Comp and Review alert for 2014 available

The AICPA has released the Compilation and Review Developments – 2013/14 Alert. If you provide comps and reviews, you really should get this annual update and read through it.

Here’s a few tidbits I thought worth sharing.

Ethics rules codification

All the ethics rules are in the process of being rewritten in the same format we’ve seen in the clarity standards. They will appear in a completely different structure. Yeah, something more to read – Go ahead and moan. I’ll wait.

Done?

Okay.

The new format will be easier to read and use. There will be a conceptual framework.

The rules will be separated so one section will apply to those of us in public practice. Another section will have those rules that apply when someone is in private practice. A final section will be those rules that apply to everyone else, like retired people and the unemployed. Rules that apply to all three categories will be repeated in each section. That means you may only have to look at one section to see all the rules that apply to you. Cool.

You know all those interpretations that are spread out and so hard to look up? They will be rewritten and put into the main body of text. I’m looking forward to that.

Engagement letters

The Alert reminds us that we are required to obtain an understanding with the client and document that understanding.  The hairsplitting issue is that a signed engagement letter is not absolutely, positively, no-questions-asked required.

I believe it is unwise not to have a signed engagement letter, but if your professional conclusion is different, you are required to have an understanding and are required to document that understanding in the workpapers.

That will be different with proposed changes to comp and review standards, which will make it a presumptively mandatory requirement to have an engagement letter signed by both the accountant and client.

The so-called “evergreen” engagement letter that covers multiple years is allowed under current and proposed rules. This is also quite unwise.

Here’s how paragraph 39 makes the point that evergreen letters are a bad idea:

[T]he practice of obtaining such multiyear or evergreen engagement letters is strongly discouraged because the understanding between the accountant and management tends to lose clarity as time passes.

Scope creep, fading memories, and changing fees are more sources of danger for evergreen letters.

Notes should refer to accountant’s report

Paragraph AR 80.18 and AR 90.29 say that all pages of the client’s financials should contain a comment referring to the accountant’s report.

The Alert reminds us that the notes are an integral part of the client’s financials and therefore each page of the notes should also contain a reference to the accountant’s report.

Seems to me this is a risk mitigation issue – if you remind the reader on each page that the report was only reviewed or compiled, that would reduce the risk of over reliance on the information.

Financial Reporting Framework for Small- and Medium-Sized Entities

The Alert has a good overview of the newly released Financial Reporting Framework for Small- and Medium-Sized Entities from the AICPA. Shorthand for that is FRF for SMEs^™.

That is a new financial reporting framework that is an alternative to GAAP for a small or medium private business. It is a far more structured framework than modified cash, which actually could be whatever you want it to be.

More

Check out the alert for lots more detail on lots more topics.

Next two posts: common issues identified during peer reviews of comp and review engagements.