SSARS #22 addresses Compilation of Pro Forma Financial Information. This document rolls SSARS #14 into the clarified format. This is the last section of the old SSARS to be rewritten as a clarified document.
That may be how the vast majority of CPAs perform all the time, but some CPAs miss the target completely. Image courtesy of DollarPhotoClub.com
Previously mentioned that I looked disciplinary actions reported in the last four newsletters from the California Board of Accountancy (CBA). Want to better understand what happened with firms that got in trouble for audit quality or for not getting a peer review when one was required.
Will continue that discussion by looking at sanctions imposed on smaller firms and then self-imposed trouble generated by some larger firms.
That may be how the vast majority of CPAs perform every day, but some CPAs miss the target completely. Image courtesy of DollarPhotoClub.com
Three times a year the California Board of Accountancy issues a newsletter. It contains a variety of information useful for CPAs. If you are a CPA, you really ought to be reading the newsletter.
That newsletter is also where the board publicizes disciplinary actions against CPAs.
In the last few newsletters I’ve noticed a number of cases where firms are sanctioned for substandard audits. Have also noticed a number of firms sanctioned for not getting a peer review when it was required or fibbing to the board whether they had complied with the peer review standards.
I wanted to understand better what I’ve noticed in passing so decided to dive into the disciplinary reports to get a better picture of the extent of sanctions for audit quality and peer review issues. I looked at the Fall 2014, Winter 2015, Summer 2015, and Fall 2015 newsletters.
That covers 16 months of reporting for disciplinary actions by CBA.
I focused on sanctions for audit issues excluding anything that was a follow-up to PCOAB or SEC sanctions. That rules out quite a few cases.
Also ignored a long list of social misbehavior such as DUIs (several incidents), fabricating Form E (once – fabricating the experience report? – really??), embezzlements, disbarment (once), and other such human foibles. Also excluded a variety of contingency fee violations, breaches of client trust, and sundry tax fiascos.
For context, the Fall 2015 newsletter had 28 disciplinary actions of which 5 were of interest for this little bitty research project. Of those 5 cases, the public notices refer to 2 firms which had substandard audits, 1 had a substandard compilation, and 4 included failures to get a peer review when required of which 2 fibbed to CBA about compliance with the peer review requirement.
Image courtesy of Amazon. Used for this review under Fair Use.
Charles Hall has written a book describing a new service called ‘preparation’ and the changes for compilations from SSARS 21.
If you perform a few compilation engagements a year and have not started paying attention to the complete rewrite of comp and review rules, this is the book for you. The transition date is financial statements for years ending after December 15, 2015. Essentially this applies to all your 12/31/15 comp and review work.
If you would like to compare the various definitions in play for materiality, then Emily Chasan has the article for you at the Wall Street Journal on 11/3: Definition of Materiality Depends Who You Ask.
The definition readers of this blog have incorporated deep into their brain is from FASB, as follows:
I’m in the process of writing and rewriting a series of CPE courses on compilations, reviews, and preparation services. These courses will describe the changes made from SSARS #21, which is a major rewrite of the comp and review rules.
These courses will be a major overhaul of what I wrote three years ago for CCH.
Stay tuned for more info as the courses become available.
Here’s the courses on SSARS 19 I wrote or updated: …
The effective date of each section of SSARS #21 is for financial statements for periods ending on or after December 15, 2015.
On a practical basis, for most accountants that means your clients with fiscal years ending December 31, 2015 will be the first set of reports for which you must apply SSARS 21. I have to simplify effective dates to keep them straight, so here goes: SSARS 21 applies for 12/31/15 balance sheets.
That means you will need to apply SSARS 21 for work performed in early 2016 on 12/31/15 financials.
Update: If you are checking out the requirements for compilation reports, you might benefit from buying a Primer on Compilation and Preparation engagements under SSARS #21. Book is written by my friend, Charles Hall, CPA. For Wednesday 12/2 the price is a mere $0.99.
Here is the new compilation report that will be used when SSARS 21 goes into effect.
I will provide three examples. First, the illustrative standard report. Second, modification of the standard report for a sole practitioner. Third, modification for a non-profit organization.
The rewrite of SSARS into clarified format will be issued this week, Thursday, October 23.
Here is a one sentence summary: The new document will completely rewrite the SSARS literature, will add a new service called “preparation”, and will add new requirements for comps & reviews.
In August, the Accounting and Review Services Committee approved the clarified SSARS. This rewrites the SSARS into the same clarified format we saw with the audit literature.
The biggest change is the introduction of a new service, called preparation, which will allow a CPA to issue financial statements without providing an accountant’s report or performing procedures on the information.
