The American Institute of CPAs has issued a new standard on compilation and review engagements that represents one of the biggest changes to its Statements on Standards for Accounting and Review Services since 1978.
SSARS No. 19, "Compilation and Review Engagements," introduces the term review evidence to the review literature by clarifying that a review requires the accumulation of review evidence that will provide a reasonable basis for obtaining limited assurance that there are no material modifications that should be made to the financial statements in order for the statements to be in accordance with the applicable financial reporting framework.
The standard states that analytical procedures and inquiries will ordinarily provide the appropriate evidence, but that the accountant should use professional judgment in determining the specific procedures. SSARS No. 19 includes a discussion of materiality in the context of a review engagement. In addition, the standard requires that an accountant document the establishment of an understanding with management through a written communication (that is, an engagement letter) regarding the services to be performed for all SSARS engagements.
The new standard also enhances the documentation requirements for compilation and review engagements, and removes the prohibition against allowing an accountant to include a description in a compilation report on the reasons for an independence impairment. The standard re-codifies the SSARS literature into separate sections for compilation and review engagements.
The effective date is for compilations and reviews of financial statements for periods ending on or after Dec. 15, 2010. However, early application is allowed for accountants to disclose the reasons for a lack of independence in a compilation report.
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