Moving Forward with SSARS 21

December 15, 2015 marked an important date in accounting and review standards history. One of the biggest changes in over 35 years went into effect—a standard that now provides distinction between reviews, compilations and engagements to prepare financial statement for clients. The Statement on Standards for Accounting and Review Services (SSARS) 21 includes four additional sections that offer further guidance and clarification on the above-stated accounting engagements.

SSARS 21 was issued on October 23, 2014 by AICPA’s Accounting and Review Services Committee. Highlighted below are the four sections addressed by SSARS 21 and key changes that will be effective for engagements performed on or after December 15, 2015.

Section 60 – General Principles for Engagements

This section is intended to help establish general preconditions that must be met for all engagements performed in accordance with SSARS. One of the key changes highlighted within this section is the clarification that financial statements belong to the client, not the accountant performing the SSARS engagement.

Another notable change introduced by this standard was carried over from auditing standards and requires engagement letters to be signed by both the accountant and the client’s management for all SSARS engagements. Having an engagement letter not only helps to clearly indicate the work the accountant is expected to do, but it is also beneficial to the client as it outlines the respective responsibilities of the parties working together.

Section 70 – Preparation of Financial Statements

Within Section 70 of SSARS 21, the concept of a preparation engagement as a separate non-attest engagement is introduced. Because this engagement is a non-attest service, firms are not required to assess independence. Additionally, SSARS 21 allows prepared financial statements to be issued without a report. When a report is not included with prepared financial statements, the financial statements should include a legend on each page conveying that no assurance is provided. If the accountant is unable to include a legend on each page of the financial statements, then a disclaimer report or compilation report should be issued.

Section 80 – Compilation Engagements

Historically under SSARS 19, if the accountant submitted compiled financial statements to his or her client and these financial statements were not expected to be used by a third party, the accountant was not required to issue a compilation report. Instead, the accountant included a reference on each page of the financial statements restricting the use of the financial statements. While the exact verbiage can vary, an example of language used to restricted compiled financial statements without a report might have previously read “Restricted for Management’s Use Only.” The issuance of SSARS 21 eliminates the ability to issue compiled financial statements restrictions previously allowed under SSARS 19. Additionally, under the new standard, a compilation report is always required to be issued.

Section 90 – Review of Financial Statements

The final section of SSARS 21 is applicable when a client engages an accountant to perform a review of the financial statements. As a result of this new standard, review reports have changed, adding new headings and expanded language to be more consistent with the presentation seen within an audited financial statement.

In addition to expanding analytical procedures and inquiries, this section of the standard also carries over certain elements and terminology from existing audit standards, including the introduction of an “other matter” paragraph when considered necessary.

Moving Forward 

While an objective of issuing SSARS 21 was to clarify and revise existing standards, it has also reinforced the need for the accountant and client to work together to determine the necessary services to be performed. Once management and the accountant have come to a conclusion that the engagement falls into the scope of SSARS 21, the next appropriate step to take is for both management and the accountant to sign an engagement letter outlining the scope of the procedures to be completed.

Should you have any questions about how this standard impacts your situation, please feel free to contact me at (805) 963-7811 or sgumley@bpw.com.