SSARS 21 Preparation of Financial Statements Service to Be Included in Some Peer Reviews

For several months CPAs have wondered if the new Preparation of Financial Statements service as provided for in SSARS 21 will be subject to peer review. We now have an answer. It’s…maybe.

I just received the February 2015 AICPA Peer Review Update newsletter. Below you can see an excerpt from the newsletter:

On November 18, 2014, the Peer Review Board (PRB) issued an exposure draft, which proposed that firms that only perform preparation engagements under AR-C Section 70 – Preparation of Financial Statements (issued as part of Statement on Standards for Accounting and Review Services (SSARS) No. 21, Statement on Standards for Accounting and Review Services: Clarification and Recodification) would not be required to enroll in the AICPA peer review program (Program). However, it also proposed that a firm’s preparation engagements would be included in the scope of a peer review when the firm either elects to enroll in the program (e.g. to comply with licensing or other requirements) or is already enrolled due to other engagements it performs. This proposal was issued in order to address the effect of these engagements on the scope of the Program.

The PRB considered comments raised by the peer review community about the proposal and elected to adopt the proposed guidance changes. The changes are effective for peer reviews commencing on or after February 1, 2015.

The key points of this communication are:

  1. Firms that only perform the Preparation of Financial Statement service under section 70 of SSARS 21 are not required to enroll in the AICPA peer review program.
  2. Firms that are enrolled in the peer review program will have the Preparation of Financial Statements service included in the scope of their peer reviews.

Implication for Firms in a Peer Review Program

Since the Preparation service will be included in the scope of peer reviews, consider that firms enrolled in a peer review program need to track the number of Preparation services provided. Otherwise, the peer reviewer will not be able to determine the mix of work performed by the firm to be reviewed.

 

Preparation of Financial Statements, Compilations, Reviews: A Comparison

Have you been wondering how the three services covered in SSARS 21–(1) preparation of financial statements, (2) compilations and (3) reviews–compare to one another? This video provides a brief overview of the three services and what the CPA is required to do for each.

Table Comparing Preparation of Financial Statements, Compilations and Reviews

QuestionPreparing Financial StatementsCompilationsReviews
Can notes to the financial statements be
omitted?
YesYesNo
Can the financial statements go to users other than
management?
YesYesYes
Considered an assurance service?
NoNoYes; limited assurance
Considered an attest service?
NoYesYes
Does the engagement require a report?
No - required wording stating “no assurance is provided” or a disclaimer
Yes - compilation reportYes - review report
Effective for periods ending on or after December
15, 2015 (early implementation permitted)?
YesYesYes
If the accountant is
not independent, is that fact required
to be disclosed?
NoYesMust be independent
Is a signed engagement letter required?
YesYesYes
Is the accountant required to determine if he or
she is independent of the client?
NoYesYes
Is the accountant required to make inquiries or
perform other
procedures to
verify, corroborate,
or review
information supplied?
NoNoIf results of analytics are questionable, inquire of management. Not required to corroborate management's responses with other evidence.
Management is responsible for financial
statements?
YesYesYes
Minimum documentation
1. Engagement letter
2. Copy of financial statements
1. Engagement letter
2. Copy of financial statements
3. Copy of report
1. Engagement letter
2. Copy of financial
statements
3. Copy of report
4. Nature, timing and extent of procedures
5. Results of procedures
6. Significant findings or issues and conclusions reached (including judgments)
7. Communications of fraud or noncompliance with laws or regulations
8. Communications concerning the inclusion of emphasis-of-matter paragraph or other-matter paragraph
9. Representation letter
10. Communications with other firms regarding audited or reviewed components

Procedures1. Prepare the financial statements based on the information provided
2. If the accountant becomes aware that supplied information is incorrect or incomplete, request corrected or additional information
1. Read the financial statements
2. Consider whether the financial statements appear appropriate
3. If the accountant becomes aware that supplied information is incorrect or incomplete, request corrected or additional information
4. If the accountant becomes aware that revisions to the financial statements are necessary, request that corrections be made
1. Read the financial statements
2. Consider
whether the financial statements conform to applicable reporting framework
3. If the accountant becomes aware that supplied information is incorrect or incomplete, request management's consideration of effect on statements; request response to the accountant; consider effect on limited assurance determination
4. If the accountant believes statements are materially misstated, perform additional procedures to support limited assurance
5. Understand the industry; obtain knowledge of the entity
6. Perform Analytics
7. Make inquiries
8. Reconcile financial statements to underlying information
Subject to Peer ReviewNot known at this timeYesYes
When does the standard apply?
Accountant engaged to prepare financial statements
Accountant engaged to compile financial statements
Accountant engaged to review financial statements