Category Archives for "SSARS"

Printing Financial Statements From QuickBooks
May 30

SSARS 21 and Printing Financial Statements from Quickbooks

By Charles Hall | SSARS

Many CPAs are still asking if printing financial statements from Quickbooks triggers a requirement to follow SSARS 21. Previously, if a CPA created and submitted financial statements to a client, he had to issue a compilation report. Hear the answer in this video. 

Also, we’ll take a look at whether you as a CPA can issue monthly financial statements in accordance with SSARS 21 and then perform an audit for the same client at the end of the year. 

Note: This video was created in 2015, but the information is still current. SSARS 23 does not alter the answers.

SSARS 23 changes preparation and compilation standards
May 17

SSARS 23 Changes Preparation and Compilation Engagements

By Charles Hall | SSARS

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.

Short SSARS 23 Video

If you desire additional information about SSARS 23, check out my video:

 

Lacking Independence
May 16

Compilations: Lacking Independence in the Current or Prior Period

By Charles Hall | SSARS

Do you lack independence in a compilation engagement? If yes, then here’s how to disclose the impairment in the compilation report.

An accountant can issue a compilation report even though independence is lacking. When independence is impaired, SSARS 21 requires that the CPA modify the compilation report. The cause of the impairment (e.g., you own a portion of the business) can be disclosed in the compilation report but is not required. You can–if you prefer–simply say you are not independent; this is what most CPAs do.

Lacking Independence

Lacking Independence in Current Year

The accountant’s compilation report can disclose a lack of independence as follows:

We are not independent with respect to ABC Company.

Just add this sentence separately at the bottom of the compilation report.

Lacking Independence in the Prior Year

If you were not independent in 2016 but you are independent in 2017 (and comparative statements are presented), the accountant’s report can read:

As of and for the year ended December 31, 2016, we were not independent with respect to ABC Company.

Alternatively, the report can read:

As of and for the year ended December 31, 2016, we were not independent with respect to ABC Company. We are currently independent with respect to ABC Company.

Independence in Review Engagements and Audits

CPAs must be independent to perform review engagements or audits. There are no exceptions. See the AICPA Code of Professional Conduct for guidance on independence issues. Independence rules are found in section 1.200.

Independence in Preparation of Financial Statement Engagements

CPAs can perform a Preparation of Financial Statement engagement without being independent. No independence disclosure is required since this service is a nonattest engagement. 

My SSARS 21 Book

If you are looking for SSARS 21 guidance regarding Preparation of Financial Statements and Compilation Engagements, check out my book on Amazon.

financial statement references
May 10

Financial Statement References (at the Bottom of the Page)

By Charles Hall | Accounting and Auditing , SSARS

What wording is required at the bottom of financial statement pages? Is there a difference in the references in audited statements and those in compilations or reviews? What wording should be placed at the bottom of supplementary pages? Below I’ll answer these questions.

financial statement references

Picture is courtesy of Dollarphotoclub.com

Audited Financial Statements and Supplementary Information

First, let’s look at financial statement references in audit reports.

While generally accepted accounting principles do not require financial page references to the notes, it is a common practice to do so. Here are examples:

  • See notes to the financial statements.
  • The accompanying notes are an integral part of these financial statements.
  • See accompanying notes.

Accountants can also–though not required–reference specific disclosures on a financial statement page. For example, See Note 6 (next to the Inventory line on a balance sheet). It is my preference to use general references such as See accompanying notes.

Audit standards do not require financial statement page references to the audit opinion.

Supplementary pages attached to audited financial statements should not include a reference to the notes or the opinion.

Preparation, Compilation, and Review Engagements

Now, let’s discuss references in preparation, compilation, and review engagements. 

Compilation and Review Engagements

SSARS 21 does not require a reference (on financial statement pages) to the compilation or review report; however, it is permissible to do so. What do I do? I do not refer to the accountant’s report. I just put See accompanying notes at the bottom of each financial statement page.

You are not required to include a reference to the accountant’s report on the supplementary information pages. SSARS 21 does suggest that such references be included in case the financial statements or supplementary information are separated from the compilation or review report. Examples include:

  • See Accountant’s Compilation Report.
  • See Independent Accountant’s Review Report.

What do I do? I include a reference to the accountant’s report on each supplementary page.

Preparation of Financial Statement Engagements

SSARS 21 provides an option (to compilations) called the preparation of financial statements (AR-C 70), a nonattest service. AR-C 70 requires that the accountant either state on each page that “no assurance is provided” or provide a disclaimer which precedes the financial statements. AR-C 70 does not require that the financial statement pages refer to the disclaimer (if provided), but it is permissible to do so. Such a reference can read See Accountant’s Disclaimer.

If your AR-C 70 work product has supplementary information, consider including this same reference (See Accountant’s Disclaimer) on the supplementary pages.

selected disclosures
May 08

Selected Disclosures in Preparation and Compilation Engagements

By Charles Hall | SSARS

Do you ever want to include just one disclosure in your financial statements without providing all the notes? Selected disclosures can be included in certain situations.

Do professional standards allow this? Yes. But only if you use AR-C 70 (the preparation guidance) or AR-C 80 (the compilation guidance).

selected disclosures

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Selected Disclosures in Compilations

As you probably already know, a CPA can issue compiled financial statements without disclosures as long as the compilation report discloses the omission. An example follows.

Management has elected to omit substantially all of the disclosures required by accounting principles generally accepted in the United States of America. If the omitted disclosures were included in the financial statements, they might influence the user’s conclusions about the Company’s financial position, results of operations and cash flows. Accordingly, the financial statements are not designed for those who are not informed about such matters.

If the financial statements include one or two notes, then the financial statements still omit substantially all of the disclosures, so the accountant (still) uses the wording in the preceding paragraph.

Sample Selected Disclosure

An example of a selected disclosure follows:

ABC Company

Selected Information –

Substantially All Disclosures Required by Accounting Principles

Generally Accepted in the United States of America are Not Included

December 31, 2017

Note 1. Long-Term Debt.

ABC Company borrowed $450,000 on July 15, 2017, from XYZ Bank. The rate of interest is 5%, and the loan is collateralized by equipment of the Company. Payments are $10,000 per month plus interest for two years with a balloon payment for the balance of the amount owed.

Preparation Engagements

AR-C 70 says:

The accountant may prepare financial statements that include disclosures about only a few matters in the notes to the financial statements. Such disclosures may be labeled “Selected Information—Substantially All Disclosures Required by [the applicable financial reporting framework] Are Not Included.”

So, the selected-disclosure option is available in a Preparation of Financial Statements engagement. Include the required disclaimer at the bottom of the page such as “No assurance is provided on these financial statements.” 

Other Considerations

The accountant should consider whether management’s election to include only selected disclosures causes the financial statements to be misleading (for example, by omitting the disclosures that contain negative information). If so, the accountant should request that the financial statements be revised to include the omitted disclosures.

The selected-disclosure option is not available for financial statements subject to a review engagement. Such financial statements must be full disclosure.

What About You?

Do you ever use this selected-disclosure option? Any reservations about doing so?

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