(duplicate of post from Attestation Update blog)
Update – SSARS 19 had been replaced by SSARS 21. All the reports have been revised. You can check out these posts at my other blog, Attestation Update:
- Flash update on SSARS #21
- Newly approved SSARS will allow a new service, ‘preparation’. Will also require written & signed engagement letters.
- Sample compilation report under SSARS 21
- Sample accountant’s review report for SSARS 21
- Video overview of SSARS 21
- New risk alerts for 2014/2015 are available
If you prepare compiled financial statements for management use only (which means the reports will not be going to third parties), you will be glad to know the new SSARS 19 document includes the guidance that used to be in SSARS 8. Let me describe some of the provisions.
Paragraph 2.5 describes some of the information that should be included in the engagement letter. For example, management should say the financial statements will not be used by a third party. If applicable, the engagement letter should say that all disclosures will be omitted, as well as the statement of cash flows (if that is the case), should refer to any supplemental information and should say there may be material departures from the applicable financial reporting framework. I’m not sure how you would not include the comment about possible material departures, but SSARS 19 puts that in the “if applicable” category. An example engagement letter is in Exhibit A on page 47 of the hard copy of SSARS 19.
The reporting for this situation is covered in paragraphs 2.22 through 2.24. Paragraph 2.22 says that when the compiled financial statements are not expected to be used by a third party, a compilation report does not need to be issued. Good news, huh? Paragraph 2.23 says each page of the financial statements should contain a restrictive comment. The document suggests two possibilities: “Restricted for Management’s Use only” and also “Solely for the information and use by the management of (name of entity) and not intended to be and should not be used by any other party.” It might be wise for you to set a firm-wide policy and put that on all such reports.
Paragraph 2.24 deals with the situation when you figure out that the financial statements have gone to a third party. It outlines the steps you should take. If you get into that situation, you better go read the original text, so I won’t go into it here. Be aware the last sentence has the warning you would expect that after walking through a few steps, you should figure out your next step after talking to your attorney.
Two comments. Did you notice that comment about a departure from the applicable financial reporting framework instead of something like departure from GAAP? SSARS 19 is written to refer to the applicable reporting framework instead of GAAP. That is shorthand to refer to whatever basis the financials will be presented on, which could include GAAP, tax, cash, modified cash, IFRS, or any other OCBOA. That way you don’t have to mentally substitute something like “modified cash” for GAAP whenever you see it in the document.
Second, on the comment about talking to your attorney if you find out the client has been handing out your SSARS 8 report? I have learned that it is really a big help to get an attorney involved when you get into something that seems like it will be a mess. I suggest you take those hints seriously! I guess we will have to get another name for this since it isn’t really a SSARS 8 report. I don’t know what we are going to call this type of compilation, but I do know the title on the example engagement letter of “Compilation of Financial Statements Not Intended for Third Party Use” isn’t going to work.
By the way, you really should get a copy of SSARS 19 from the AICPA and read it in great detail. There is a lot of good stuff there.
Update: I have written a 3-hour online CPE course called Compilation and Review: Practice Issues (Third Edition) available at the CCH Learning Center website. From the course description:
This course was prepared to enable participants who are experienced accountants to improve their knowledge of the issues affecting their compilation and review practices.
Course discussed in more detail at this post. If you like the writing you see on this website, check out the Practice Issue course.