paragraphs with an A (e.g., AR-C 60.A1) and includes them in a separate section

• Eliminates SSARS Interpretations

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AR-C SECTIONS AFTER SSARS 21• SSARS 21 supersedes all of the existing AR sections other than AR

120 (i.e. AR 120 - Compilation of Pro Forma Financial Information)

AR-C 60 General principles for Engagements Performed in Accordance with Statements on Standards for Accounting and Review Services

AR-C 70 Preparation of Financial StatementsAR-C 80 Compilation EngagementsAR-C 90 Review of Financial Statements

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AR-C 60 GENERAL PRINCIPLES• Applies to all services performed under SSARS 21, including

compilations and reviews• Compliance with relevant ethical requirements (Acts Discreditable

Rule, if you know f/s are misleading, you cannot be associated with them)

• Requires engagement level quality control: • Engagement partner should possess the competence and capability

to perform the engagement• Engagement partner takes responsibility for overall quality,

direction, supervision, planning and performance of the engagement

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AR-C 60 GENERAL PRINCIPLES, CONTINUED • Client acceptance and continuance requirements: As

conditions for accepting an engagement, the accountant should:• Determine if they (and engagement team) have the knowledge of

engagement circumstances to ensure professional competence will be maintained

• Determine if financial reporting framework selected by management is appropriate

• Consider integrity of principle owners, key management and those charged with governance of the entity

• Ensure firm can comply with relevant ethical requirements• Management must accept their responsibilities under the

engagement (and this must be covered in engagement letter)

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MANAGEMENT’S RESPONSIBILITIES• Must obtain management’s acknowledgement of their

responsibility for:• Selection of financial reporting framework (FRF) to be applied in the

preparation of financial statements • Design, implementation, and maintenance of internal control

relevant to the preparation and fair presentation of the financial statements

• Preventing and detecting fraud• Ensuring entity complies with laws and regulations applicable to its

activities• Accuracy and completeness of records, documents, explanations,

and other information, including significant judgments provided by management for the preparation of financial statements

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MANAGEMENT’S RESPONSIBILITIES, CONTINUED• To provide the accountant with:• Access to all information of which management is aware that is

relevant to the preparation and fair presentation of financial statements, such as records, documentation, and other matters

• Additional information that the accountant may request from management for purpose of the engagement

• Unrestricted access to persons within the entity of whom the accountant determines it is necessary to make inquiries

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ACCOUNTANT’S RESPONSIBILITIES• Comply with relevant ethical requirements • Exercise professional judgement• Perform the engagement in accordance with the SSARS• Obtain an engagement letter (signed by the CPA and the client)• Obtain understanding of financial reporting framework and

significant accounting policies

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AR-C 70 PREPARATION OF FINANCIAL STATEMENTS• New non-attest service introduced by SSARS 21 and does not

require an evaluation of independence• Moves profession away from the “who printed?”, or “did we

actually prepare and present?” • No report on the financial statements• AR-C 70 applies :• when an accountant in public practice is engaged to prepare

financial statements• AR-C 70 does not apply: • to situations in which the accountant is not in public practice

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WHAT CAN AR-C 70 BE APPLIED TO? Specified elements, accounts, or items of a financial statement Supplementary information Required supplementary information Pro forma financial information Prospective financial information, including budgets, forecasts, or

projections Personal financial statements

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PREPARING THE ENGAGEMENT LETTERAn engagement letter is required and must include the following:• Objective of engagement• Responsibilities of management• Agreement that each page of financial statements will include a

statement indicating no assurance is provided on financial statements

• Responsibilities of the accountant• Limitations of the engagement• Identification of financial reporting framework• Whether the financial statements are to contain known departures

from financial reporting framework

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PREPARING THE FINANCIAL STATEMENTS• Each page of the financial statements must include a statement

that no assurance is provided.• If a special purpose framework is used (formerly called OCBOA), this

must be disclosed on face of the financial statements or in a note to the financial statements.

• If records, documents, explanations or other information are incomplete, inaccurate or otherwise unsatisfactory, the accountant should request additional or corrected information.

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DEPARTURES FROM FRAMEWORK• Omission of disclosures should be disclosed• Accountant should not prepare financial statements that omit

disclosures if such omission was undertaken with intention to mislead others

• If financial statements contain a known departure from the framework, this should be disclosed

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REQUIRED DOCUMENTATION: A copy of the prepared financial statements Executed engagement letter Memos or other documentation on significant

issues and conclusions

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WHEN IS AR-C 70 APPLICABLE? • When engaged to prepare financial statements• Engagement driven

• Preparation of financial statements prior to audit or review by another accountant

• Preparation of financial statements to be presented alongside the entity’s tax return

• Using information in a general ledger to prepare f/s outside of an accounting software system

• Preparation of personal financial statements for presentation alongside a financial plan

• Preparation of single financial statements, such as a balance sheet or income statement or financial statements with substantially all disclosures omitted

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WHEN IS AR-C 70 NOT APPLICABLE?• Preparation of financial statements with a tax return solely for submission to

taxing authorities• Maintaining depreciation schedules• Preparing or proposing certain adjustments, such as deferred income taxes,

depreciation or leases• Entering general ledger transaction or processing payments (general

bookkeeping) in an accounting system• Preparation of financial statements when an accountant is engaged to

perform an audit, review or compilation of such financial statements• Financial statements prepared in conjunction with litigation services that

involve pending or potential legal or regulatory proceedings• Financial statements prepared in conjunction with business valuation

services• Drafting financial statements notes

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PREPARED F/S CONTENT CONSIDERATIONS• Examples of disclaimers per SSARS 21 • “No assurance is provided on these financial statements.”• “These financial statements have not been subjected to an audit, review

or compilation engagement, and no assurance is provided on them.”• “The accompanying financial statements of XYZ Company as of and for

the year then ended December 31, 20XX, were not subjected to an audit, review, or compilation engagement by me (us) and accordingly, I (we) do not express an opinion, a conclusion, nor provide any assurance on them.”

• If departures from basis exist, be sure to disclose• Most common departures are omissions of disclosures and the

statement of cash flows • Others may exist, be sure to disclose!

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NOT A MANAGEMENT-USE-ONLY COMPILATION• Not the same as the management-use-only compilation

engagement• Able to prepare financial statements for use by a third party, not

just management, without issuing a compilation report• Required to describe the financial reporting framework used (if SPF)

on the face of the FS or in the notes• Required to disclose any material misstatements such as those

caused by a known departure or inadequate disclosure

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COMPILATION VS. PREPARATIONCompilation Preparation

When does this standard apply? When the accountant is engaged to perform a compilation

When the accountant is engaged to prepare financial statements

Is an engagement letter required? Yes Yes

Is the accountant required to determine if s/he is independent of the client?

Yes No

If the accountant is not independent, is the fact required to be disclosed?

Yes n/a

Does the engagement require a report?

Yes No, unless management refuses to include required disclosure that no CPA provides any assurance

May the financial statements go to users outside of management?

Yes Yes

May the financial statements omit substantially all notes?

Yes Yes

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RESOURCES AND LINKS• Code of Professional Conduct

• http://www.aicpa.org/research/standards/codeofconduct/Pages/default.aspx

• Comparison on SSARS 21 vs SSARS 19 engagement letter from Financial Reporting Center of AICPA• http://www.aicpa.org/InterestAreas/FRC/ReviewCompilationPreparation/

DownloadableDocuments/SSARS21/SSARS21_19_Engagement_Letter_Comparison.pdf

• CNA Resources (will require your policy number to access)• https://forms.cpai.com/members/access.jsp

• Additional CNA Resources• http://www.cpai.com/business-insurance/professional-liability/PolicyholderResourceCenter

• SSARS 21 FAQ • http://www.aicpa.org/interestareas/centerforplainenglishaccounting/resources/2015/pages/

ssars21-faq.aspx

• SSARS 21 Resources via the AICPA (most for purchase, some free)

• http://www.aicpa.org/interestareas/frc/reviewcompilationpreparation/pages/resources-for-ssars21.aspx

AMIT JAIN, C

PA

Audit and Acco

unting

Princip

alp. 310.828.9798e. ajain@gscpa.com

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