Mastering SSARS No. 19 on Compilations and Reviews p Preparing for - - PowerPoint PPT Presentation

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Mastering SSARS No. 19 on Compilations and Reviews

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Preparing for the New Engagement Framework and Emphasis on Practitioner Judgment

A Li 110 Mi t T l f /W bi ith I t ti Q&A

Today's panel features: Mike Glynn, Technical Manager, Audit and Attest Standards Team, AICPA, New York Kurt Oestriecher, CPA, Partner-In-Charge, Accounting and Auditing Services, Oestriecher & Company, CPA’s, Alexandria, La.

A Live 110-Minute Teleconference/Webinar with Interactive Q&A

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Mastering SSARS No. 19 On Compilations And Reviews Webinar

June 2, 2010 June 2, 2010

Mike Glynn, AICPA mglynn@aicpa.org Kurt Oestriecher, Oestriecher & Co. kurt@oandcocpas.com

Today’s Program Today s Program

Review Of SSARS No. 19 Background, Terms Slides 6-31 (Mike Glynn) Drill-Down On Key Issues For Businesses Slides 32-49 (Kurt Oestriecher) Drill-Down On Key Issues For Practitioners Slides 50-53 (Mike Glynn)

5

Review Of SSARS No. 19 B k d T Background, Terms

Mike Glynn, AICPA Mike Glynn, AICPA

Session Session Objective Objective

• Discuss the changes to the compilation and review

literature as a result of the issuance of SSARS 19, Compilation and Review Engagements in December 2009 2009

7

Compilation Compilation – – What It Is What It Is

• A compilation is:

– A service provided by an accountant – Objective is to assist management in presenting financial information in the form of financial statements statements – Accountant does not obtain or provide any assurance that there are no material modifications that should be made to the financial statements.

8

Compilation Compilation – – What It Is Not What It Is Not

• A compilation is not an assurance engagement.

– Does not contemplate:

• Performing inquiries
• Performing analytical review procedures
• Obtaining an understanding of internal control
• Assessing fraud risks

T ti ti d

• Testing accounting records

9

Review Review – – What It Is What It Is

• A review is:

– A limited assurance engagement

• Accountant accumulates review evidence

(primarily through analytical procedures and (primarily through analytical procedures and inquiries).

10

Review Review – – What It Is Not What It Is Not

• A review is not:

– An audit (high level of assurance engagement)

• As such, does not contemplate:

– Obtaining an understanding of internal control – Assessing fraud risk – Testing accounting records

11

SSARS 19

• Effective for comps and reviews of f/s ending on or

after 12/15/10 E l i l i i d f i – Early implementation permitted for new reporting

• ption for comps when independence is impaired
• Replaces AR 20, 50 and 100
• Will be codified as AR 60, 80 and 90

12

SSARS 19 – Separating Compilation Guidance From Review Guidance Guidance From Review Guidance

• In place of AR 20, 50 and 100, the SSARSs will include

new sections: – AR 60, Framework for Performing and Reporting on Compilation and Review Engagements Compilation and Review Engagements – AR 80, Compilation of Financial Statements – AR 90 Review of Financial Statements – AR 90, Review of Financial Statements

• AR sections 110 (Elements), 120 (Pro Forma), 200

(Comparatives), 300 (Prescribed Forms), 400 ( p ) ( ) (Successor/Predecessor Communications), and 600 (Personal Financial Statements) will be conformed.

13

SSARS 19 – Separating Compilation Guidance From Review Guidance (Cont.) Guidance From Review Guidance (Cont.)

• Change made in response to member comments that

literature was difficult to use

• Members performing compilations can now just look at

the compilation section without having to look at review the compilation section without having to look at review guidance

14

SSARS 19 – Clarification Of Review Performance Procedures Performance Procedures

• Is intended as a clarification, and most accountants

should see minimal impact on how they perform their engagements. A review is not:

• A review is not:

– An AUP engagement – Canned analytical procedures and inquiries – Canned analytical procedures and inquiries – A compilation plus a few extra procedures

• A review is:

A review is: – An assurance engagement

• As such, has certain similarities to an audit

, engagement

15

16

SSARS 19 – Clarification Of Review Performance Procedures (Cont ) Performance Procedures (Cont.)

• A review requires the accumulation of review evidence

that will provide the accountant with limited assurance that there are no material modifications that should be that there are no material modifications that should be made to the f/s. – In an audit, the auditor accumulates audit evidence In an audit, the auditor accumulates audit evidence in order to obtain reasonable assurance.

• The accountant uses professional judgment to

determine specific procedures.

17

SSARS 19 – Clarification Of Review Performance Procedures (Cont ) Performance Procedures (Cont.)

• Review procedures are tailored based on the

accountant’s: – Understanding of the industry K l d f h li – Knowledge of the client – Awareness of the risk that he or she may unknowingly fail to modify the accountant’s review unknowingly fail to modify the accountant s review report on f/s that are materially misstated

• May include procedures other than analytical

procedures and inquiries

18

SSARS 19 – Documenting The Understanding With Management Understanding With Management

• Does not change the requirement to establish an

understanding with management regarding the services to be performed services to be performed. – Previously, the SSARSs stated that it was preferable that the understanding be in writing. preferable that the understanding be in writing. – SSARS 19 requires that the understanding be documented in writing.

• This may result in a change in practice for some

accountants.

19

SSARS 19 – Documenting The Understanding With Management (Cont.) Understanding With Management (Cont.)

• Leaves open the engagement that the written

understanding should cover. C bi h hl il i – Can combine the monthly compilation engagements and annual review in one engagement letter – Engagement letters can cover multiple years – Engagement letters can cover multiple years

• Is discouraged, since the understanding may lose

clarity as time passes y p

• Recommendation is that the understanding be

documented at least annually

20

SSARS 19 – Enhanced Requirements For Compilation Documentation For Compilation Documentation

• Previously, accountant was only required to document:

– The understanding with management regarding services to be performed if in a SSARS 8 engagement engagement – Communications to management regarding suspected fraud or illegal acts p g

21

SSARS 19 – Enhanced Requirements For Compilation Documentation (Cont.) Compilation Documentation (Cont.)

• Requirements are expanded

– Understanding with management regarding services b f d f ll to be performed for all engagements – Any findings or issues that, in the accountant’s judgment are significant judgment, are significant – Communications regarding fraud and illegal acts

22

SSARS 19 – Review Documentation Changes Changes

• New documentation requirements

– The establishment of an understanding with management regarding the services to be performed performed – Management’s responses to inquiries involving fluctuations or relationships that are inconsistent fluctuations or relationships that are inconsistent with other information or differ significantly from expected amounts – Significant matters covered in the inquiry procedures and the responses received

• Can be done via memorandum checklist or other
• Can be done via memorandum, checklist or other

means

23

SSARS 19 – Review Documentation Changes (Cont ) Changes (Cont.)

– Any significant findings or issues

• The results of procedures that indicate the f/s

could be materially misstated Actions taken to address such findings

• Actions taken to address such findings
• The basis for final conclusions

24

SSARS 19 – New Compilation Reporting Option Reporting Option

• Pursuant to current literature (AR 100.23), with respect

to a comp, the accountant is required to disclose when he or she is not independent but is precluded from he or she is not independent but is precluded from disclosing the reasons. – SSARS 1 theory (from 1978) was that reasons were SSARS 1 theory (from 1978) was that reasons were not relevant and would cause confusion.

25

SSARS 19 – New Compilation Reporting Option (Cont ) Reporting Option (Cont.)

• Many smaller companies need the accountant to

perform certain non-attest services, such as: – Preparing and posting payroll and payroll reports M i i i h /l – Maintaining the g/l – Preparing and recording j/es Preparing bank recs – Preparing bank recs – Maintaining fixed asset ledger Preparing deferred tax calculations – Preparing deferred tax calculations – Preparing f/s

• If the accountant establishes or maintains internal

If the accountant establishes or maintains internal controls for the client, independence is impaired.

26

SSARS 19 SSARS 19 – – New Compilation Reporting New Compilation Reporting Option (Cont ) Option (Cont ) Option (Cont.) Option (Cont.)

• In 2005, the ARSC issued a survey that set forth

specific questions that the ARSC used to further consider the independence in compilation consider the independence in compilation engagements issue. – Survey was live on aicpa.org from October 2005 to Survey was live on aicpa.org from October 2005 to May 2006. – 4,336 responses received

27

SSARS 19 SSARS 19 – – New Compilation Reporting Option New Compilation Reporting Option (Cont.) (Cont.) ( ) ( )

• If the existing independence requirements with

respect to compilation engagements are retained, should the Accounting and Review Services Committee consider amending Statements on Committee consider amending Statements on Standards for Accounting and Review Services No. 1, Compilation and Review of Financial Statements to allow the accountant to describe the reason(s) for a lack of independence in the accountant’s compilation report? compilation report?

28

SSARS 19 SSARS 19 – – New Compilation Reporting Option New Compilation Reporting Option (Cont.) (Cont.) ( ) ( )

• Yes

– 2,477 responses – 57.9%

• No

– 1,391 responses – 32.5%

• Not sure/don’t know
• Not sure/don t know

– 412 responses – 9.6%

29

SSARS 19 SSARS 19 – – New Compilation Reporting Option New Compilation Reporting Option (Cont.) (Cont.) ( ) ( )

• CPAs in public practice

– Yes 56%; No 35%

• CPAs in industry

– Yes 67%; No 27% – Yes 67%; No 27%

• Non-CPA client of a CPA in public practice

– Yes 86%; No 0%

• Third-party user (i.e., lender or creditor)

– Yes 88%; No 9%

• Other
• Other

– Yes 63%; No 28%

30

SSARS 19 – New Compilation Reporting Option (Cont ) Reporting Option (Cont.)

– Accountant has the option, but is not required to, disclose the reasons for an independence impairment in a comp. If the accountant does decide to disclose the – If the accountant does decide to disclose the reasons for an independence impairment, all of the reasons must be disclosed. – No limitation on what the report can say – The accountant may disclose the reasons in one period and then not disclose in a subsequent period.

• Exercise professional judgment in making the

decision decision – Results in more transparent and useful reports

31

Drill-Down On Key I F B i Issues For Businesses

Kurt Oestriecher, Oestriecher & Co. Kurt Oestriecher, Oestriecher & Co.

Engagement Letters - Compilations

• Should have written communication that documents

the understanding with management

• Reduces the following risks:

Management inappropriately relies on the – Management inappropriately relies on the accountant to protect against risks. – Management has misguided expectation that the Management has misguided expectation that the accountant performs management responsibilities.

33

Engagement Letter – Required Elements

• Objectives of the engagement
• No assurance is provided
• Management responsibilities:

– Financial statements and fair presentation – Designing and implementing internal controls – Preventing and detecting fraud – Compliance with laws and regulations P idi t ll fi i l d d l t d – Providing access to all financial records and related information to the accountant

34

Engagement Letter - Required Elements (Cont ) (Cont.)

• Accountant’s responsibilities

– Conduct engagement in accordance with SSARS

• Limitations of a compilation

N t dit i – Not an audit or review – No testing – No internal control assessment No internal control assessment

• Cannot rely on engagement to disclose errors, fraud or

illegal acts

• Communication responsibilities to management

– Errors, fraud, illegal acts

• Effect of independence impairments on report
• Effect of independence impairments on report

35

Engagement Letter – Required Elements (Cont ) Elements (Cont.)

• Optional elements

– Fees and billings – Liability limitations – Conditions under which access to compilation documents may be granted to others (peer review) Any additional services – Any additional services

36

Engagement Letter - Management Use- Only Engagements Only Engagements

• Additional required elements

– Material departures from reporting framework and ff f d if k if li bl effects of departures if known, if applicable – Disclosure of omission of disclosures and cash flows if applicable flows, if applicable – Reference to supplementary information, if applicable pp

37

Engagement Letters - Reviews

• Should establish an understanding, and such

d di h ld b d d i i understanding should be documented in a written communication with management.

• Risk reductions are similar to compilations.

38

Engagement Letters – Reviews (Cont.)

• Required elements

– Objectives of a review

• Limited assurance that no material modifications

d d are needed – Management responsibilities Preparation and fair presentation of financial

• Preparation and fair presentation of financial

statements

• Designing, implementing and maintaining internal

Designing, implementing and maintaining internal controls

• Prevention and detection of fraud

39

Engagement Letters – Reviews (Cont.)

– Management responsibilities (Cont.)

• Compliance with laws and regulations
• Availability of all financial records
• Provide accountant with representation letter

– Accountant’s responsibilities

• Conduct engagement in accordance with SSARS

– Characteristics of a review P i i ll i i d l ti l d

• Principally inquiry and analytical procedures
• Substantially less in scope than an audit

Accountant’s communication responsibilities – Accountant s communication responsibilities

40

Engagement Letter – Reviews (Cont.)

• Optional features

– Fees and billings – Liability or indemnification issues – Access to review documentation (workpapers) – Additional services for regulatory requirements

41

Review Evidence

• Analytical procedures

– Financial and non-financial relationships – Purpose of analytical procedures – Limitations of analytical procedures

• Three-step process

– Development of expectations C i f d d t t t ti – Comparison of recorded amounts to expectations – Follow up based on comparison

42

Review Evidence (Cont.)

• Inquiries

– Focus inquiries at the appropriate level – Certain required inquiries – Inquiries to follow up on analytical procedures

• Not required to obtain evidence to support

management response to inquiries management response to inquiries

43

Reporting Lack Of Independence

• Accountant must disclose lack of independence.
• Accountant may disclose reasons for lack of

independence: Must disclose all reasons for lack of independence – Must disclose all reasons for lack of independence – Election is for each report issued Samples are provided in SSARS 19 – Samples are provided in SSARS 19

44

SSARS 19 – New Compilation And Review Reports Review Reports

• Reports are revised to make clearer to users
• A title is now required

– Accountant’s Compilation Report – Independent Accountant’s Compilation Report – Independent Accountant’s Review Report Th i t titl i i d t i l d th

• The review report title is required to include the

word “independent.”

45

SSARS 19 – Compilation Reports

• Compilation reports

– Three paragraphs

• Introductory paragraph:

– Identifies the entity – States that the f/s have been compiled – Identifies the f/s that have been compiled – Specifies the date or period covered by the f/s I l d t t t th t th f/ h t – Includes a statement that the f/s have not been audited or reviewed – no opinion or assurance

46

SSARS 19 – Compilation Reports (Cont.)

• Second paragraph

– Management is responsible for the f/s and for internal control over financial reporting. Thi d h

• Third paragraph

– Accountant is responsible to conduct the compilation in accordance with SSARSs compilation in accordance with SSARSs. – States the objective of a compilation

47

SSARS 19 – Review Reports

• Review reports

– Four paragraphs

• Introductory paragraph:

– Identifies the entity – States that the f/s have been reviewed – Identifies the f/s that have been reviewed – Specifies the date or period covered by the f/s – Includes a statement that a review consists of primarily applying analytical procedures and making inquiries applying analytical procedures and making inquiries – Includes a statement that a review is substantially less in scope than an audit and the accountant does not express an opinion an opinion

48

SSARS 19 – Review Reports (Cont.)

• Second paragraph

– Management’s responsibility for the f/s and for internal control

• ver financial reporting
• Third paragraph

Third paragraph

– Accountant’s responsibility is to conduct the review in accordance with SSARSs. SSARSs require the accountant to perform procedures to obtain – SSARSs require the accountant to perform procedures to obtain limited assurance. – The accountant believes that the results of the procedures provide a reasonable basis for the report provide a reasonable basis for the report.

• Fourth paragraph

– Based upon the review, the accountant is not aware of any p , y material modifications that should be made to the f/s (other than modifications indicated in report).

49

Drill-Down On Key I F P titi Issues For Practitioners

Mike Glynn, AICPA Mike Glynn, AICPA

SSARS 19 – Implementation Resources Resources

• New compilation and review guide
• May 2010 Journal of Accountancy article
• CPE
• White paper providing Q&As on new compilation

reporting option at http://www aicpa org/download/auditstd/SSARS 19 W http://www.aicpa.org/download/auditstd/SSARS_19_W hite_Paper.pdf.

• White paper on understanding internal control and

p p g internal control services at http://www.aicpa.org/download/acctstd/Revised_Intern al Control Services Whitepaper pdf al_Control_Services_Whitepaper.pdf

51

Helpful Information And Resources Helpful Information And Resources

• Authoritative standards for non-issuers (SASs,

SSARSs, SSAEs, SQCSs) as of June 1 are available at http://www aicpa org/Professional+Resources/Accou http://www.aicpa.org/Professional+Resources/Accou nting+and+Auditing/Audit+and+Attest+Standards/Aut horitative+Standards+and+Related+Guidance+for+N

• n-Issuers/default.htm

52

Helpful Information And Resources (Cont. Helpful Information And Resources (Cont.)

• AICPA accounting and auditing technical hotline

–(877) 242-7212

– techinquiry@aicpa.org q y@ p g – http://www.aicpa.org/Professional+Resources/Acco unting+and+Auditing/Accounting+and+Auditing+Tec h i l H l / hnical+Help/

53