MAPA Quality Review

From the June, 2010 MAPAN

By Jim Lewis, Technical Reviewer

Statement on Standards for Accounting and Review Services (SSARS) No. 19

As a member of MAPA’s Quality Review Committee, I was selected to inform you of the upcoming major changes for compilations and reviews. There has not been much real change in the compilation and review standards since SSARS inception in 1978. SSARS No. 19 replaces the previous 18 compilation and review standards with one concise standard that includes new concepts and major revisions.

Objective – This new standard has a twofold effect.
1. The separation of the compilation standards from the review standards.
2. The convergence of SSARS terms and concepts with the international standards.

Concepts – SSARS No. 19 has been reorganized to separate its requirements and guidance for compilations and reviews into the following sections.
1. Framework for Performing and Reporting on Compilation and Review Engagements.
2. Compilation of Financial Statements.
3. Review of Financial Statements.

Definitions – The SSARS No. 19 framework adds definitions that were absent in the prior standards.

• Materiality – As defined from an accounting perspective versus an auditing perspective.
• Evidence – Necessary to provide limited assurance in a review engagement.

Engagement Letters – Engagement letters that provide an understanding with the client’s management of the services to be performed must be in writing.

Knowledge – The extent of knowledge required will be separately defined for compilations and reviews. The extent of knowledge to be obtained will be greater for a review than a compilation. The knowledge obtained for a review must be sufficient to determine the nature, timing, and extent of review procedures.

Documentation – The documentation requirements have been expanded for compilations and reviews.
2. For compilations, significant findings and issues need to be documented.
3. For reviews, significant findings and issues need to be documented in addition to inquiries made and responses, analytical procedures performed and the results.

Independence – The accountant’s compilation report is now allowed to include a general description of the reason for lack of independence.

Reporting – The reporting format has changed for both compilations and reviews.

1. For compilations, the standard accountant’s compilation report will include 3 paragraphs.

Introductory Paragraph
A. Identifies the entity whose financial statements have been compiled.
B. States that the financial statements have been compiled.
C. Identifies the financial statements that have been compiled.
D. Specifies the date or period covered by the financial statements, and
E. Includes a statement that the accountant has not audited or reviewed the financial statements and, accordingly, does not express an opinion or provide any assurance.
Second Paragraph
States management’s responsibility for the financial statements and for internal control over financial reporting.
Third Paragraph
States the accountant’s responsibility to conduct the compilation in accordance with SSARS and the objective of the compilation.

The report should be titled “Independent Accountant’s Compilation Report.”

2. For reviews, the standard accountant’s review report will include 4 paragraphs.

Introductory Paragraph
A. Identifies the entity whose financial statements have been reviewed,
B. States that the financial statements have been reviewed,
C. Identifies the financial statements that have been reviewed,
D. Specifies the date or period covered by the financial statements, and
E. Includes a statement that a review consists primarily of applying analytical procedures to management’s financial data and making inquiries, and a review is substantially less in scope than an audit.
Second Paragraph
States management’s responsibility for the financial statements and for internal control over financial reporting.
Third Paragraph
A. States the accountant’s responsibility is to conduct the review in accordance with SSARS,
B. States that those standards require the accountant to perform the procedures to obtain limited assurance that there are no material modifications that should be made to the financial statements, and
C. States that the accountant believes that the results of their procedures provide reasonable basis for their report.
Fourth Paragraph
States that based on their review, the accountant is not aware of any material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework other than those modifications, if any, indicated in the report.

The report should be titled “Independent Accountant’s Review Report.”

Implementation – The new standards are effective for periods ending after December 15, 2010. Therefore, all of your 2010 calendar year compilation and review engagements will be subject to these standards.

Be sure to make your plans now to attend an accounting seminar covering SSARS No. 19.