Category Archives for "Preparation, Compilation & Review"

SSARS 23 changes preparation and compilation standards
May 17

SSARS 23 Preparations and Compilations

By Charles Hall | Preparation, Compilation & Review

SSARS 23 changes preparation and compilation engagements. The article summarizes the effects of the new standard.

The Accounting and Review Services Committee (ARSC) issued SSARS 23 in October 2016. Parts of the standard (e.g., that applying to supplementary information language in compilation and review reports) were effective immediately. Other parts (mainly regarding preparation and compilation of prospective information) are required as of May 1, 2017. This post tells you how SSARS 23 affects Preparation (AR-C 70) and Compilation (AR-C 80) engagements.

SSARS 23 changes preparation and compilation engagements

You’ll recall that ARSC issued SSARS 21 back in October 2014. It was effective for years ending December 31, 2015. A clarified version of the compilation and review standards is included in SSARS 21. SSARS 21 also provides new guidance for the preparation of financial statements. The Standard did not address prospective financial statements. Why? The AICPA was working on clarifying the Attestation Standards (SSAE 18), the place where compiled prospective financial statement guidance was (previously) housed. With the issuance of SSARS 23, the AICPA moved this guidance from the Attestation Standards to SSARS.

The primary impact of SSARS 23 is to provide standards for the preparation and compilation of prospective financial information.

How Preparation of Financial Statements (AR-C 70) Changed

The Preparation Standard (AR-C 70) now includes guidance regarding prospective financial information. SSARS 23 requires the inclusion of significant assumptions since they are essential to understanding prospective information. Therefore, accountants should not prepare prospective financial information without including a summary of significant assumptions in the notes. Also, a financial projection should not be created unless it includes:

  • an identification of the hypothetical assumptions, or 
  • a description of the limitations on the usefulness of the presentation

One other change to AR-C 70 is the slight change to the preparation disclaimer. SSARS 23 deletes the word “accordingly.” See below:

How Compilation Engagements (AR-C 80) Changed

AR-C 80, Compilation Engagements, now applies to compilations of prospective financial information (new with SSARS 23), pro forma financial information (see SSARS 22), and other historical information (as provided for in SSARS 21). 

Another change is that accountants should report known departures from the applicable financial reporting framework in the compilation report. Prior to SSARS 23, accountants could disclose such departures in the notes without doing so in the compilation report.

Prospective Financial Information Guidance

Additionally, AR-C 70 and AR-C 80 were amended to clarify that the AICPA Guide Prospective Financial Information provides comprehensive guidance regarding prospective financial information, including suitable criteria for the preparation and presentation of such information.

AICPA Code of Conduct
Apr 17

AICPA Code of Conduct

By Charles Hall | Auditing , Preparation, Compilation & Review

In this post, I provide information about accessing the AICPA Code of Conduct and the Plain English Guide to Independence.

AICPA Code of Conduct

Are you a CPA looking for answers to independence or other ethical questions? Below, you’ll see two handy AICPA resources:

  • AICPA Code of Professional Conduct
  • Plain English Guide to Independence

AICPA Code of Professional Conduct

The AICPA provides online access to the Code of Conduct. You can also download a PDF copy here (this PDF covers all standards issued through August 31, 2016).

Online access is free, and users are able to save searches and bookmark content.

The Code is organized into three parts:

  1. Public practice
  2. Members in Business
  3. All other members (including those who are in between jobs or retired)

The Code includes a threats and safeguards framework. CPAs should identify threats and then consider safeguards to mitigate those threats. The CPAs can proceed with the engagement if threats–after considering safeguards–are at an acceptance level.

Plain English Guide to Independence

As the Quality Control partner for our firm, I receive quite a few questions about ethical issues (mainly about independence). Nine out of ten times I find the answers to those questions in the AICPA’s Plain English Guide to Independence. I download this guide and keep it handy. When I need to research an issue, I open the document and perform word searches. If you aren’t already using this resource, I highly recommend it. 

See my article CPA’s Ethics: Four Questions for Better Decisions.

supplementary information compilations and preparations
Mar 08

Supplementary Information: SSARS

By Charles Hall | Preparation, Compilation & Review

Are you wondering how to present supplementary information in compilation and preparation engagements? What supplementary information (SI) should be included? How does the accountant define his or her responsibility for SI?

Often accountants, at the request of their clients, add supplementary information to the financial statements. Such information is never required (to be in compliance with a reporting framework) but may be useful.

supplementary information compilations and preparations

You can think of financials with supplementary information in this manner:

Financial statements – Required – The jeep in the picture above

Supplementary Information – Not required – The camper

You’re not going anywhere without a vehicle (it’s required). And your camper (not required) is no good without an automobile to pull it. Kind of a silly analogy, I know, but maybe it will help you remember.

I normally add a divider page between the financial statements and supplementary information (though such as page is not required); the divider page simply says “Supplementary Information” and nothing else.

SSARS 21 defines supplementary information as follows:

Information presented outside the basic financial statements, excluding required supplementary information, that is not considered necessary for the financial statements to be fairly presented in accordance with the applicable financial reporting framework.

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Preparation Enagement
Jan 12

Bookkeeping, Preparations, Compilations, and Reviews

By Charles Hall | Preparation, Compilation & Review

Today, we’ll answer various questions regarding bookkeeping, preparations, compilations, and review engagement.

Compilation Enagement

Q: Should I issue management letters for preparation, compilation, or review engagements?

A: While not required, it is advisable to provide management letters when performing SSARS services. Why? Two reasons: (1) It’s a way to add value to the engagement, and (2) it’s a way to protect yourself from potential litigation. Clients do–sometimes–sue CPAs in these so-called “lower risk” engagements. If we see control weaknesses (while performing a compilation for example), we should communicate those–even though standards don’t require it. Then, if theft occurs in that area and you are later sued regarding the fraud, you have a defense. If you don’t issue a management letter, at least send an email regarding the issues noted and retain a copy.

Q: Why obtain an engagement letter for nonattest services such as bookkeeping and tax (standards don’t require it)?

A: In all engagements, we want to state exactly what we are doing. Why? So, it is obvious what the client has hired us to do–and what they have not hired us to do. If a client says, “I told you to do my monthly bookkeeping and to file my property tax returns,” but you have no recollection of being asked to perform the latter, you need an engagement letter that specifies monthly bookkeeping (and nothing else).

Q: Should I say–in a bookkeeping engagement letter–the service is not designed to prevent fraud?

A: We should obtain a signed engagement letter for bookkeeping services, even though not required by standards. And yes, by all means, include a statement that the bookkeeping service is not designed to detect or prevent fraud.

Q: If I note fraud while performing a bookkeeping, preparation, compilation, or review engagement, should I report it to the appropriate levels of management?

A: Standards require this communication for review engagements. I would do likewise for the other services.

Q: Am I required to be independent if I perform bookkeeping and preparation services?

A: No, since both are nonattest services.

Q: If I create financial statements as a byproduct of an 1120 tax return, am I subject to AR-C 70 Preparation of Financial Statements?

A: No, you are only subject to AR-C 70 if you are engaged to prepare financial statements.

Q: If I perform bookkeeping services in a cloud-based accounting package such as QuickBooks, am I subject to AR-C 70?

A: It depends. Yes, if you are engaged to prepare financial statements. No, if you were not engaged to prepare financial statements. Who “pushes the button” to print the financial statements has no bearing on the applicability of AR-C 70.

Q: Am I required to have a signed engagement letter for all preparation, compilation and review engagements?

A: Yes.

Q: Can I act as a controller-for-hire and perform a compilation engagement?

A: Yes, but you need to state that you are not independent in the compilation report.

Q: Can I act as the controller-for-hire and perform a review engagement?

A: No. Independence is required for review engagements.

Q: If I prepare financial statements and perform a compilation, am I performing one service or are these considered two separate services?

A: They are two separate services. The preparation is a nonattest service, and the compilation is an attest engagement. Both can be specified in one engagement letter.

Here’s a video explaining the differences in preparation and compilation services.

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