10 BWD | Spring/Summer 2015
ARE YOU
PREPARED?
New option for financial
statement services takes off
Bob Westrate, CPA
Many business owners and other financial statement users
are familiar with CPA financial statement audits, reviews and
compilations. Beginning in 2014, a new choice was created when
the American Institute of CPAs issued SSARS No. 21 (Statements on
Standards for Accounting and Review Services No. 21, Statements
on Standards for Accounting and Review Services: Clarification and
Recodification). SSARS No. 21 created a new CPA financial statement
service, called financial statement preparation, which considers how
technologies affect the ways financial statements are created.
Before SSARS No. 21, CPAs followed compilation engagement
requirements and issued a written compilation report whenever the
CPA prepared and presented a client’s financial statements.
New technologies have made that requirement less straightforward.
For example: suppose that a CPA remotely accessed a client’s
accounting system, generated electronic financial statements and
emailed the statements to the company’s management. If the CPA
believed that he or she prepared and presented those financial
statements, under the old requirements the CPA was required to
perform a compilation engagement. But if that’s not what the users
of the financial statements wanted or needed, this could potentially
result in additional cost and turnaround time to the company.
To avoid this situation, SSARS No. 21 changes when the compilation
standards apply. Under SSARS No. 21, CPAs are subject to the
compilation engagement requirements only when a company
specifically engages a CPA to compile the company’s financial
statements.
Under the new financial statement preparation service, CPAs are not
required to issue a report on the client’s financial statements. Rather,
each page of the financial statements must contain a statement, or
legend, that no assurance is provided on the financial statements.
CPAs performing compilation engagements are also not required to
consider whether they are independent of the client.
Similar to compiled financial statements, CPA-prepared financial
statements must disclose the applicable financial reporting
framework, such as generally-accepted accounting principles or the
income tax basis of accounting. CPA-prepared financial statements
may omit substantially all disclosures required by the applicable
financial reporting framework, as long as that fact is disclosed as part
of the legend or within the financial statement titles, and must disclose
any departures from the applicable financial reporting framework.
Bob Westrate is a Senior Manager in
the audit and assurance department
at Rehmann. He serves as a manager
on manufacturing and other
commercial clients.
Who benefits most from the new preparation service? Generally, this
new service may be suited well to the full preparation of interim or
annual financial statements that omit substantially all disclosures,
and generally do not contain significant or pervasive departures from
the applicable financial reporting framework. Likewise, compiled
financial statements, which will continue to include the CPA’s
compilation report, may be a better fit for financial statements that
clients are capable of routinely preparing that include full disclosures
or one or more departures from the applicable financial reporting
framework.
Contact him today at
[email protected].
SSARS No. 21 is effective for financial statement periods ending on or
after December 15, 2015, and early implementation is permitted.
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