The American Institute of CPAs is getting ready to roll out its long-awaited update of compilation and review standards for CPAs, Statement on Standards for Accounting and Review Services No. 21 (SSARS No. 21), one of the most significant revisions in non-audit standards in the last 35 years.
The basic standard for accountants who have prepared and submitted financial statements to their clients was issued as SSARS No. 1 in 1978, according to ARSC chair Michael L. Brand, a partner with the firm of Johnson, Feigley, Newton & Brand in Athens, Ala.
“Back then, accountants prepared paper financial statements, bound them with their firm’s covers and mailed them or handed them to their clients,” Brand said in a statement. “It made sense, for many years, that because these were submitted by the CPA, the CPA should, at a minimum, issue a compilation report on those financial statements. However, in today’s electronic environment, especially cloud applications where the client and CPA are working on the accounting together and sometimes in real time, it’s impossible to segregate who prepared the financial statements, let alone whether the CPA submitted financial statements. Section 80 of SSARS No. 21 totally eliminates the need for such arbitrary and irrelevant decisions by making the compilation literature apply when the accountant is engaged to perform a compilation service.”
In addition, to help firms that are asked by their smaller clients to prepare financial statements when that client does not need a compilation or review report, SSARS No. 21 includes a new preparation standard. Section 70 does not require an accountant’s name or report to be associated with the preparation of the financial statements, but it does not prohibit a CPA from doing so. “To ensure that users are not misled by thinking that an accountant is providing any assurance on the financial statements, the standard requires a legend on each page of the financial statements indicating, at a minimum, that no assurance is provided’ on the financial statements,” said AICPA senior technical manager Michael Glynn.
The newly revised standards are effective for engagements on financial statements for periods ending on or after Dec. 15, 2015. Early implementation will be permitted.
To help familiarize CPAs with the streamlined standards, the AICPA plans to host a
Separately, Thomson Reuters has released a special report on the new standards,
“Firms will soon need to decide whether to provide the new preparation service,” said Kimberly Fransen, an executive editor with the Tax & Accounting business of Thomson Reuters and author of the special report. “Our customer research indicates that almost all will continue to provide compilation services, which is not surprising. For firms considering the preparation service, many may not realize that moving to a legend rather than a report does not alleviate their responsibility to communicate significant departures noted in the financial statements.”
The AICPA Peer Review Board recently proposed changes to the peer review requirements that would exclude the new preparation service from the scope of peer review. “The idea of scoping financial statement preparation services out of peer review is controversial,” Fransen added. “We’ll have to see what the AICPA Peer Review Board determines after they hear from the interested parties.”
