New Standards for Accounting and Review Services (SSARS 21 ...

New Standards for Accounting and Review Services (SSARS 21)

Steven C. Fustolo, CPA

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New Standards for Accounting and Review Services (SSARS 21)

Steven C. Fustolo, CPA

Copyright ? 2015 by Steven C. Fustolo and The CPE Store, Inc. All rights reserved. Course and chapter learning objectives copyright ? The CPE Store, Inc. Published and distributed by The CPE Store, Inc. .

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Course Information

Course Title: New Standards for Accounting and Review Services (SSARS 21)

Learning Objectives: Identify a change made in SSARS No. 21 that is carried over from auditing standards Recognize types of engagements which are authorized under SSARS No. 21 Determine who the financial statements belong to when an account performs a review engagement for a client Pinpoint an example of a word that indicates that there is an unconditional requirement that must be followed by an accountant Discern how AR-C 70 treats the preparation of financial statements Recognize what cash, tax, regulatory and other bases of accounting are examples of Identify an aspect of peer review under AR-C 70 Spot the type of report which must be issued when performing a preparation of financial statements engagement under AR-C 70 Choose an item that should be documented in a preparation of financial statements engagement under AR-C 70 Determine how assets on personal financial statements should be stated Recognize the objective of a compilation engagement Identify a procedure that an accountant should perform in a compilation engagement Determine what phrase is added to the first paragraph of the new compilation report under AR-C 80 Discern what disclosures must be made if management elects to omit substantially all disclosures from special purpose framework financial statements Recognize what an accountant should do when there is a GAAP departure in a compilation engagement Pinpoint the type of engagements found in SSARS No. 19 which SSARS No. 21 eliminates Identify the term used for the date the accountant grants an entity permission to use the accountant's review report in connection with financial statements Discern who should sign the engagement letter in a review engagement Recognize examples of unusual or complex situations that an accountant should consider when making inquiries in a review engagement Spot an appropriate title for an accountant's review report

Subject Area: Auditing

Prerequisites: None

Program Level: Overview

Program Content: The purpose of this course is to inform the reader of the various changes made to the entire compilation and review codification by SSARS No. 21. The course addresses all three types of engagements that can be performed under the SSARSs including: a preparation of financial statements engagement, a compilation engagement, and a review engagement.

Advance Preparation: None

Recommended CPE Credit: 10 hours

About the Author

Steven C. Fustolo is a partner with the Boston CPA firm of James J. Fox & Company. He is a frequent lecturer and author of numerous tax and accounting issues affecting closely held businesses. An AICPA author, Mr. Fustolo's articles are regularly featured in The Practical Accountant and other publications. He is the author of Practice Issues: Compilation and Review, Accounting and Auditing Reference Guide, Everything You Never Wanted to Know About GAAP, Enron: Fraud, Deception and the Aftermath, FASB Review for Industry, Current Developments: Accounting and Financial Reporting, Making Money with Special Engagements, Understanding the Variable Interest Entity Rules, FASB, SSARS and SAS Update and Review and numerous other books and manuals that have been published by Practitioners Publishing Company (PPC), Commerce Clearing House (CCH), Thomson Reuters and the AICPA, among others. He is the recipient of several Outstanding Discussion Leader awards from many professional organizations including the New York and Florida Societies of CPAs. Mr. Fustolo's course entitled FASB, SSARS and SAS Update and Review continues to receive accolades and is regarded as one of the top live CPE programs in the country today with ratings that average 4.91 on a scale of 5.0. He speaks regularly for professional groups including being a guest lecturer at the AICPA Advanced Accounting and Auditing Technical Symposium. Mr. Fustolo is the recipient of the Elijah Watts Sells Award (AICPA) and Silver Medal (Massachusetts) for scores received on the CPA Examination.

Table of Contents

Chapter 1 ? Overview of the New Standards........................................................................................ 1 Learning Objectives ............................................................................................................................. 1 Issued ................................................................................................................................................. 1 Effective Date ...................................................................................................................................... 1 Objective ............................................................................................................................................. 1 Background ......................................................................................................................................... 1 Key changes made by SSARS No. 21.............................................................................................. 3 Review Questions................................................................................................................................ 7 Review Answers .................................................................................................................................. 8

Chapter 2 ? AR-C Section 60--General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting and Review Services ............................................ 9 Learning Objectives ............................................................................................................................. 9 Introduction.......................................................................................................................................... 9 Key Changes Made to New AR-C 60 ................................................................................................... 9 Definitions ......................................................................................................................................... 10 Requirements for Performing SSARS Engagements .......................................................................... 11 Financial Statement Requirements................................................................................................. 12 Ethical Requirements..................................................................................................................... 13 Professional Judgment................................................................................................................... 13 Conduct of Performing the Engagement in Accordance With SSARSs ........................................... 14 Engagement Level Quality Control ................................................................................................. 16 Acceptance and Continuance of Client Relationships and Engagements........................................ 17 Review Questions.............................................................................................................................. 19 Review Answers ................................................................................................................................ 20

Chapter 3 ? AR-C Section 70--Preparation of Financial Statements ................................................ 21 Learning Objectives ........................................................................................................................... 21 Effective Date .................................................................................................................................... 21 Introduction........................................................................................................................................ 21 Scope of AR-C 70.............................................................................................................................. 21 Definitions ......................................................................................................................................... 26 Brief Summary of a Preparation of Financial Statements Engagement ............................................... 28 General Rules in Applying a Preparation of Financial Statements Engagement Under AR-C 70 ......... 29 Specific Rules for Preparing Financial Statements per AR-C 70 ......................................................... 31 Documentation in a Preparation Engagement .................................................................................... 36 Engagement Letter--Preparation of Financial Statements Engagement............................................. 36 Exhibit: Illustrative Engagement Letter--Preparation Engagement ..................................................... 37 Illustrative Financial Statements--AR-C 70........................................................................................ 40 Preparation of Personal Financial Statements.................................................................................... 55 Review Questions.............................................................................................................................. 65 Review Answers ................................................................................................................................ 68

Chapter 4 ? AR-C Section 80--Compilation Engagements ............................................................... 72 Learning Objectives ........................................................................................................................... 72 Introduction........................................................................................................................................ 72 Effective Date .................................................................................................................................... 73 Scope of AR-C 80--Compilation Engagements.................................................................................. 73 Objective of a Compilation Engagement............................................................................................. 74 Definitions ......................................................................................................................................... 74 Requirements--Compilation Engagements--AR-C 80 ....................................................................... 76 Engagement Letter--Compilation ...................................................................................................... 78 The Accountant's Knowledge and Understanding of the Entity's Financial Reporting Framework-- Compilation Engagement.............................................................................................................. 93

Table of Contents

Compilation Procedures..................................................................................................................... 93 The New Accountant's Compilation Report ........................................................................................ 94

Reporting When the Accountant Is Not Independent .................................................................... 100 Reporting on Financial Statements That Omit Substantially All the Disclosures Required by the

Applicable Financial Reporting Framework.............................................................................. 101 Reporting Known Departures From the Applicable Financial Reporting Framework ...................... 101 Reporting on Supplementary Information ..................................................................................... 102 Elimination of Management use Only Financial Statements.............................................................. 105 Examples of the Accountant's Compilation Reports on Financial Statements ................................... 106 Documentation in a Compilation Engagement.................................................................................. 119 Review Questions............................................................................................................................ 120 Review Answers .............................................................................................................................. 123

Chapter 5 ? AR-C Section 90--Review of Financial Statements ..................................................... 127 Learning Objectives ......................................................................................................................... 127 Introduction...................................................................................................................................... 127 Scope of AR-C 90--Review of Financial Statements........................................................................ 128 Effective Date .................................................................................................................................. 129 Objective ......................................................................................................................................... 129 Definitions ....................................................................................................................................... 129 Requirements for Performing a Review Engagement Under AR-C 90............................................... 132 Illustrative Engagement Letters........................................................................................................ 135 Communication with Management and Those Charged With Governance........................................ 145 Understanding of the Industry .......................................................................................................... 146 Knowledge of the Entity ................................................................................................................... 146 Designing and Performing Review Procedures................................................................................. 147 Analytical Procedures ...................................................................................................................... 147 Inquiries of Members of Management Who Have Responsibility for Financial and Accounting Matters ....................................................................................................................................... 149 Reading the Financial Statements.................................................................................................... 151 Using the Work of Other Accountants .............................................................................................. 151 Reconciling the Financial Statements to the Underlying Accounting Records ................................... 151 Evaluating Evidence Obtained From the Procedures Performed ...................................................... 151 Materiality........................................................................................................................................ 152 Written Representations in a Review Engagement........................................................................... 153 Reporting on the Financial Statements............................................................................................. 160 Communicating to Management and Others Regarding Fraud or Noncompliance With Laws and Regulations ...................................................................................................................... 172 Emphasis-of-Matter and Other-Matter Paragraphs in the Accountant's Review Report ................. 173 Known Departures From the Applicable Financial Reporting Framework ...................................... 175 Restricting the Use of the Accountant's Review Report ................................................................ 176 The Accountant's Consideration of an Entity's Ability to Continue as a Going Concern ................. 178 Subsequent Events and Subsequently Discovered Facts ............................................................. 179 Reference to the Work of Other Accountants in an Accountant's Review Report .......................... 181 Supplementary Information That Accompanies Reviewed Financial Statements........................... 182 Required Supplementary Information ........................................................................................... 184 Change in Engagement From Audit to Review ............................................................................. 185 Review Documentation .................................................................................................................... 186 Review Questions............................................................................................................................ 187 Review Answers .............................................................................................................................. 190

Chapter 6 ? Implementation of SSARS No. 21 ................................................................................. 194 Review Questions............................................................................................................................ 195 Review Answers .............................................................................................................................. 196

Glossary............................................................................................................................................. 197 Index .................................................................................................................................................. 201

ii

Chapter 1 Overview of the New Standards

Learning Objectives

Identify a change made in SSARS No. 21 that is carried over from auditing standards

Issued

October 23, 2014

Effective Date

SSARS No. 21 is effective for engagements performed in accordance with SSARSs for periods ending on or after December 15, 2015. Early implementation is permitted.

Objective

The purpose of SSARS 21 is to reissue most of the compilation and review standards under the Accounting and Review Services Committee's (ARSC's) Clarity Project.

Background

In October 2014, the AICPA's Accounting and Review Services Committee (ARSC) issued SSARS No. 21, Statements on Standards for Accounting and Review Services: Clarification and Recodification.

The issuance of SSARS No. 21 represents the culmination of the ARSC's Clarity Project under which it seeks to clarify and revise the existing standards for reviews, compilations, and engagements to prepare financial statements.

In 2011, the Auditing Standards Board (ASB) reissued most of the existing auditing standards under its own Clarity Project with the issuance of SAS Nos. 122-124, which were subsequently supplemented with SAS Nos. 125-128. In issuing those clarified auditing standards, with an effective date of 2012, the ASB had as its primary goal to make improvements to existing auditing standards by establishing certain drafting conventions to more clearly state the auditor's objectives, and make the standards easier to read, understand and apply.

In May 2010, the ARSC approved and initiated its own Clarity Project to revise all existing compilation and review standards in the Codification of Statements on Standards for Accounting and Review Services (AR sections of the AICPA's Professional Standards). That project resulted in the issuance of SSARS No. 21.

In issuing SSARS No. 21, the ARSC follows a similar approach taken by the ASB to simplify existing compilation and review standards and by incorporating into the SSARSs some, but not all, of the conventions that are used within the reissued auditing standards such as:

Establishing objectives for each clarified AR-C section Including a definitions section, where relevant, in each new AR-C section Separating requirements from application and other explanatory material Numbering application and other explanatory material paragraphs using a prefix and presenting

them in a separate section that follows the requirements section Enhancing the readability of the SSARS by using formatting techniques, such as bulleted lists

The ARSC did not include in SSARS No. 21 specific application guidance for governmental entities and smaller, less complex entities, both of which are included in the new auditing standards.

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