SSARS Flashcards
Reviews performed under the SAS and SSARS
- SAS Reviews: are for interim financial statement of either public or nonpublic companies. Public company interim review are required by SEC. Nonpublic company interim review are ordinarily not required.
- SSARS Reviews are only for nonpublic companies** i**ncluding individuals. SSARS applies when a CPA either compiles or reviews the FS of a nonissuer (nonpublic companies). reviews of annual information of nonpublic companies differ from interim
SSARS - Statements on Standards for Accounting and Review Services-
List of accounting service an accountant may perform without being required to issue a compilation or review under SSARS
- Simply reading or typing a client-prepared F/S
- Preparing a working trial balance
- Proposing adjusting or correcting entries
- Providing a client with financial statement format that does not include amounts
CPA should not consent to the use of his/her name in a document containing unaudited F/S unless he/she has compiled or reviewed the F/S or the F/S are accompanied by an indication that the accountant has not compiled or review F/S.
Compilation - AR 80
A compilation is a service, the objective of which is to assist the management in representing financial information in the form of financial statement without undertaking to obtain or provide any assurance that there no material modification that should made to the financial statement.
- NO inquiry and Analytical procedures
- AR 60 states that a compilation is an attest service, but not an assurance service. and may disclose the reason for the lack of independence
NOTE: Although the professional standards require independence for attest services, an exception to the requirement exists for compilations—a nonindependent CPA may perform a compilation as long as the lack of independence is disclosed in the CPA’s report.
What must the account do to perform a compilation?
- To perform a compilation the account must
- **Have knowledge of the accounting principles and practice of the client’s industries - **A CPA may accept a compilation (or review) engagement in an industry s/he is unfamiliar with if s/he is able to obtain the required level of knowledge before compiling (reviewing) the financial statements.
- Have a general understanding of the clients business transactions and accounting records
- Read the financial statement and note to ensure that they are free of obvious materiel error and appropriate form → if information incorrect, incomplete and client refuse to provide revised information → CPA should withdraw
- **NO independence required, exception to attest service **
- Do NOT gather evidence in relation to the financial statement
- CPA should establish an understanding with management re the compilation and should document the understanding through a written communication with management
- Obtain management permission to talk to predecessor account who are required to respond, before accepting a compilation. These inquiries include questions regarding the integrity of management, disagreements over accounting principles, the willingness of management to provide or to revise information, and the reasons for the change in accountants.
Compilation report and financial statement used by 1/3 party
If 1/3 party use
- MUST issue a compilation report and
- state in report that no opinion and no assurance provided
If NO 1/3 party use
- NO compilation report required;
- each page of the financial statement “Restricted for management use only”;
- ADD a point to the engagement letter that **financial statement are not used by 1/3 party **
Compilation Report
- Title “Accountant’s Compilation Report”
-
3 paragraphs:
- Intro: indicate F/S compiled, date of each F/S, disclaim opinion (not audited, not reviewed) and assurance
- Management responsibility: preparation and fair presentation of F/S and Design, Implementation and Maintenance of IC
- Accountant responsibility: compilation performed in accordance with SSRAS issued by AICPA and objective of the compilation
- IF need ADD a 4th paragraphs
- Signature of the accountant
- Report date = date of completion of the compilation
- Each page of the compiled financial statement should refer to report “see accountant’s compilation report”
Circumstances resulting in modification of the compilation report
Circumstances resulting in modification of the compilation report → ADD a 4th paragraphs
- Financial statement that omit substantially all disclosures
- Account is not independent - may choose to provide all reason for lack of independence
- When financial statement are not expected to be use by 1/3 party
- Emphasis of matter
- Departures from the applicable financial reporting framework GAAP.
- Other Comprehensive Basis of Accounting OCBOA
- Restricting the use of an accountant’s compilation report
When a CPA may compile and be associated with financial statements that omit disclosures required by GAAP?
CPA may compile such F/S provided that
- the omissions of substantially all disclosure i**s clearly indicated in the Audit report ** AND
- if the intent to the CPA’s knowledge is not to mislead the user
Review denifition
- AR 90 - Review is a service, the objective of which is to obtain limited assurance (also referred to as negative assurance) that there are no material modifications that should be made to the FS in order for the statement to be in conformity with the applicable financial reporting framework GAAP.
- In a review engagement, the accountant should accumulate review evidence to obtain a limited level of assurance.
- Review has less Scope than audit
- Review is considered *both as assurance and attest engagement - *independent required
- Review requires the obtaining of both an engagement letter and a representation letter
Planning a review
- Account must be independent to the client
- Get permission of management the a to talk to predecessor accountants who are required to respond, before accepting the review - These inquiries include questions regarding the integrity of management, disagreements over accounting principles, the willingness of management to provide or to revise information, and the reasons for the change in accountants. The decision of whether to contact the predecessor accountants is left to the judgment of the successor CPAs
- Obtain an engagement letter
- Obtain a management representation letter
- Obtain an understanding of the industry and knowledge of the client
- Inquire of management or other client personnel - do not include inquiries of third parties (e.g., lawyers, confirmations of receivables).
- **Apply analytical procedure to the financial data - **Unexpected results obtained through the use of analytical procedures are followed up by inquiries to management and certain other procedures - comparing recorded amounts, or ratios, to expectations
Review Report
- Title “Independent Accountant Review Report”
-
4 paragraphs:
- Intro: indicate FS have been reviewed, date of each FS, Less in scope than audit, use inquiries and analytical procedures
- Management responsibility: preparation and fair presentation of FS and Design, Implementation and Maintenance of IC
- Accountant responsibility: review performed in accordance with SSRAS issued by AICPA and obtain limited assurance
- Result of the engagement
- IF need ADD a 5th paragraphs
- Signature of the accountant
- Report date = date on which the accountant has accumulated sufficent review evidence to provide a basis to limited assurance
- Each page of the financial statement should refer to report “see accountant’s review report”
Basic elements of a review report of non pubic company
Basic elements of a review report
a.Title, such as “Independent Accountant’s Review Report”
b. Addressee, as appropriate in the circumstances
c. Introductory paragraph
- *(1)** Identify the financial statements and indicate that they have been reviewed
- *(2)** Date of each financial statement.
- *(3)** A review consists primarily of applying analytical procedures to management’s financial data and making inquiries of company management.
- *(4)** A statement that a review is substantially less in scope than an audit, the objective of which is the expression of an opinion; the accountant does not express such an opinion.
d. Management’s responsibility for the financial statements and for IC over financial reporting.
e. Accountant’s responsibility
- *(1)** Conduct review in accordance with SSARS issued by AICPA.
- *(2)** Review standards require the accountant to perform the procedures to obtain limited assurance that there are not material modifications needed.
- *(3)** Accountant believes the results of his/her procedures provide a reasonable for the report.
f. Results of the engagement -Accountant is not aware of any material modifications that should be made to the financial statement, other than those modifications (if any) indicated in the report.
g. Signature of the accountant-manual or printed.
h. Date of accountant’s report-Not earlier than the date on which the accountant has accumulated review evidence sufficient to provide a reasonable basis for expressing limited assurance.
Inquiries and other review procedures
Inquiries and other review procedures
a.Inquiries to management concerning
- *(1)** Whether statements prepared in conformity with applicable financial reporting framework
- *(2**) Entity’s accounting principles followed
- *(3)** Unusual or complex situations that may have an effect on financial statements
- *(4)** Significant transactions near end of reporting period
- *(5)** Status of uncorrected misstatements identified during previous engagement
- *(6)** Questions that have arisen in the course of applying review procedures
- *(7)** Events subsequent to date of financial statements
- *(8)** Knowledge of fraud or suspected fraud affecting entity involving management or others that could have a material effect on financial statements
- *(9)** Significant journal entries and other adjustments
- *(10)** Communications with regulatory agencies
b. Inquiries concerning actions taken at meetings of stockholders, board of directors, etc.
c. Reading the financial statements to consider whether they appear to conform with the applicable financial reporting framework
d. Obtaining reports from other accountants, if any, which are involved with significant components
Reissuance of the predecessor’s report
- The predecessor must determine whether his/her report is appropriate based on:
(a) Current vs. prior period statement format
(b) Newly discovered subsequent events
(c) Changes in the financial statements affecting the report
- The predecessor should also perform the following procedures:
(a) Read the current statements and the successor’s report
(b) Compare prior and current statements
(c) Obtain representation letter from successor suggesting that s/he is not aware of any matters having a material effect on the prior statements
- If anything comes to the predecessor’s attention that affects the report, the predecessor should:
(a) Make any necessary inquiries and perform any necessary procedures
(b) If necessary insist that the client revise the statements and revise the report as appropriate (normally add an explanatory paragraph)
Before agreeing to a change in engagement from audit or review to a compilation considerer
- Downgrading -
Before agreeing to a change in engagement from audit or review to a compilation considerer
- **Review the reasonableness of reason for client’s request **
- Additional audit or review effort needed to complete the engagement
- Estimate additional cost to complete the audit or review
NOTE Make NO reference to original engagement or the reason for downgrade
