COMPILATION & REVIEW –NTCR (NOT TOO COMPLICATED, REALLY)

PRACTICAL APPROACHES TO PERFORMING EFFICIENT & EFFECTIVE SSARS ENGAGEMENTS

BY MARK DAUBERMAN, CPA CGMA EMBA

SSARSBackground & History

Identifying A Need

• Reviews• Financing for

entrepreneurships

• Reliable financial reporting

• Compilations• Issues with unaudited

financial statements• Lack of requirements• 1136 Tenants

Corporation vs Rothenberg

• Reviews• Limited assurance• Performance requirements

• Compilations• Need for bookkeeping services• Compilation report

Solution

• Accounting & Review Services Committee (ARSC)

• Publishes authoritative literature for CPAs providing accounting & review services for nonpublic entities

Unintended Consequences

Pronouncements

• SSARS 1 – December 1978 – Basic requirements

• SSARS 2 – October 1979 – Reporting on comparative statements

• SSARS 3 – December 1981 – Prescribed forms• SSARS 4 – December 1981 – Communication

between successor and predecessor• SSARS 5 – July 1982 – Reporting on compiled

financial statements• SSARS 6 – September 1986 – Personal financial

statements• SSARS 7 – November 1992 – Omnibus standard

• SSARS 8 – October 2000 – Amendments to compilation requirements

• SSARS 9 – November 2002 – Omnibus standard• SSARS 10 – May 2004 – Review engagements• SSARS 11 – May 2004 – Accounting & review

services• SSARS 12 – July 2005 – Omnibus statement• SSARS 13 – July 2005 – Compilation of financial

statement elements

• SSARS 14 – July 2005 – Compilations of pro forma statements

• SSARS 15 – July 2007 – Eliminating references to audit standards

• SSARS 16 – December 2007 – Defining professional requirements

• SSARS 17 – February 2008 – Omnibus standard• SSARS 18 – February 2009 – Applicability of SSARS• SSARS 19 – December 2009 – Compilation & review• SSARS 20 – February 2011 – Revised applicability of SSARS

• SSARS 21 – October 2014 – Certification & clarification

• SSARS 22 – September 2016– Certification & clarification of pro forma financial statements

• SSARS 23 – October 2016 – Certification & clarification of prospective financial statements

• SSARS 24 – May 2018 – Omnibus statement• SSARS 25 – February 2020 –Materiality in a review &

adverse conclusions (Periods ending after December 15, 2021

Polling Question #1

SSARS –Applying the Standards

Alternative Financial Statement Engagements

• Bookkeeping – nonattest engagement

• Preparation – SSARS nonattest, nonassurance engagement

• No report, opinion, or conclusion

• No obligation to read financial statements or verify completeness or accuracy of information

• Compilation – SSARS nonassurance engagement

• Report with neither opinion nor conclusion

• Read by experienced professional

• Review – SSARS attest and assurance engagement

• Report with conclusion providing limited assurance

Selecting Appropriate Engagement

• Audits, Reviews, and Compilations• Provided only if requested• May be two engagements

• Audit – Auditing Standards OR• Review or Compile – SSARS AND• Bookkeeping – Applicable financial reporting

framework

• Difficult to distinguish

• Examples in SSARS #21 – Appendix to AR-C Section 70

• Matter of professional judgment

• Preparation – SSARS Engagement

• Statements not to be audited, reviewed, or compiled

• Statements to be audited, reviewed, or compiled by another accountant

Preparation and Bookkeeping Engagements

• Financial statements to be audited, reviewed, or compiled by same accountant

• Financial statements prepared to accompany a tax return

• Preparation of financial statements with

• Litigation support services

• Business valuation services

• Maintaining depreciation schedules

• Preparing, recording, and posting journal entries

• Using accounting software without intervention

Bookkeeping

Requirements of Standards

• Unconditional requirements• “must”• “is required to”

• Presumptively mandatory• “should”• “should consider”

• documentation

Applicable Rules & Standards

• AICPA Code of Professional Conduct (Code)• Preface• Part 1

• Quality Control Standards

• Statements on Standards for Accounting & Review Services (SSARS)

AICPA Code of Professional Conduct

Independence & the Performance of Nonattest Services

• Prohibited services

• General requirements

• Conceptual framework

Prohibited Services

• Guidelines established for• Advisory Services• Appraisal, Valuation, and Actuarial Services• Benefit Plan Administration• Bookkeeping, Payroll, and Other Disbursements• Business Risk Consulting• Corporate Finance Consulting

• Executive or Employee Recruiting

• Forensic Accounting

• Information Systems Design, Implementation, or Integration

• Internal Audit• Investment Advisory or Management

• Tax Services

Bookkeeping, Payroll, & Other Disbursements

• Independence not impaired by clerical functions

• It is impaired by decision-making

• Activities may raise threats to unacceptable level that safeguards cannot adequately reduce

• Preparing or changing journal entries, coding or classifying transactions without client approval

• Control client resources or make decisions affecting them

• Accept responsibility for authorizing payment of client funds or for signing checks

• Maintain custody of client funds or make credit banking decisions

• Approve invoices for payment

• Activities that do not raise threats to an unacceptable level• Recording & posting transactions to client’s general

ledger or trial balance• Proposing journal entries or other changes affecting

the financial statements if client reviews & approves entries & accountant is satisfied client understands their nature & impact on the financial statements

• Preparing financial statements from a client trial balance

• Preparing reconciliations to identify reconciling items for client evaluation

• Generating unsigned checks or processing payroll• Transmitting payroll or other disbursement

information to a financial institution if client authorizes transmission, arranges limits with financial institution, and authorizes financial institution to process transmitted data

Financial Statement Preparation & Conversion of Cash to Accrual

• Considered separate engagement

• Subject to requirements of Code of Professional Conduct

Polling Question #2

Other Independence Requirements

• May be subject to separate or additional independence requirements of authoritative regulatory bodies

• SEC• GAO• DOL

• PCAOB

General Requirements

• #1 – Client Must Agree• Assume all management responsibilities• Designating an appropriate individual to oversee the

service• Evaluate the adequacy of the services performed• Accept responsibility for the results of the services

• #2 – Accountant may not assume management responsibilities

• Leading and directing an entity• Making significant decisions regarding

acquisition, deployment, and control of resources

• #3 – Establish and Document an Understanding• Before performing nonattest service• Should cover

• Objectives of engagement• Services to be performed• Client’s acceptance of responsibilities• CPA’s responsibilities• Limitations of engagement

A Risk Based Approach to Evaluating Independence

• Applied when performing multiple nonattest services for the same attest client

• May be at acceptable level• Independence not considered impaired• Safeguards are not required to be considered

Threats to Independence

• Adverse Interest

• Advocacy

• Familiarity

• Management Participation

• Self-Interest

• Self-Review

• Undue Influence

Safeguards

• Eliminate or reduce threats

• May include:

• Prohibitions against actions or circumstances creating threats

• Procedures designed to counter threats

• Considered effective if threats reduced to acceptable level

• Sources of safeguards

• Imposed by profession, legislation, or regulation

• Based on client characteristics & policies

• Implemented by firm

THE QUALITY CONTROL STANDARDS

Sections of the Quality Control Standards

• Objectives

• Leadership

• Ethics

• Client and engagement acceptance and continuation

• Human resources

• Engagement performance

• Monitoring

ENGAGEMENTS PERFORMED IN ACCORDANCE WITH SSARS

Organization & Structure of SSARS

• AR-C 60

• General Principles for Engagement Performed in Accordance with Statements on Standards for Accounting and Review Services

• Apply to all engagement covered by SSARS

• AR-C 70

• Preparation of Financial Statements

• Provides guidance and requirements relevant to engagements to prepare financial statements without performing compilation, review, or audit

• AR-C 80

• Compilation Engagements

• Provides guidance and requirements relevant to engagements to compile financial statements

• AR-C 90

• Review of Financial Statements

• Provides guidance and requirements relevant to engagements to review financial statements

• AR-C 100

• Special Considerations – International Reporting Issues

• Modifies report when international standards are applied

• AR-C 120

• Compilation of Pro Forma Financial Information

• Provides guidance and requirements relevant to engagements to compile pro forma financial information

Polling Question #3

Provisions of AR-C 60

• Compliance with applicable ethical requirements

• Application of professional judgment

• Conduct of engagement in accordance with SSARS

• Maintain engagement level quality control

• Evaluation of client and engagement acceptance and continuance

Conditions for Acceptance of a SSARS Engagement

• Preliminary knowledge of engagement confirms satisfaction of requirements as to competence

• Applicable financial reporting framework acceptable under the circumstances

• Acknowledgement by management of its responsibilities

• Selection of applicable financial reporting framework

• Design, implementation, and maintenance of internal control relevant to fair presentation of the financial statements

• Prevention and detection of fraud

• Compliance with applicable laws and regulations

• Accuracy and completeness of records, documents, explanations, and other information

• Providing accountant with access to all applicable information of which management is aware, additional information requested from management by accountant, and unrestricted access to parties of whom the accountant decides to make inquiries

Accepting the Preparation Engagement

• Considered nonattest service not covered by SSARS

• Must comply with independence requirements regarding nonattest services if attest services also performed for client

• Applies when accountant in public practice is engaged to prepare financial statements

• See Appendix – Preparation of Financial Statements Versus Assistance in Preparing Financial Statements

• Does not apply when• Accountant is engaged to compile, review, or audit

financial statements• Financial statements exclusively for submission to taxing

authorities

• Financial statements prepared for inclusion in written personal financial plan

• Financial statements used in conjunction with litigation support services

• Financial statements used for business valuation services

“The determination about whether the accountant has been engaged to prepare financial statements or merely assist in preparing financial statements (which is a bookkeeping service that is not subject to this section) is determined based on services the client requests the accountant to perform and requires the accountant to apply professional judgment.”

The Preparation Engagement

• Nonattest service

• No requirement to evaluate independence

• No requirement to verify accuracy or completeness of information provided by management

• No requirement to gather evidence

• No requirement to express an opinion or report on the financial statements

Requirements to Perform a Preparation Engagement

• General principles for performing engagements to prepare financial statements

• Acceptance and continuance of client relationships and engagements to prepare financial statements

• Agreement on engagement terms

• The accountant’s knowledge and understanding of the entity’s financial reporting framework

• Preparing the financial statements

• Financial statements that omit substantially all the disclosures required by the applicable financial reporting framework

• Documentation in a preparation engagement

Performing the Compilation Engagement

Requirements

• Category I – Accepting the engagement• General principles for performing and reporting on

compilation engagements• Independence• Acceptance and continuance of client relationships

and compilation engagements• Agreement on Engagement Terms• The accountant’s knowledge and understanding of the

entity’s financial reporting framework

• Category II – Compilation Procedures

• Category III – Completing the Engagement

• The accountant’s compilation report

• The accountant’s compilation report on financial statements prepared in accordance with a special purpose framework

• Reporting when the accountant is not independent

• Reporting on financial statements that omit substantially all the disclosures required by the applicable financial reporting framework

• Reporting known departures from the applicable financial reporting framework

• Supplementary information that accompanies financial statements and the accountant’s compilation report thereon

• Required supplementary information

The Accountant’s Compilation Report

• Should be in writing

• Should include• Statement that management is responsible for the

financial statements• Identification of financial statements compiled• Entity whose financial statements were compiled

• Date or period covered by the financial statements

• Statement that compilation performed in accordance with SSARS promulgated by AICPA

• Signature of accountant or accountant’s firm• City and state where accountant practices

• Date of report• Date on which compilation procedures completed• Date on which financial statements are available to

be issued

Documentation in a Compilation Engagement

• Documentation required sufficient to understand work performed• Engagement letter• Copy of financial statements• Copy of accountant’s report

Stepping Down from an Audit or Review to a Compilation Engagement

• Should not be to avoid discovery

• Accountant should consider• Client’s stated reason for change and the implication,• The effort required to complete the original

engagement, and• The estimated additional cost of completing the

original engagement

Polling Question #4

Performing the Review Engagement

Requirements for the Performance of a Review Engagement

• General principles for performing and reporting on review engagements

• Independence

• Acceptance and continuance of client relationships and review engagements

• Agreement on engagement terms

• Communication with management and those charged with governance

• Understanding of the industry

• Knowledge of the entity

• Designing and performing review procedure

• Analytical procedures

• Investigating results of analytical procedures

• Inquiries of members of management who have responsibility for financial and accounting matters

• Reading the financial statements

• Using the work of other accountants

• Reconciling the financial statements to the underlying accounting records

• Evaluating evidence obtained from the procedures performed

• Written representations• Written representations as review evidence

• Management from whom written representations are requested

• Specific written representations• Form of written representations

• Concerns about the reliability of written representations and requested written representations not provided

• Reporting on the financial statements

• Accountant’s review report

• Accountant’s review report on financial statements prepared in accordance with a special purpose framework

• Comparative financial statements

• Updating the report• Changed reference to a departure from the applicable

financial reporting framework• Reporting when one period is audited

• Communicating to management and others regarding fraud or noncompliance with laws and regulations

• Emphasis-of-matter and other-matter paragraphs in the accountant’s review report

• Emphasis-of-matter paragraphs in the accountant’s review report

• Other-matter paragraphs in the accountant’s review report

• Communication with management

• Known departures from the applicable financial reporting framework

• Alert that restricts the use of the accountant’s review report

• Adding other specified parties

• The accountant’s consideration of an entity’s ability to continue as a going concern

• Consideration of conditions or event that indicate that there could be an uncertainty about the entity’s ability to continue as a going concern

• Consideration of financial statement effects

• Consideration of the effects on the accountant’s review report

• Subsequent events and subsequently discovered facts• Subsequent events

• Subsequently discovered facts that become known to the accountant before the report release date

• Subsequently discovered facts that become known to the accountant after the report release date

• Reference to the work of other accountants in an accountant’s review report

• Supplementary information that accompanies reviewed financial statements

• Required supplementary information

Polling Question #5

Reporting on the Financial Statements

• Report should be in writing

• Should include• Title with word “independent”• Appropriate addressee

• Introductory paragraph

• Identify entity

• Identify financial statements and indicate they were reviewed

• Specify date or period covered by financial statements

• Indicate that review primarily consists of analytical procedures applied to management’s information and inquiries of management

• Indication that a review is less in scope than an audit

• Not designed, like audit, to express an opinion

• No opinion expressed

• Section headed “Management’s Responsibility for the Financial Statements”• Indication of management’s responsibility for

preparation and fair presentation of financial statements in accordance with applicable financial reporting framework

• Management’s responsibility for designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of the financial statements

• Section headed “Accountant’s Responsibility”• Accountant’s responsibility to perform review in

accordance with SSARS promulgated by the AICPA, which require accountant to perform procedures to obtain limited assurance as basis for reporting accountant’s awareness of a need for the financial statements to be materially modified

• Accountant’s belief that review is sufficient to provide basis for conclusion

• Concluding section with appropriate heading

• Indication of accountant’s awareness of need for material modification to financial statements

• Manual or printed signature of accountant’s firm

• City and state where accountant practices

• Date of review report

• No earlier than date on which procedures completed to provide limited assurance

• Evidence that all statements and related notes have been prepared

• Management has asserted its responsibility for the financial statements

Unmodified Review Report

Independent Accountant’s Review Report

[Appropriate Addressee]

We have reviewed the accompanying financial statements of XYZ Company, which comprise the balance sheets as of December 31, 20X2 and 20X1, and the related statements of income, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements. A review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management. 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, we do not express such an opinion.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error.

Accountant’s Responsibility

Our responsibility is to conduct the review engagements in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures provide a reasonable basis for our conclusion.

Accountant’s Conclusion

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in accordance with accounting principles generally accepted in the United States of America.

[Signature of accounting firm or accountant, as appropriate]

[Accountant’s city and state]

[Date of accountant’s review report]

Polling Question #6

Review Documentation

• Should enable an experienced accounting with no previous connection to the review to understand

• The nature, timing, and extent of review procedures performed

• The results of procedures performed, and the review evidence obtained

• Significant findings or issues arising during the review, conclusions reached, and significant professional judgments made

• Documentation should also include

• Engagement letter

• Communications to management or others regarding fraud or noncompliance with laws and regulations

• Communications with management regarding expectation of including emphasis-of-matter or other-matter paragraph

• Communication with other accountants who reviewed or audited financial statements of significant components

• Representation letter

• Copy of reviewed financial statements and accountant’s report

Improving the Efficiency of Engagements Performed in

Accordance with SSARS

Tips to Enhance Efficiency & Profitability

• Combining requirements & reducing reliance on commercial checklists

• Meeting performance requirements using practice-building techniques

• Identifying & performing additional value-added services for clients

• Simplifying the financial reporting process

THANK YOU

PLEASE SEND ME YOUR QUESTIONS AND COMMENTS AT MARK@DAUBERMAN.COM

BY MARK DAUBERMAN, CPA CGMA EMBA