Significant changes to the standards for compilation and review engagements are now in effect. The AICPA’s Accounting and Review Services Committee issued Statement on Standards for Accounting and Review Services (SSARS) No. 19,Compilation and Review Engagements. SSARS 19 is effective for compilations and reviews of financial statements for periods ending on or after December 15, 2010. Here’s what you need to know:
- The reporting requirements for compilation and review engagements have been revised to make management’s responsibilities and the accountant’s responsibility clearer.
- The revised compilation report requires a title that clearly indicates that it is the accountant’s compilation report. The revised review report requires a title that clearly indicates that it is the accountant’s review report and includes the word “independent.”
- The revised compilation report includes three paragraphs, while the revised review report is separated into four paragraphs.
- Compilation and review guidance are now separate, allowing for easier accessibility and better understanding of applicable standards.
- Engagement letters are required for both compilation and review engagements to document in writing the client’s understanding regarding the services to be performed with respect to both compilation and review engagements.
- This new standard provides guidance on the application of materiality for review engagements.
- Accountants are permitted, but not required, to disclose the reasons for a lack of independence in a compilation report.
- Accountants must tailor procedures for each review engagement, taking into consideration areas where increased risk of misstatements may exist, along with industry and client knowledge, to obtain a limited level of assurance that the financial statements are free of material misstatement.
- Accountants are required to document management’s responses to inquiries regarding fluctuations or relationships that are inconsistent with other relevant information or that significantly differ from expected values.
- Accountants are required to document any significant findings or issues communicated to management, as well as any communications made to management regarding fraud or illegal acts.