presents Mastering SSARS No. 19 on Compilations and Reviews presents Preparing for the New Engagement Framework and Emphasis on Practitioner Judgment A Li 110 Mi t Tl f /W bi ith I t ti Q&A Today's panel features: Mike Glynn, Technical Manager, Audit and Attest Standards Team, AICPA, New York Kurt Oestriecher , CPA, Partner-In-Charge, Accounting and Auditing Services, Oestriecher & Company, CPA’s, Alexandria, La. A Live 110-Minute Teleconference/Webinar with Interactive Q&A Wednesday, June 2, 2010 The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 am Pacific You can access the audio portion of the conference on the telephone or by using your computer's speakers. Please refer to the dial in/ log in instructions emailed to registrations.
Transcript
presents
Mastering SSARS No. 19 on Compilations and Reviews
presents
pPreparing for the New Engagement Framework and
Emphasis on Practitioner Judgment
A Li 110 Mi t T l f /W bi ith I t ti Q&A
Today's panel features:Mike Glynn, Technical Manager, Audit and Attest Standards Team, AICPA, New York
Kurt Oestriecher, CPA, Partner-In-Charge, Accounting and Auditing Services, Oestriecher & Company, CPA’s, Alexandria, La.
A Live 110-Minute Teleconference/Webinar with Interactive Q&A
, , g , g g , p y, , ,
Wednesday, June 2, 2010
The conference begins at:1 pm Eastern12 pm Central
11 am Mountain10 am Pacific
You can access the audio portion of the conference on the telephone or by using your computer's speakers.Please refer to the dial in/ log in instructions emailed to registrations.
For Continuing Education purposes, gplease let us know how many people are listening at your location by g y y
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Mastering SSARS No. 19 On Compilations And Reviews
Drill-Down On Key Issues For Businesses Slides 32-49
(Kurt Oestriecher)
Drill-Down On Key Issues For Practitioners Slides 50-53
(Mike Glynn)
5
Review Of SSARS No. 19 B k d TBackground, Terms
Mike Glynn, AICPAMike Glynn, AICPA
Session Session ObjectiveObjective
• Discuss the changes to the compilation and review literature as a result of the issuance of SSARS 19, Compilation and Review Engagements in December 20092009
7
Compilation Compilation –– What It Is What It Is
• A compilation is:– A service provided by an accountant– Objective is to assist management in presenting
financial information in the form of financial statementsstatements
– Accountant does not obtain or provide any assurance that there are no material modifications that should be made to the financial statements.
8
Compilation Compilation –– What It Is NotWhat It Is Not
• A compilation is not an assurance engagement.– Does not contemplate:
• Performing inquiries• Performing analytical review procedures• Obtaining an understanding of internal control• Assessing fraud risks
T ti ti d• Testing accounting records
9
Review Review –– What It IsWhat It Is
• A review is:– A limited assurance engagement
• Accountant accumulates review evidence (primarily through analytical procedures and(primarily through analytical procedures and inquiries).
10
Review Review –– What It Is NotWhat It Is Not
• A review is not:– An audit (high level of assurance engagement)
• As such, does not contemplate:– Obtaining an understanding of internal control– Assessing fraud risk– Testing accounting records
11
SSARS 19
• Effective for comps and reviews of f/s ending on or after 12/15/10
E l i l i i d f i– Early implementation permitted for new reporting option for comps when independence is impaired
• Replaces AR 20, 50 and 100
• Will be codified as AR 60, 80 and 90
12
SSARS 19 – Separating Compilation Guidance From Review GuidanceGuidance From Review Guidance
• In place of AR 20, 50 and 100, the SSARSs will include new sections:– AR 60, Framework for Performing and Reporting on
Compilation and Review EngagementsCompilation and Review Engagements– AR 80, Compilation of Financial Statements– AR 90 Review of Financial Statements– AR 90, Review of Financial Statements
• AR sections 110 (Elements), 120 (Pro Forma), 200 (Comparatives), 300 (Prescribed Forms), 400 ( p ) ( )(Successor/Predecessor Communications), and 600 (Personal Financial Statements) will be conformed.
13
SSARS 19 – Separating Compilation Guidance From Review Guidance (Cont.)Guidance From Review Guidance (Cont.)
• Change made in response to member comments that literature was difficult to use
• Members performing compilations can now just look at the compilation section without having to look at reviewthe compilation section without having to look at review guidance
14
SSARS 19 – Clarification Of Review Performance ProceduresPerformance Procedures
• Is intended as a clarification, and most accountants should see minimal impact on how they perform their engagements.A review is not:• A review is not:– An AUP engagement– Canned analytical procedures and inquiries– Canned analytical procedures and inquiries– A compilation plus a few extra procedures
• A review is:A review is:– An assurance engagement
• As such, has certain similarities to an audit ,engagement
• A review requires the accumulation of review evidence that will provide the accountant with limited assurance that there are no material modifications that should bethat there are no material modifications that should be made to the f/s.– In an audit, the auditor accumulates audit evidenceIn an audit, the auditor accumulates audit evidence
in order to obtain reasonable assurance.
• The accountant uses professional judgment to determine specific procedures.
• Review procedures are tailored based on the accountant’s:– Understanding of the industry
K l d f h li– Knowledge of the client– Awareness of the risk that he or she may
unknowingly fail to modify the accountant’s reviewunknowingly fail to modify the accountant s review report on f/s that are materially misstated
• May include procedures other than analytical procedures and inquiries
18
SSARS 19 – Documenting The Understanding With ManagementUnderstanding With Management
• Does not change the requirement to establish an understanding with management regarding the services to be performedservices to be performed.– Previously, the SSARSs stated that it was
preferable that the understanding be in writing.preferable that the understanding be in writing.– SSARS 19 requires that the understanding be
documented in writing.• This may result in a change in practice for some
accountants.
19
SSARS 19 – Documenting The Understanding With Management (Cont.)Understanding With Management (Cont.)
• Leaves open the engagement that the written understanding should cover.
C bi h hl il i– Can combine the monthly compilation engagements and annual review in one engagement letter
– Engagement letters can cover multiple years– Engagement letters can cover multiple years• Is discouraged, since the understanding may lose
clarity as time passesy p• Recommendation is that the understanding be
documented at least annually
20
SSARS 19 – Enhanced Requirements For Compilation DocumentationFor Compilation Documentation
• Previously, accountant was only required to document:– The understanding with management regarding
services to be performed if in a SSARS 8 engagementengagement
– Communications to management regarding suspected fraud or illegal actsp g
• Requirements are expanded– Understanding with management regarding services
b f d f llto be performed for all engagements– Any findings or issues that, in the accountant’s
judgment are significantjudgment, are significant– Communications regarding fraud and illegal acts
22
SSARS 19 – Review Documentation ChangesChanges
• New documentation requirements– The establishment of an understanding with
management regarding the services to be performedperformed
– Management’s responses to inquiries involving fluctuations or relationships that are inconsistentfluctuations or relationships that are inconsistent with other information or differ significantly from expected amounts
– Significant matters covered in the inquiry procedures and the responses received• Can be done via memorandum checklist or other• Can be done via memorandum, checklist or other
– Any significant findings or issues• The results of procedures that indicate the f/s
could be materially misstatedActions taken to address such findings• Actions taken to address such findings
• The basis for final conclusions
24
SSARS 19 – New Compilation Reporting OptionReporting Option
• Pursuant to current literature (AR 100.23), with respect to a comp, the accountant is required to disclose when he or she is not independent but is precluded fromhe or she is not independent but is precluded from disclosing the reasons.– SSARS 1 theory (from 1978) was that reasons wereSSARS 1 theory (from 1978) was that reasons were
• If the accountant establishes or maintains internalIf the accountant establishes or maintains internal controls for the client, independence is impaired.
26
SSARS 19 SSARS 19 –– New Compilation Reporting New Compilation Reporting Option (Cont )Option (Cont )Option (Cont.)Option (Cont.)
• In 2005, the ARSC issued a survey that set forth specific questions that the ARSC used to further consider the independence in compilationconsider the independence in compilation engagements issue.– Survey was live on aicpa.org from October 2005 toSurvey was live on aicpa.org from October 2005 to
May 2006.– 4,336 responses received
27
SSARS 19 SSARS 19 –– New Compilation Reporting Option New Compilation Reporting Option (Cont.)(Cont.)( )( )
• If the existing independence requirements with respect to compilation engagements are retained, should the Accounting and Review Services Committee consider amending Statements onCommittee consider amending Statements on Standards for Accounting and Review Services No. 1, Compilation and Review of Financial Statements to allow the accountant to describe the reason(s) for a lack of independence in the accountant’s compilation report?compilation report?
28
SSARS 19 SSARS 19 –– New Compilation Reporting Option New Compilation Reporting Option (Cont.)(Cont.)( )( )
• Yes– 2,477 responses– 57.9%
• No– 1,391 responses– 32.5%
• Not sure/don’t know• Not sure/don t know– 412 responses– 9.6%
29
SSARS 19 SSARS 19 –– New Compilation Reporting Option New Compilation Reporting Option (Cont.)(Cont.)( )( )
• CPAs in public practice– Yes 56%; No 35%
• CPAs in industry– Yes 67%; No 27%– Yes 67%; No 27%
• Non-CPA client of a CPA in public practice– Yes 86%; No 0%
• Third-party user (i.e., lender or creditor)– Yes 88%; No 9%
– Accountant has the option, but is not required to, disclose the reasons for an independence impairment in a comp.If the accountant does decide to disclose the– If the accountant does decide to disclose the reasons for an independence impairment, all of the reasons must be disclosed.
– No limitation on what the report can say– The accountant may disclose the reasons in one
period and then not disclose in a subsequent period.• Exercise professional judgment in making the
decisiondecision– Results in more transparent and useful reports
31
Drill-Down On Key I F B iIssues For Businesses
Kurt Oestriecher, Oestriecher & Co.Kurt Oestriecher, Oestriecher & Co.
Engagement Letters - Compilations
• Should have written communication that documents the understanding with management
• Reduces the following risks:Management inappropriately relies on the– Management inappropriately relies on the accountant to protect against risks.
– Management has misguided expectation that theManagement has misguided expectation that the accountant performs management responsibilities.
33
Engagement Letter – Required Elements
• Objectives of the engagement• No assurance is provided• Management responsibilities:
– Financial statements and fair presentation– Designing and implementing internal controls– Preventing and detecting fraud– Compliance with laws and regulations
P idi t ll fi i l d d l t d– Providing access to all financial records and related information to the accountant
34
Engagement Letter - Required Elements (Cont )(Cont.)
• Accountant’s responsibilities– Conduct engagement in accordance with SSARS
• Limitations of a compilationN t dit i– Not an audit or review
– No testing– No internal control assessmentNo internal control assessment
• Cannot rely on engagement to disclose errors, fraud or illegal acts
• Communication responsibilities to management– Errors, fraud, illegal acts
• Effect of independence impairments on report• Effect of independence impairments on report
35
Engagement Letter – Required Elements (Cont )Elements (Cont.)
• Optional elements– Fees and billings– Liability limitations– Conditions under which access to compilation
documents may be granted to others (peer review)Any additional services– Any additional services
36
Engagement Letter - Management Use-Only EngagementsOnly Engagements
• Additional required elements– Material departures from reporting framework and
ff f d if k if li bleffects of departures if known, if applicable– Disclosure of omission of disclosures and cash
flows if applicableflows, if applicable– Reference to supplementary information, if
applicablepp
37
Engagement Letters - Reviews
• Should establish an understanding, and such d di h ld b d d i iunderstanding should be documented in a written
communication with management.
• Risk reductions are similar to compilations.
38
Engagement Letters – Reviews (Cont.)
• Required elements– Objectives of a review
• Limited assurance that no material modifications d dare needed
– Management responsibilitiesPreparation and fair presentation of financial• Preparation and fair presentation of financial statements
• Designing, implementing and maintaining internalDesigning, implementing and maintaining internal controls
• Prevention and detection of fraud
39
Engagement Letters – Reviews (Cont.)
– Management responsibilities (Cont.)• Compliance with laws and regulations• Availability of all financial records• Provide accountant with representation letter
– Accountant’s responsibilities• Conduct engagement in accordance with SSARS
– Characteristics of a reviewP i i ll i i d l ti l d• Principally inquiry and analytical procedures
• Substantially less in scope than an auditAccountant’s communication responsibilities– Accountant s communication responsibilities
40
Engagement Letter – Reviews (Cont.)
• Optional features– Fees and billings– Liability or indemnification issues– Access to review documentation (workpapers)– Additional services for regulatory requirements
41
Review Evidence
• Analytical procedures– Financial and non-financial relationships– Purpose of analytical procedures– Limitations of analytical procedures
• Three-step process– Development of expectations
C i f d d t t t ti– Comparison of recorded amounts to expectations– Follow up based on comparison
42
Review Evidence (Cont.)
• Inquiries– Focus inquiries at the appropriate level– Certain required inquiries– Inquiries to follow up on analytical procedures
• Not required to obtain evidence to support management response to inquiriesmanagement response to inquiries
43
Reporting Lack Of Independence
• Accountant must disclose lack of independence.
• Accountant may disclose reasons for lack of independence:
Must disclose all reasons for lack of independence– Must disclose all reasons for lack of independence– Election is for each report issued
Samples are provided in SSARS 19– Samples are provided in SSARS 19
44
SSARS 19 – New Compilation And Review ReportsReview Reports
• Reports are revised to make clearer to users
• A title is now required– Accountant’s Compilation Report– Independent Accountant’s Compilation Report– Independent Accountant’s Review Report
Th i t titl i i d t i l d th• The review report title is required to include the word “independent.”
45
SSARS 19 – Compilation Reports
• Compilation reports– Three paragraphs
• Introductory paragraph:– Identifies the entity– States that the f/s have been compiled– Identifies the f/s that have been compiled– Specifies the date or period covered by the f/s
I l d t t t th t th f/ h t– Includes a statement that the f/s have not been audited or reviewed – no opinion or assurance
46
SSARS 19 – Compilation Reports (Cont.)
• Second paragraph– Management is responsible for the f/s and for
internal control over financial reporting.Thi d h• Third paragraph
– Accountant is responsible to conduct the compilation in accordance with SSARSscompilation in accordance with SSARSs.
– States the objective of a compilation
47
SSARS 19 – Review Reports
• Review reports– Four paragraphs
• Introductory paragraph:– Identifies the entity– States that the f/s have been reviewed– Identifies the f/s that have been reviewed– Specifies the date or period covered by the f/s– Includes a statement that a review consists of primarily
applying analytical procedures and making inquiriesapplying analytical procedures and making inquiries– Includes a statement that a review is substantially less in
scope than an audit and the accountant does not express an opinionan opinion
48
SSARS 19 – Review Reports (Cont.)
• Second paragraph– Management’s responsibility for the f/s and for internal control
over financial reporting
• Third paragraphThird paragraph– Accountant’s responsibility is to conduct the review in accordance
with SSARSs.SSARSs require the accountant to perform procedures to obtain– SSARSs require the accountant to perform procedures to obtain limited assurance.
– The accountant believes that the results of the procedures provide a reasonable basis for the reportprovide a reasonable basis for the report.
• Fourth paragraph– Based upon the review, the accountant is not aware of any p , y
material modifications that should be made to the f/s (other than modifications indicated in report).
49
Drill-Down On Key I F P titiIssues For Practitioners
Mike Glynn, AICPAMike Glynn, AICPA
SSARS 19 – Implementation ResourcesResources
• New compilation and review guide• May 2010 Journal of Accountancy article• CPE • White paper providing Q&As on new compilation
reporting option at http://www aicpa org/download/auditstd/SSARS 19 Whttp://www.aicpa.org/download/auditstd/SSARS_19_White_Paper.pdf.
• White paper on understanding internal control and p p ginternal control services at http://www.aicpa.org/download/acctstd/Revised_Internal Control Services Whitepaper pdfal_Control_Services_Whitepaper.pdf
51
Helpful Information And ResourcesHelpful Information And Resources
• Authoritative standards for non-issuers (SASs, SSARSs, SSAEs, SQCSs) as of June 1 are available at http://www aicpa org/Professional+Resources/Accouhttp://www.aicpa.org/Professional+Resources/Accounting+and+Auditing/Audit+and+Attest+Standards/Authoritative+Standards+and+Related+Guidance+for+Non-Issuers/default.htm
52
Helpful Information And Resources (Cont.Helpful Information And Resources (Cont.))
• AICPA accounting and auditing technical hotline
– (877) 242-7212– [email protected] y@ p g– http://www.aicpa.org/Professional+Resources/Acco
unting+and+Auditing/Accounting+and+Auditing+Tech i l H l /hnical+Help/
