The AICPA Accounting and Review Services Committee in
late 2009 approved a new compilation and review standard that includes the
most significant changes since 1978. “The new standard makes important
changes that should be welcomed and applauded by many smaller firm
practitioners,” says Carol McNerney, chair of ARSC and a partner with the
firm of SS&G Financial Services in Akron, Ohio. The final standard will be
available by early 2010.
The standard’s effective date is for periods ending on or after December 15,
2010, with the exception of paragraph 2.21, which may be implemented early.
Paragraph 2.21 states in part, “The accountant is not precluded from
disclosing a description about the reason(s) that his or her independence is
impaired.”
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AICPA Resources
on SSARS No. 19 |
According to McNerney, this particular change has long been supported by
many smaller firm CPAs as well as users of compilation reports. “This
amendment allows CPAs to explain in their compilation reports the reasons
why they are not independent, providing transparency to users and offering
flexibility for our members. They can either continue to merely say they are
not independent or, if they choose, they can now describe the reasons for
the independence impairment.”
Another significant change that smaller firms should appreciate is that this
new standard separates the compilation guidance from the review guidance.
Mike Glynn, technical manager for the project, says that he has heard this
request over the years. “We have a large number of members who only perform
compilations and no reviews. They’ve been saying we should split the two so
that the compilation guidance is easier to use and not mixed in with the
review guidance. I’m happy that this project has allowed us to make that
change to help smaller firm practitioners,” says Glynn.
Other significant changes to the SSARSs included the following:
- A discussion of how the accountant obtains limited assurance through the performance of review procedures.
- The introduction of the term review evidence to the review literature.
- A discussion of tailoring the review procedures based on the accountant’s understanding of the client’s industry, knowledge of the client, and awareness of the risk that he or she may unknowingly fail to modify the accountant’s review report on financial statements that are materially misstated.
- A discussion of materiality in the context of a review engagement.
- A requirement that an accountant document the establishment of an understanding with management through a written communication (that is, an engagement letter) regarding the services to be performed.
- The establishment of enhanced documentation requirements for compilation and review engagements.
First, the ARSC decided to retain the concept of limited assurance rather than moderate assurance. The ARSC had proposed to use the term moderate assurance to describe the level of assurance that the accountant aims to obtain in a review engagement in order to harmonize with the terminology used in the international review standards. However, after the exposure draft was issued, the International Audit and Assurance Standards Board began looking to revise the international review standard from moderate to limited.
The other major difference is that the non-independent review is not part of the final standard. The ARSC received a number of comments on this proposal, both for and against. As a result of the great interest in this topic, the ARSC decided it made the most sense to defer this issue so it could hold additional meetings with key stakeholders. These additional meetings will be used to further discuss with stakeholders the issues that many smaller firm members face in trying to serve their small business clients and to better understand why some stakeholders are opposed to the non-independent review concept. The focus of the issues deal with the ARSC proposal that would have permitted an accountant to provide a review service while also performing a nonattest service to help smaller businesses maintain aspects of their internal control over financial reporting, the purpose of which is to improve the reliability of the client’s financial statements. This topic will be revisited by the ARSC in 2010.
Copyright © 2009 American Institute of Certified Public Accountants, Inc., New York, NY 10036-8775