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Implementing SSARS 19
Effective for Periods Ending After December 15, 2010
SSARS
What year was the first SSARS issued? Grease was the big movie of the summer Jimmy Carter was president Kenny Loggins had his first big solo album Cheech and Chong were Up in Smoke Saturday Night Live was doing Coneheads
Significant Changes
Compilations
Reasons why CPA lacks independence
Reviews
Tailor procedures based on understanding of client and industry Materiality is discussed
Significant Changes
Document Compilation Report Review Report Compilation Engagement Letter Review Engagement letter Representation Letter Degree of Change Substantial Substantial Substantial Substantial Minor (reference to U.S.GAAP)
Significant Changes
QC will update Compilation and Review Caseware templates once PPC issues new forms and reports You will also receive guidance via the firm Accounting and Auditing Database (on the intranet) Consider updating Caseware files and reports during downtime Some (maybe all) PPC forms will need to be completed from scratch (for this year).
Overview of SSARS 19
Section 1 Framework for Performing and Reporting on Compilation and Review Engagements Section 2 Compilation of Financial Statements Section 3 Review of Financial Statements
The international review standard will likely be changed from moderate assurance to limited assurance
2.
3. 4. 5.
Three party relationship Applicable financial reporting framework Financial statements In a review, appropriate review evidence Written communication or report
Compilation
Establish an Understanding Understand the Industry Obtain Knowledge of Client Read Financials Develop Documentation Create Report
Compilation
Big Picture
What level of assurance is provided?
Establish an Understanding
Required to be in writing Required to include:
Objective of engagement Accountant utilizes information of client: no assurance to be provided Management responsible for fair presentation Management responsible to prevent fraud Management responsible to comply with laws Management to provide all financial records to accountant
Establish an Understanding
Accountant responsible for conducting the engagement in accordance with SSARS Compilation different from a review or an audit Cant be relied on to disclose errors, fraud or illegal acts
Establish an Understanding
Accountant will inform management of errors, fraud or illegal acts noted Independence impairments will be noted in the compilation report, if applicable
Accountant should read the financial statements and consider whether they are:
Appropriate in form Free of material errors Contain adequate disclosure (when disclosures are included as a part of the engagement)
Compilation Cycle
Establish Understanding
Understand Client
Read Report
Understand Industry
Documentation
Include:
Engagement letter Any findings or issues that are significant
How did you resolve material errors noted while reading the financial statements?
Reporting on Financials
Reporting on Financials
Title
Should have a title that clearly indicates that it is the accountants compilation report; for example:
Accountants Compilation Report or Independent Accountants Compilation Report (Suggested)
Reporting on Financials
Reporting on Financials
Reporting on Financials
Reporting on Financials
Reporting on Financials
Reporting on Financials
When may I start describing the reasons for lack of independence in my compilation report? May I disclose the reasons for the lack of independence only for December 2009 compilations and subsequent periods, or may I use it for earlier compilations (for example, November 2009 compilations)?
Reporting on Financials
May I use the new standard compilation report illustrated in SSARS No. 19 after the standard is issued? Does SSARS No. 19 require me to state the reasons why Im not independent with respect to a compilation client? Are there any limitations on what the report may say in regard to the lack of independence?
Reporting on Financials
Assuming an accountant is not independent for two reasons (for example, a family relationship and ownership) does each reason need to be in a separate paragraph? May this independence provision be used for review reports as described in the exposure draft?
Reporting on Financials
Reporting on Financials
If accountant is aware that management-use-only statements are in the hands of a third party, then he/she should:
Contact the client and request that statements be returned
If no response within a reasonable time period, then accountant should notify known third parties that the financial statements are not intended for third party use
Reporting on Financials
Examples:
Uncertainties Important subsequent events Change in accounting principles that affects comparability
Never use an EOM in the report to introduce new information (information not included in the financial statements or notes)
Reporting on Financials
Reporting on Financials
General use reports those not restricted as to use Restricted use reports those restricted as to use
Reporting on Financials
Reporting on Financials
Reporting on Financials
Request that management consider possible effects on the financials (including notes) Accountant should consider managements conclusions
Reporting on Financials
If accountant disagrees with conclusions, then he/she should follow GAAP departure guidance for reporting Accountant may use an EOM paragraph provided the uncertainty is disclosed in the financial statements
Reporting on Financials
Subsequent Events
Accountant should request that management consider possible effects on the financial statements, including disclosure If subsequent event is not adequately accounted for, then consider modifying report for GAAP departure Can use an EOM paragraph if the issue is disclosed in the financial statements
The accountant may realize, subsequent to issuance of statements, that they are in error or incomplete.
Consider:
Issuing revised financial statements with accountants report If issuance of financial statements for a subsequent period is imminent, appropriate disclosure of the revision can be made in such statements instead of reissuing the earlier statements When effect of error cant be promptly resolved, ask client to contact users (e.g. banker) and let them know that revised statements will be issued as soon as practicable
If client does not cooperate, consider (with the advice of legal counsel):
Notifying the client that the accountants report must no longer be associated with the financial statements Notifying any related regulatory agencies having jurisdiction over the client Notifying any known users of the financial statements
Supplementary Information
Clearly indicate the degree of responsibility If you compile the financial statements and the supplementary information, you may:
Issue one report addressing the financials and the supplementary information Issue two reports: one for the financials and another for the supplementary information
If the accountant is performing an audit or a review and is asked to then step down to a compilation service, consider:
Why the step down?
If client had prohibited correspondence with entitys legal counsel (in an audit) or if client would not provide the accountant with a representation letter (in an audit or review), then the accountant is prohibited from issuing a compilation report.
Reviews
Precluded from performing a review engagement if the accountants independence is impaired for any reason.
Reviews - Changes
Introduction of the term review evidence Discussion of materiality Requires written engagement letter
Establish an Understanding
Review Hierarchy
Inquiry & Analytics
Review Evidence
Limited Assurance
This knowledge will lend itself to the analytical procedures that will be performed.
Based on:
Understanding of client Understanding of industry
Focus on risk areas Results of analytics and inquiry may reveal additional risk Designing procedures may require additional partner/manager time
Review Cycle
Understand Client
Understand Industry
Perform Procedures
Analytical Procedures
Analytical Procedures
Analytical Procedures
The accountant may need to perform other procedures when management is unable to provide an explanation for differences
Inquiries
Prepared in accordance with framework? Procedures for recording transactions and accumulating disclosure information? Uncorrected misstatements from prior period? Subsequent events? Knowledge of fraud? Accountant not required to corroborate responses, but consider reasonableness.
Old Standards
SSARS 19
Not required to document managements explanation for differences (from expectations) Not required to document managements responses to inquiries No requirement to document significant issues
Must document managements responses to differences (from expectations) Required to document managements responses to inquiries Required to document significant issues
Differences
Management Letter
Always required Make sure the letter covers all periods presented in the financial statements If current management was not present during all periods covered by the report, you must still obtain written representations from current management.
Management Letter
Changes include:
No longer FASB 5; now FASB ASC 450 Add language specific to your accounting framework; for example, accounting principles generally accepted in the United States of America Managements responsibility for designing, implementing, and maintaining internal controls
Management Letter
The letter should be signed by those members of management whom the accountant believes are responsible for and knowledgeable about the matters covered in the representation letter.
Documentation
Engagement Letter Analytical Procedures
Expectations Results of comparison of expectation with actual Managements responses to inquiries about inconsistencies or differences from expectations
Documentation
Significant matters covered through inquiry Any findings or issues that are significant (e.g. findings indicating the statements are materially misstated) Communications regarding fraud or illegal acts Representation letter
Documentation
The accountant is not precluded from supporting the review report by other means in addition to the review documentation. Such other means might include written documentation in:
Nonattest files (e.g. Tax Files) Quality Control files (e.g. Independence Files)
Reporting on Financials
Primarily applying analytical procedures and making inquiries Accountant performs procedures to obtain limited assurance that there are no material modifications that should be made In accordance with accounting principles generally accepted in the United States of America
Reporting on Financials
Date of Report Should not be dated prior to the date the accountant has accumulated review evidence sufficient to support the report. Not defined Safest rule Date of Quality Control review or after (guidance from SAS 103 use date audited financials have been reviewed by Partner and QC)
Reporting on Financials
Other Matters
If the accountant is performing an audit and is asked to then step down to a review service, consider:
Why the step down? If client had prohibited correspondence with entitys legal counsel (in an audit), then the accountant is prohibited from issuing a review report.