New rules are coming for the preparation of financial statements that could significantly affect service engagements between CPA firms and clients – for the better.
Last week the American Institute of CPAs (AICPA) updated the professional standards for compilations and reviews with the release of Statements on Standards for Accounting and Review Services No. 21 (SSARS No. 21).
The major change with SSARS No. 21 is the establishment of standards that will apply when a CPA is engaged to prepare financial statements, but is not engaged by the client to compile, review or audit the financial statements. These new standards for preparation engagements will provide a significant and useful new service approach for CPAs and their clients.
In a preparation engagement, the statements must clearly state that the CPA does not provide assurance on the financial statements, similar to a compilation. Unlike a compilation, however, no accountants’ report will accompany prepared financial statements and the CPA is not required to evaluate independence like they must do for a compilation, review or audit engagement.
The AICPA and most practicing CPAs believe this new preparation standard clarifies a gray area that has existed for some time in the professional standards. It fills the service need when the client seeks a CPA to prepare their financial statements, but does not desire a compilation report.
SSARS No. 21 also restates the standards for compilation and review engagements with a few minor changes. It clarifies that compilations are attest engagements and modifies the format of the accountants’ compilation report to shorten it and clearly differentiate the report from that of audit or review engagements, where assurance is provided.
Changes in technology have transformed how CPAs assist their clients in preparing financial statements. In the past, it was very clear when a CPA physically prepared a hard copy of financial statements and presented them to the client.
Today, with the evolution of interactive accounting software, it is not always clear when the statements are technically “prepared” and “presented.” This update establishes standards that clearly apply when an accountant is engaged to prepare financial statements.
These standards are issued by the AICPA Accounting and Review Services Committee (ARSC). SSARS No. 21 was issued in an effort to provide clarity to the professional standards behind compilation and review engagements.
- These changes do not impact professional standards for audits.
- Preparation engagements are considered non-attest services.
- SSARS No. 21 is effective for financial periods ending after December 15, 2015. Early adoption is permitted.
For more information about this update or how preparation services can be useful to your organization, contact Mike Bedel at (317) 613-7852 or email [email protected].