Bookkeeping or Preparation of Financial Statements: Being Clear About the Intended Service

When performing bookkeeping, communicate whether financial statements are a part of the engagement

Many accountants have asked, “When am I subject to SSARS 21?” This question often arises when a CPA provides bookkeeping services using a cloud-based accounting package such as Quickbooks. Bookkeeping or preparation of financial statements–which is it? Why the confusion? Well, once the bookkeeping is complete, the CPA or the client can print the financial statements–and we know that SSARS 21 is triggered when we are engaged to prepare financial statements.

Bookkeeping or Preparation of Financial Statements

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Bookkeeping or Preparation of Financial Statements

Suppose you enter the client’s monthly transactions in QuickBooks, and you reconcile the bank statements. Now you or the client can print the financial statements. Have you unintentionally wandered into a requirement to follow SSARS 21? Let me answer this question with another question.

Has your client engaged you to prepare financial statements? If yes, then SSARS 21 is in play. If not, then compliance is not required. The AICPA says, “the accountant has only been engaged to prepare financial statements when the client has ‘hired’ the accountant to do so.”

Using QuickBooks to provide bookkeeping services does not–necessarily–mean you have been engaged to prepare financial statements. But how can you be clear? When in doubt spell it out–in an engagement letter. Use an engagement letter for all client services–even nonattest work such as bookkeeping. When you provide bookkeeping services, and the customer has not “hired” you to prepare financial statements, make it clear that you are not engaged to provide financial statements. The AICPA’s 2016/17 Audit Risk Alert–regarding Preparation services–advises that you might include this sentence when you are not engaged to prepare financial statements: This engagement does not contemplate us preparing financial statements.

More Information About Preparation Services

For more a fuller explanation regarding whether the use of QuickBooks triggers SSARS 21, click here.

For a deep dive into Preparation services, see my book on Amazon: Preparation of Financial Statements and Compilation Engagements.

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4 thoughts on “Bookkeeping or Preparation of Financial Statements: Being Clear About the Intended Service

  1. Hi Mr. Scribo,

    Thank you for your clarification. I worked as a consultant (1099) for a small tax firm, who also provides bookkkeeping services. The hire me to review the bookkeeper’s work and financial statements are printed and provided to the client. Does that mean that I have to follow SSARS 21? I understand it to be that review their work and that the financial statements are produce as the final work product.



  2. Is it possible to get out of section 70 by simply avoiding obtaining an engagement letter? In the AICPA’s 2016/2017 Risk Alert for Developments in Preparation Standards, they discuss the concept of engagement.

    [There has been additional confusion about whether an accountant would be considered to have been “engaged” if they did not obtain an engagement letter. Being engaged starts the engagement process and…obtaining a signed engagement letter or other suitable form of written agreement is the initial required engagement procedure and is intended to avoid misunderstandings with respect to the engagement.]

    My reading of that paragraph is that it is possible to be engaged without actually obtaining an engagement letter. Not obtaining an engagement letter would simply be a failure of compliance with the Section 70. Would you concur with that interpretation? They weren’t exactly clear to me.

    • David, the trigger for being engaged is the request by the client to prepare their financial statements and not the engagement letter. I had the same thoughts when I initially read SSARS 21. After contacting the AICPA, they advised me that the request is the trigger.

      So, no, it is not possible to avoid section 70 by not obtaining an engagement letter. If the client requests that you prepare their financial statements and you agree to do so (even verbally), then you have been “engaged.” Then you’re required under AR-C 70 to get a signed engagement letter.