Post-implementation issues from SSARS 19 – some good reminders – 2

Highlights of some implementation issues of SSARS 19 discussed by Michael Glynn, CPA, in the August 2011 issue of California CPA magazine. Article is called Life After SSARS No. 19.

 Previous post discussed the need to remember the transition date and that new work performed on years ending prior to 12-15-10 needs to be performed and reported under the pre-SSARS 19 rules.  Also a reminder about the option to disclose reasons for lack of independence.

Final idea from Mr. Glynn that I wanted to mention:

Focus on goal of a review and the level of work needed

One place SSARS 19 is helpful is defining the purpose of a review in terms of level of assurance and what is needed to support that assurance.  Mr. Glynn says:

While analytical procedures and inquiries are required procedures in a review, a review is an assurance engagement and as such has similarities to an audit.

Contrary to simply performing analytical procedures and inquiries, a review requires the accumulation of review evidence that will provide the CPA with limited assurance that no material modifications should be made to the financial statements. This is similar to the auditor’s objective, which is to accumulate audit evidence to obtain reasonable assurance.

If you want a one-sentence summary of a review, here it is again:

…a review requires the accumulation of review evidence that will provide the CPA with limited assurance that no material modifications should be made to the financial statements.

Dive into those key words,

• review evidence,
• limited assurance, and
• material modifications.

Mr. Glynn closes with a discussion of an idea that has been floating around for a long time, specifically that a CPA cannot do anything other than analytical procedures and inquiries on a review.

Instead, the goal of a review is to gain limited assurance there are no material modifications needed for the financial statements. If something beyond an analytical procedure is needed for the CPA to get to the place of having limited assurance, then go ahead and do the extra procedure.

In the cash area, I routinely go beyond analytical procedures and inquiries when my review clients have large balances.  When cash is the second largest item on the asset side of the balance sheet, looking at the cash balance and asking about whether/when/how the recons were prepared just does not get me to limited assurance. 

That is my professional judgment.

Your call may be different.

That’s okay. Really.

That’s why we call it professional judgment.  Just don’t say you can’t do more on cash/notes payable/etc.  or that you must do more.

Mr. Glynn says:

One urban legend SSARS No. 19 debunks is the notion that the CPA is precluded from performing procedures other than analytical procedures and inquiries. There is not, nor has there ever been, such preclusion…

While not required to perform additional procedures, if CPAs feel that they need to perform procedures that are ordinarily performed in an audit to obtain limited assurance, then they should perform those procedures. The concept of “engagement creep” is a myth. CPAs are never forced to perform a higher-level engagement because they perform additional procedures.

Check out the full article. It would be worth your time.