Yesterday’s post discussed the overall objective of accumulating documentation for a review. This post gets into the specific requirements.
SSARS 19 says the documentation accumulated depends on the circumstances.
Update – SSARS 19 had been replaced by SSARS 21. The entire body of knowledge has been revised. See:
- Flash update on SSARS #21
- Newly approved SSARS will allow a new service, ‘preparation’. Will also require written & signed engagement letters.
- Sample compilation report under SSARS 21
- Sample accountant’s review report for SSARS 21
- Video overview of SSARS 21
- New risk alerts for 2014/2015 are available
The form, content, and extent of what you document is determined by the circumstances of the engagement, the methodology used on your review, the technology tools you use in your firm, and your professional judgment. That gives you a tremendous amount of latitude in determining what kind of documentation to accumulate and the methods used.
As you use your freedom provided by that idea, keep in mind those two overall documentation objectives discussed in the earlier post.
Just as soon as SSARS 19 gives tremendous latitude, it takes a lot of it back. SSARS 19 provides a list of documentation that should be included (aha, that special word again):
Engagement letter – I previously discussed whether you really, really, really have to get an engagement letter for a compilation. Same discussion applies to a review. If you want a long answer to the question, read that post. If you want a short answer, then here it is: yes.
Analytical procedures – These need be documented and should include the expectations which were developed before performing an analytical procedure. You can’t just do an analytical procedure and look at the results. You need to have some expectation for what you will see. You need to document that expectation and why you have that expectation.
For example, you can’t just compare cost of sales from this year to last year. You need to find out what happened to sales overall and cost factors in the market so that you have some reasonable basis for an expectation as to what the change in cost of sales ought to be. It doesn’t make any sense for cost of sales to go up 15% unless you previously knew that sales increased something in the order of 10% to 20%. If you know what happened to sales, then you can have a reasonable expectation for what will happen to cost of sales. So you need to document your expectations and why you have those expectations.
How did the analytical procedure turn out? Document the results of the analytical.
What did management have to say about the fluctuations? When you see the results of an analytical procedure that don’t make sense or a relationship that is inconsistent with your expectation, you obviously are going to ask management what happened. Document their comments. Document why the relationship that previously didn’t make sense now does make sense.
What else did you do in response to unexpected difference from analytical procedures? If the results of the analytical are really odd and management cannot give a reasonable explanation, then you know that you have to go do some additional analysis. You need to document that additional work.
Next post finishes the list of required documentation in a review.