5/14/2018. SC State Law Required Communication for Qualifying CPE. SSARS Update MARK T. HOBBS

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1 SSARS Update MARK T. HOBBS Mark T. Hobbs, CPA, CFF, CGMA Managing Partner of the Hobbs Group, PA. based in Columbia, South Carolina. Provides accounting, auditing, consulting, tax and peer review services to a diverse client base and commenced practice in May of Former member of the AICPA Peer Review Board as well as former chair of the following Committees: SCAPA Peer Review Committee Technical Standards Committee CPE Committee Investment and the Executive Committee President of SCAPA in 2005 and served on the SC Board of Accountancy from , with the last year as Chair A frequent speaker on A & A topics including ethics for the AICPA, SCACPA as well as other organizations (GFOA and SCSOA). Currently serves on the National Peer Review Committee of the AICPA as well as a member of the Quality Assurance Committee of the National Association of Boards of Accountancy. Mark is a graduate of Clemson University in May of 1979 with a BS in Accounting.Mark has been active in his Church, Holy Trinity Greek Orthodox Church, and devotes most of his spare time with wife and family. Three of his sons work with The Hobbs Group, PA and his daughter teaches first grade at Lake Carolina Elementary School in Northeast Columbia. 2 SC State Law Required Communication for Qualifying CPE It is the responsibility of the licensee to be accountable for the hours earned during the CPE course. The licensee should not engage in any other activities that would denigrate the learning objective of the course to the licensee or others. If the other activity is unavoidable, then that time should be subtracted from the overall CPE credit. 1

2 SSARS 21 Format SSARS No. 21 is formatted into four separate sections: Section 60, General Principles for Engagements Performed in Accordance With on Standards for Accounting and Review Services Section 70, Preparation of Financial Section 80, Compilation Engagements Section 90, Review of Financial These Sections will be codified with the prefix AR C to denote them from the extant AR sections 4 Section 60 General Principles for engagements performed in accordance with SSARs Intended to replace AR section 60 Framework for Performing and Reporting on Compilation and Review Engagements Intended to help accountants better understand their professional responsibilities when performing engagements in accordance with SSARSs Required Documentation Fee letter Financial statements Rep Letter for reviews Compilation letter for Comp. 5 Section 70 Preparation of Financial 6 2

3 Section 70 Preparation of Financial Intended to be short and easy to apply Only 22 requirement paragraphs and 19 application paragraphs Applies when the accountant is engaged to prepare f/s but not engaged to perform an audit, review, or compilation on those f/s 7 Section 70 Preparation of Financial When does Section 70 apply? Does not apply when the accountant has been engaged to merely assist in preparing financial statements or when the accountant prepares financial statements as a by product of another engagement Does not apply to CPAs who are performing these functions in connection with their role as an employee (that is, not in public practice) While personal financial statements are treated like any other financial statements, if the preparation is part of an engagement to prepare a written personal financial plan, then SSARSs would not apply Dies not apply to Court proceedings nor financials included with tax filings The understanding with the client as to what the engagement entails is important 8 Does not require the accountant to assess whether he or she is independent Requires an engagement letter signed by both the accountant and management/those charged with governance Can be applied to f/s with or without disclosures Professioanl Judgement must be used by the accountant to keep financials from being misleading 9 3

4 Report is not required even if financial statements are expected to be used by a third party Requires a legend on each page of the f/s stating that no assurance is being provided If management refused or cannot include the legend, the accountant could issue a disclaimer report, perform a compilation engagement, or resign Ensures that user are able to readily identify that the accountant is providing no assurance with respect to the financial statements Software vendors are expected to include in their software Attestation service but not an assurance service FS without disclosures should specify special basis framework on each page of FS 10 Resembles a traditional management use only (SSARS 8) non reporting engagement without the limitation on distribution SSARS 8 required that each page of the financial statements include a legend on each page of the financial statements such as Restricted for Management Use Only or 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. 11 If the financial statements omit substantially all disclosures disclose the omission in the financial statements If the financial statements contain a known framework departure disclose in the financial statements May be on the face of the financial statements or in a note Do not prepare financial statements if the omission of disclosures or other known framework departures are done to mislead users Professional Judgement 12 4

5 If the accountant is unable to include a statement on each page of the financial statements, the accountant is required to Issue either a disclaimer that makes clear that no assurance is provided on the financial statements or Perform a compilation engagement in accordance with section 80 of SSARS No. 21. Resign 13 When preparing financial statements in accordance with a special purpose framework/ocboa, the accountant is required to include a description of the financial reporting framework on the face of the financial statements or in a note to the financial statements 14 Are preparation engagements subject to peer review? Firms that only perform preparation engagements are not required to enroll in the AICPA PRP A firm s preparation engagements are included in the scope of a peer review when the firm either elects to enroll in the program (e.g. to comply with licensing or other requirements) or is already enrolled due to other engagements it performs Should a Firm have other engagements CO, C R and audits it is very unlikely that the prepared statement will be selected for peer review since the risk assessment process will result in it being low on the list to review. 15 5

6 Disclaimer Using SSARs 21, a disclaimer can be provided by an accountant that prepares financial statements and is not engaged to perform a compilation The preparation disclaimer follows: The accompanying financial statements of XYZ Company as of and for the year ended December 31, 20XX, were not subjected to an audit, review, or compilation engagement by me (us) and, accordingly, I (we) do not express an opinion, a conclusion, nor provide any assurance on them. [Signature of accounting firm or accountant, as appropriate] [Accountant s city and state] [Date] 16 Section 80 Compilation Engagements 17 Submission of Financial AR section 80 applies when an accountant is engaged to report on compiled financial statements or submits financial statements to the client or to third parties Submission is defined as prepare and present Determining Whether Financial Have Been Prepared by the Accountant Cloud computing and other applications have made it difficult to determine who (or what) has prepared the financial statements: The accountant? Management? The computer application? 18 6

7 Section 80, Compilation Engagements Intended to be short and easy to apply Only 38 requirement paragraphs and 43 application paragraphs Applies when the accountant is engaged to perform a compilation engagement Other than the applicability, the compilation literature is largely unchanged from SSARS No Section 80, Compilation Engagements Retains the independence requirements from the SSARS 19 Requires an engagement letter signed by both the accountant and management/those charged with governance Can be applied to financial statements with or without disclosures 20 Section 80, Compilation Engagements Primary difference from SSARS No. 19 is in the reporting requirements Report is always required Report is shortened to differentiate from audit and review (assurance) reporting Management use only financial statements are covered by the preparation standard 21 7

8 Example Accountant s Compilation Report Management is responsible for the accompanying financial statements of XYZ Company, which comprise the balance sheets as of December 31, 20X2 and 20X1 and the related statements of income, changes in stockholder s equity, and cash flows for the years then ended, and the related notes to the financial statements in accordance with the accounting principles generally accepted in the United States of America. I (We) have performed a compilation engagement in accordance with statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. I (we) did not audit or review the financial statements nor was (were) I (we) required to perform any procedures to verify the accuracy or completeness of the information provided by management. Accordingly, I (we) do not express an opinion, a conclusion, nor provide any form of assurance on these financial statements. 22 Comp. Report Additional Paragraphs When financial statements are prepared in accordance with a Special Purpose Framework/OCBOA Disclosures omitted Lack of independence Known Departure From the Applicable financial Reporting Framework Supplementary Information Accompanies Financial and the Accountants Compilation Report Thereon 23 Illustrative Compilation Reports Illustrative compilation reports are included in SSARS 21: An Accountant s Compilation Report on Comparative Financial Prepared in Accordance With Accounting Principles Generally Accepted in the United States of America An Accountant s Compilation Report on Comparative Financial Prepared in Accordance With the AICPA s Financial Reporting Framework for Small and Medium Sized entities An Accountant s Compilation Report on Comparative Financial Prepared in Accordance With the Tax Basis of Accounting, and Management Has Elected to Omit Substantially All Disclosures Ordinarily Included in Financial Prepared in Accordance With the Tax Basis of Accounting 24 8

9 Illustrative Compilation Reports Illustrative compilation reports are included in SSARS 21: An Accountant s Compilation Report on Comparative Financial Prepared in Accordance With Accounting Principles Generally Prepared in Accordance With Accounting Principles Generally Accepted in the United States of America When the Accountant s Independence Is Impaired, and the Accountant Determines to Not Disclose the Reasons for the Independence Impairment An Accountant s compilation Report on Comparative Financial Prepared in Accordance With the AICPA s Financial Reporting Framework for Small and Medium Sized Entities When the Accountant s Independence Has Been Impaired Due to the Accountant Having a Financial Interest in the Entity, and the Accountant Decides to Disclose the Reason for the Independence Impairment 25 Illustrative Compilation Reports Illustrative Compilation reports are included in SSARS 21: An Accountant s Compilation Report on Comparative Financial, and the Accountant is Aware of Departures From Accounting Principles Generally Accepted in the United States of America 26 Compilation vs Preparation Services Results in a bright line between accounting (preparation) services and reporting (compilation) services Independence is a required consideration for compilation service but is not required for preparation service Like all other on attest services, if the accountant prepares financial statements that will be subject to a compilation, review, or audit the safeguards in the independence literature have to be present or independence is impaired. 27 9

10 Outsourced accounting Services and Bookkeeping Applicability of SSARS 21 Does not apply to bookkeeping services Would apply if accounting firm prepared financial statements for audit by another Firm 28 Section 90 Review of Financial 29 Section 90, Review of Financial Is primarily a clarity redraft of SSARS No. 19 with respect to review engagements The SSARSs review literature is converged with the requirements of AU C section 930, Interim Financial Information Results in consistency between limited assurance engagements 30 10

11 Section 90, Review of Financial Scope The Standard may be applied to historical financial information other than historical financial statements, such as: Specified elements, accounts, or items of a f/s Supplementary information Required supplementary information Financial information included in a tax return 31 Section 90, Review of Financial Requires an engagement letter signed by both the accountant and management/those charged with governance Reporting on financial statements Requires the use of headings in the accountant s review report Required to name the city and state of the issuing office May be included on letterhead 32 Illustrative Review Reports Illustrative review reports are included in SSARS 21: An Accountant s Review Report on Comparative Financial Prepared in Accordance With Accounting Principles Generally Accepted in the United States of America When a Review Has Been performed for Both Periods An Accountant s Review Report on Single Year Financial Prepared in Accordance With Accounting Principles Generally Accepted in the United States of America An Accountant s Review Report on Interim Financial Prepared in Accordance With Accounting Principles Generally Accepted in the United States of America 33 11

12 Illustrative Review Reports Illustrative review reports are included in SSARS 21: An Accountant s Review Report on Comparative Financial Disclosing a Departure From Accounting Principles Generally Accepted in the United States of America An Accountant s Review Report on Comparative Consolidated Financial in Which the Accountant Makes Reference to the Work of Other Accountants Who Were Engaged to Review the Financial of a Significant Component 34 Helpful Information and Resources More Information Dedicated ARSC Clarity Page on AICPA Website at Will be updated frequently Developments in Review, Compilation, and Financial Statement Preparation Engagements 35 SSARS 22 PROFORMA INFORMATION 36 12

13 SARS 23 Prospective Financial Information Shifts the standards applicable to Prospective Financial Information(PFI) to the SSARS standards from the Attestation Standards. AICPA Prospective Financial Information Guide is a Must Must Include Significant Assumptions Must include language that actual results may be different form projections Accountant has no responsibility to update the financial information for events after the report date No Review In professional standards for PFI Effective May 1, Common Peer Review Findings Matters Findings Deficiencies Significant Deficiencies Impact of Report Pass Pass with Deficiency Fail 38 Helpful Information and Resources AICPA Website for SSARS21.aspx Accounting Web releases new ssars no 21 resource for cpas Accounting Today accounting/aicpa issues ssars 21 guide html 39 13