Transcript Developed and presented by Samuel A. Monastra, CPA  SAMUEL A.

Developed and presented by Samuel A. Monastra, CPA

SAMUEL A. MONASTRA, CPA
Mr. Monastra has extensive experience with publicly held
companies and large privately held companies. Industry focus:
manufacturing, life sciences & technology, financial services, and
public sector.
Mr. Monastra served in executive roles with National CPA firms,
and as a member of the Editorial Board of the Pennsylvania CPA
Journal. He has also been a frequent speaker for numerous State
CPA Societies, the Institute of Internal Auditors, and the Institute
of Management Accountants on financial reporting topics.
Mr. Monastra has a focus on financial reporting with a particular
emphasis on Revenue Recognition, IASB/FASB Convergence,
Business Combinations, Asset Impairments, and Fair Value.
SSARS No. 21, which represents one of the most significant revisions
to non audit standards for CPAs in the last 35 years, affects:
Engagements in which CPAs prepare financial statements for clients.
Compilation engagements, in which CPAs assist management in
presenting information in the form of financial statements without
obtaining or providing assurance on that information.
Review engagements, in which CPAs obtain limited assurance as a
basis for reporting whether the accountant is aware of any material
modifications that should be made to the financial statements for
them to be in accordance with the applicable financial reporting
framework, primarily through the performance of inquiry and
analytical procedures.
The new standards are designed to be a better fit for the current
electronic and cloud-based practice environment. ARSC
Chairman Michael Brand, CPA, CGMA, said in a news release that
when accountants prepared and mailed or handed paper
financial statements to their clients, it made sense for CPAs, at a
minimum, to issue compilation reports on those financial
statements.
Brand said that in today’s electronic environment, it’s impossible to
determine who prepared financial statements because clients
and CPAs often work together on the accounting, sometimes in
real time using cloud applications.
In recent years, the question of who has prepared financial
statements has become more difficult to answer due to the
expanded use of technology such as cloud computing. By
eliminating the submission requirement, SSARS No. 21
eliminates the need for accountants to use professional
judgment to determine whether they have prepared financial
statements. The potential for diversity in practice also is
eliminated.
SSARS No. 21 makes the compilation rules apply when the
accountant is engaged to perform a compilation service. The new
standard eliminates a requirement from previous standards
dating to 1978 that required accountants in public practice who
prepared financial statements to, at a minimum, perform a
compilation engagement with respect to any financial statements
they presented to management or to third parties.
In recent years, the question of who has prepared financial
statements has become more difficult to answer due to the
expanded use of technology such as cloud computing. By
eliminating the submission requirement, SSARS No. 21
eliminates the need for accountants to use professional
judgment to determine whether they have prepared financial
statements. The potential for diversity in practice also is
eliminated.
SSARS No. 21 includes:
Section 60, General Principles for Engagements Performed in
Accordance With Statements on Standards for Accounting and
Review Services, which includes the general principles for
engagements performed in accordance with SSARSs. It replaces AR
Section 60, Framework for Performing and Reporting on Compilation
and Review Engagements.
Section 70, Preparation of Financial Statements, which applies when
the accountant is engaged to prepare financial statements but is not
engaged to perform an audit, review, or compilation on those
financial statements. The accountant is required to include a legend
on each page of the financial statements stating that no assurance is
being provided.
The accountant is required to obtain an engagement letter signed by
both the accountant and the client’s management. Like all other
nonattest bookkeeping/accounting services engagements, the
accountant is not required to consider whether he or she is
independent. The standard can be applied to financial statements
with or without disclosures.
Section 80, Compilation Engagements, which provides requirements and
guidance when an accountant is engaged to perform a compilation on
historical financial statements. Previously, AR Section 80, Compilation of
Financial Statements, applied when an accountant was engaged to issue
a compilation report on financial statements or submitted financial
statements to the client or to third parties.
The performance requirements for compilation engagements are largely
unchanged. A report is always required (non-reporting managementuse-only engagements would be covered by the preparation standard).
To differentiate the non-assurance compilation report from assurance
(review and audit) reports, the report is streamlined so that the standard
report is just one paragraph with no headings.
The requirement that the accountant modify the accountant’s compilation
report whenever the accountant’s independence is impaired is retained.
The accountant is required to obtain an engagement letter signed by
both the accountant and the client’s management. The standard can be
applied to financial statements with or without disclosures.
Section 90, Review of Financial Statements. The standards for
review engagements are basically a clarity redraft of the review
literature with few changes to SSARS No. 19.
All existing AR sections with the exception of AR Section 120,
Compilation of Pro Forma Financial Information, are superseded
by SSARS No. 21. AR Section 120 is expected to be clarified and
exposed for public comment in 2015, along with proposed
requirements and guidance related to the compilation of
prospective financial information.
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SSARS No. 21 takes effect for engagements on financial statements
for periods ending on or after Dec. 15, 2015. Early implementation
is permitted. Smaller firms may find it productive to adopt early and
benefit from some of the efficiencies that may be realized by
performing an engagement to prepare financial statements in
accordance with Section 70.
Prepare and present
Prepare and present is the “trigger” for issuing
a compilation report. SSARS 21 clarifies the
trigger: “the decision to issue a compilation
report is based solely upon whether the CPA
is engaged to do so – and not upon whether
the accountant prepares and presents the
financial statements to the client.”
Preparation of Financial Statements
(Section 70)
Preparation of the financial statements is a
non-attest, non-assurance service. A signed
engagement letter is required; the letter must
be signed by the client and the CPA.
Preparation of Financial Statements
(Section 70)
Section 70 applies when the CPA is engaged to
prepare financial statements (not engaged to
issue a compilation, review or audit report).
You are not required to be independent to
prepare financial statements.
You may omit disclosures if the client does not
need them.
Preparation of Financial Statements
(Section 70)
When preparing financial statements in
accordance with special purpose framework/
OCBOA, it is required to include a description
of the financial reporting framework on the
face of the financial statements or in a note
to the financial statements.
Preparation of Financial Statements
(Section 70)
The use of a legend is required on each page of
the financial statements stating “no assurance is
provided”. If a legend is not provided, issue a
disclaimer report that is signed by the CPA,
stating:
“The accompanying financial statements of XYZ Company as of and for
the year ended December 31, 20XX, were not subjected to an audit,
review, or compilation engagement by me (us) and, accordingly, I
(we) do not express an opinion, a conclusion, nor provide any
assurance on them”.
Preparation of Financial Statements
(Section 70)
AICPA Code of Conduct Considerations
The AICPA Code of Conduct prohibits the CPA from
being associated with financial statements that
are misleading. While this requirement is not a
part of SSARS 21, it is still relevant to
accountants subject to the AICPA Code of
Conduct (the ethical rules for CPAs). If a client
desires for the CPA to issue financial statements
that are clearly misleading, then the CPA may not
do so–even under the Preparation standard.
Compilation Engagements
(Section 80)
Independence is not required to issue a
compilation report; lack of independence,
however, must be noted in the compilation
report.
An engagement letter must be signed by the
client and the CPA.
Compilation Engagements
(Section 80)
The following sample compilation report must be signed by the CPA:

Management is responsible for the accompanying financial statements of
XYZ Company, which comprise the balance sheets as of December 31,
20X2 and 20X1 and the related statements of income, changes in
stockholder’s equity, and cash flows for the years then ended, and the
related notes to the financial statements in accordance with accounting
principles generally accepted in the United States of America. I (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. I (we) did not
audit or review the financial statements nor was (were) I (we) required to
perform any procedures to verify the accuracy or completeness of the
information provided by management. Accordingly, I (we) do not express
an opinion, a conclusion, nor provide any form of assurance on these
financial statements.
Compilation Engagements
(Section 80)
Accountants will still add additional paragraphs to the
compilation report when applicable:
1)When financial statements are prepared in accordance with
a Special Purpose Framework/OCBOA
2) Disclosures omitted
3) Lack of independence
4) Known Departure From the Applicable Financial Reporting
Framework
5) Supplementary Information Accompanies Financial
Statements and the Accountant’s Compilation Report
Thereon
Key differences between compilation and
preparation services:
1) When does the standard apply?
Compilation: when enagaged to compile
Preparation: when engaged to prepare
2) Engagement letter required?
Compilation : yes
Preparation: yes
Key differences between compilation and
preparation services:
3) Independence required?
Compilation: yes
Preparation: no
4) Lack of independence disclosure required?
Compilation : yes
Preparation: N/A
Key differences between compilation and
preparation services:
5) Does the engagement require a report?
Compilation: yes
Preparation: no
6) May the financial statements go to users
outside of management?
Compilation : yes
Preparation: yes
Key differences between compilation and
preparation services:
7) May the financial statements omit notes?
Compilation: yes
Preparation: yes
Review engagements
(Section 90)
The CPA needs to determine that the client has
sufficient skill, knowledge and experience to
assume the responsibility for the statements; if
the client does not possess sufficient skill,
knowledge, and experience, the CPA is not
independent.
Independence is required to perform a review.
Effective date and transition:
SSARS No. 21 takes effect for engagements on
financial statements for periods ending on or
after Dec. 15, 2015. Early implementation is
permitted. Smaller firms may find it productive
to adopt early and benefit from some of the
efficiencies that may be realized by performing
an engagement to prepare financial statements
in accordance with Section 70.
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Summary and Final Thoughts