Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Proposed revision to compilation rules, including new reports

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In October 2013, the ARSC issued an exposure draft to revise the compilation standards. Two of the major changes are a requirement for the engagement letter to be signed by management and a completely new comp report.

The ED is Proposed Statements on Standards for Accounting and Review Services: Preparation of Financial Statements, Compilation  Engagements, and Association With Financial Statements

One key change is a signed, written engagement will be required for a compilation report.  That is discussed in a previous post,

The new service of preparing financial statements effectively replaces the old approach of management use only financial statements, which we refer to as a SSARS 8 report (ignore the technicality that SSARS 8 was replaced by SSARS 19 and thus doesn’t actually exist anymore – everybody knows what SSARS 8 report means).

The comments on management use only reports is gone. Go to the preparation ED for the new rules. That was discussed in this post.

Independence

Independence is still not required when performing a compilation.

If impaired, the lack of independence must be disclosed. The accountant has the option to disclosure the reasons for impaired independence, but if any reasons are listed, then all causes for impairment must be described.

New compilation report

The ED will require a revised compilation report. The goal is to have something that is visually quite different from a review or audit report.

If approved, the changes will be effective for 2015 calendar years. Technical transition date is financial statements for years ending after December 15, 2015. Early implementation is allowed.

Example of new report

Here is how the new reports will look for a simple situation – slightly modified from Illustration 1 for one-partner firm:

[appropriate salutation is not a required element!]

Management is responsible for the accompanying financial statements of XYZ Company as of, and for the years ended, December 31, 2015 and 2014 in accordance with accounting principles generally accepted in the United States of America. I have performed a compilation engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. I did not audit or review the financial statements nor was I required to perform any procedures to verify the accuracy or completeness of the information provided by management. Accordingly, I do not express an opinion, a conclusion, nor provide any form of assurance on these financial statements.

[Signature of accountant]

[City and state]

[Report date]

Current report

For comparison, here is a simple example of a three-paragraph comp report in use today, modified for a one partner firm:

[Appropriate Salutation]

I have compiled the accompanying balance sheets of XYZ Company as of December 31, 2015 and 2014, and the related statements of income, retained earnings, and cash flows for the years then ended. I have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or provide any assurance about whether the financial statements are in accordance with accounting principles generally accepted in the United States of America.

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America and for designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of the financial statements.

My responsibility is to conduct the compilations in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. The objective of a compilation is to assist management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements.

[Signature of accountant]

[Date]

Quite a big change, as you can see.

Complex example

Here is a more complex report, when disclosures are omitted, there is lack of independence, and tax basis is the financial reporting framework (modified from illustration 3 and 4):

[appropriate salutation is not a required element!]

Management is responsible for the accompanying financial statements of XYZ Company as of, and for the years ended, December 31, 2015 and 2014 in accordance with the tax basis of accounting. We have performed a compilation engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. We did not audit or review the financial statements nor were we required to perform any procedures to verify the accuracy or completeness of the information provided by management. Accordingly, we do not express an opinion, a conclusion, nor provide any form of assurance on these financial statements.

The financial statements are prepared in accordance with the tax basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America.

Management has elected to omit substantially all the disclosures ordinarily included in financial statements prepared in accordance with the tax basis of accounting. If the omitted disclosures were included in the financial statements, they might influence the user’s conclusions about the company’s assets, liabilities, equity, revenue, and expenses. Accordingly, the financial statements are not designed for those who are not informed about such matters.

We are not independent with respect to XYZ Company.

[Signature of accounting firm]

[city and state]

[report date]

Written by Jim Ulvog

January 6, 2014, 5:59 am at 5:59 am

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