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New Compilation and Review Standard Addresses Many Small Firm Issues

February 17, 2010

 

At its final meeting of 2009, the AICPA’s Accounting and Review Services Committee (ARSC) approved Statement on Standards for Accounting and Review Services (SSARS) No. 19, a new compilation and review standard that includes the most significant changes to the SSARSs since 1978. An over-arching goal of the new standard was to address issues that had emerged over years with small CPA firms and their small business clients.

 

For example, one of the major changes reflected in the new standard is to allow, but not require, CPAs to disclose in the compilation report the reason(s) why they are not independent when performing a compilation service. CPAs always had been permitted to perform compilations when not independent but were prohibited from including in the report an explanation regarding the lack of independence. The standard is effective for compilations and reviews of financial statements for periods ending on or after December 15, 2010, with the exception of the new provision on the compilation reporting option which may be implemented early. With SSARS No. 19’s issuance on December 30, 2009, the compilation reporting option became available.

 

 “This change has long been supported by many CPAs from small firms, as well as by those who use their compilation reports,” says Jeannine Birmingham, President of the Alabama Society of CPAs. “Allowing CPAs to explain the reasons why they are not independent will provide transparency to users and flexibility for CPAs.”

 

Other Changes

 

Another important change made by SSARS No. 19 is that the new standard separates the compilation guidance from the review guidance.  For the large number of small firm practitioners who perform compilations but not reviews, this makes the compilation guidance much easier to use.  Other significant changes include:

 

• A discussion of how the accountant obtains limited assurance through the performance of review procedures.
• Introduction of the term review evidence to the review literature.
• A discussion of tailoring the review procedures based on the accountant’s understanding of the client’s industry, knowledge of the client, and awareness of the risks that he or she may unknowingly fail to modify the review report on materially misstated financial statements.
• A discussion of materiality in the context of a review engagement.
• A requirement that an accountant document the establishment of an understanding with management through a written communication (e.g., an engagement letter) regarding the services to be performed.
• The establishment of enhanced documentation requirements for compilation and review engagements.

New Standard Differs from Exposure Draft

 

There are a couple of differences between the exposure draft released for comment in April 2009 and the final standard that was issued. Most notably, the proposal to allow an accountant to perform a review engagement when the accountant’s independence was impaired due to the performance of internal control services to the client was deferred. Based on comments on both sides of the issue, the ARSC decided to conduct additional outreach with key stakeholders to glean more insight on such review engagements. 

 

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