12/31/14. SSARS No. 21. SSARS No. 21. Changes to Reporting & Documentation. Released October 23, 2014

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1 SSARS No. 21 Released October 23, 2014 Mandatory use for Periods Ending on or after December 15, Optional use begins October 23, SSARS No Replaces all prior SSARS except No. 14 [Pro Forma] 2. Introduces a new level of service: a. The Audit. b. The Review. c. The Compilation with full disclosure. d. The Compilation without disclosures. e. The Preparation. 3. New reports/engagement letters for Compilations/ Reviews. Changes to Reporting & Documentation SSARS Changes SSARS No /15/ /14/2010 SSARS No /15/ /14/2015 SSARS No /23/2014 -??? Accounting Basis Change Financial Reporting Framework [FRF] for Small and Medium Sized Enterprises June 10,

2 SSARS No.21 The Preparation of Financial Statements Preparation of financial statements 1. Occurs when the accountant has not been engaged to issue a compilation, review, or audit report. 2. The ARSC has determined that preparation of financial statements is simply a book-keeping function. 3. Hence, preparation of financial statements does not require a report even if the financial statements are expected to be used by or provided to a third party. 4. But -- a preparation should include a legend. 5. And, a preparation may have a disclaimer transmittal letter. A Preparation : Four Points 1. Is not an attest service. 2. Does not require an accountant to: a. verify the accuracy or completeness of management s information. b. gather any supporting evidence. 3. If accountant becomes aware of incomplete, inaccurate, or unsatisfactory information, the accountant should withdraw if not corrected. 4. Requires a statement on each page including the notes -- that there is no assurance. 2

3 Legend for a Preparation Notation on Each Financial Statement Page No assurance is provided on these financial statements. Notation on Transmittal Letter These financial statements have not been subjected to an audit or review or compilation engagement, and no assurance is provided on them. Preparation Transmittal Letter Disclaimer/Transmittal Letter The accompanying financial statements of XYZ Company as of and for the year ended December 31, 2015 were not subjected to an audit, review, or compilation engagement by me (us) and, accordingly, I (we) do not express an opinion or a conclusion nor provide any assurance on them. Preparation Engagement letters are Required May have multiple engagement letters for: 1. The preparation of monthly or other interim financial statements; and, 2. The annual, formal compilation, review, or audit of those interim preparations. Must still comply with independence and impairment rules if a preparation converts to a higher service level! 3

4 Seven Preparation Specific Requirements 1. Obtain an engagement letter. 2. Obtain an understanding of the AFRF [applicable financial reporting framework.] 3. Justify a departure from a relevant presumptively mandatory requirement and explain the alternative procedures performed. 4. When using a special purpose AFRF [OCBOA], describe it on the face of the statements or in financial statement note. [Modify Title] 5. Permit no disclosures if absence not misleading. 6. Put a No Assurance legend on every page. 7. Retain a copy of the financial statements that the accountant prepared. Preparation engagement letter (paragraph 1) You have requested that we prepare the financial statements of the ABC Company, which comprise the balance sheet as of December 31, 2015, and the related statements of income, and changes in stockholders equity. These statements will not include the statement of cash flows and the related notes to the financial statements. We are pleased to confirm our acceptance and our understanding of this engagement to prepare the financial statements of ABC Company by means of this letter. Preparation engagement letter (paragraph 2) Our Responsibilities The objective of our engagement is to prepare financial statements in accordance with the tax basis of accounting. We will conduct our engagement in accordance with the Statements on Standards for Accounting and Review Services (SSARS) promulgated by the Accounting and Review Services Committee of the AICPA and comply with the AICPA s Code of Professional Conduct, including the ethical principles of integrity, objectivity, professional competence, and due care. 4

5 Preparation engagement letter (paragraph 3) Our Responsibilities (Continued) We are not required to, and will not, verify the accuracy or completeness of the information you will provide to us for the engagement or otherwise gather evidence for the purpose of expressing an opinion or a conclusion. Accordingly, we will not express an opinion or a conclusion or provide any assurance on the financial statements. Preparation engagement letter (paragraph 4) Our Responsibilities (Continued) Our engagement cannot be relied upon to disclose any financial statement misstatements including those caused by fraud or error, or to disclose any wrongdoing within the entity or noncompliance with laws and regulations. Preparation Engagement Letter (paragraph 5) Your Responsibilities The engagement to be performed is conducted on the basis that you acknowledge and understand that our role is the preparation of the financial statements in accordance with the income tax basis of accounting. You have the following overall responsibilities that are fundamental to our undertaking, in accordance with SSARS, the engagement to prepare your financial statements 5

6 Preparation engagement letter (paragraph 5) Your Responsibilities (continued) a. The prevention and detection of fraud; b. To ensure that the entity complies with the laws and regulations applicable to its activities; c. To make all financial records and related information available to us. d. The accuracy and completeness of the records,, documents, explanations, and other information, including significant judgments, you provide to us for the engagement to prepare financial statements. You agree that the financial statements will clearly indicate that no accountant provides any assurance on them. Preparation Engagement Letter (paragraph 6) Other Relevant Information Our fees for these services.. You agree to hold us harmless and to release, indemnify, and defend us from any liability and costs, including attorney s fees, resulting from management s knowing misrepresentations to us. Please sign and return. Acknowledge and agreed on behalf of ABC Company by: SSARS No. 21 A Compilation Engagement 6

7 Compilation engagement requirements 1. The engagement letter identifies: a. The applicable financial reporting framework. b. Management s responsibilities. c. Report form and content. Compilation engagement requirements 2. Document understanding of the AFRF and the significant policies adopted by management. 3. Read the financial statements. 4. Withdraw if management fails to provide sufficient documentation or explanations, or if management declines to make revisions or appropriate disclosures. Compilation engagement requirements 5. With respect to the compilation report: a. Refer to management s responsibility to select AFRF. b. If a compliance report, reference its purpose. c. If an OCBOA, state that it differs from U.S. GAAP. d. If supplementary information is included, indicate the accountant s level of responsibility. e. If independence is impaired, indicate the absence of independence, generally, or by disclosing the reasons. 7

8 Requisite Compilation documentation 1. The engagement letter. 2. A copy of the financial statements. 3. A copy of the accountant s report. Compilation Engagement Letter (paragraph 1) You have requested that we prepare the financial statements of the ABC Company, which comprise the statement of assets, liabilities, and equity tax basis of December 31, 2015, and the related statements of operations and retained earnings tax basis, and cash flows tax basis for the year then ended, and the related notes to the financial statements, and perform a compilation engagement with respect to those financial statements. We are pleased to confirm our acceptance and our understanding of this compilation engagement by means of this letter. Compilation Engagement Letter (paragraph 2) Our Responsibilities The objective of our compilation engagement is to: a. prepare financial statements in accordance with the tax basis of accounting based on information provided by you, and b. apply accounting and financial reporting expertise to assist you in the presentation of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements in order for them to be in accordance with the tax basis of accounting. 8

9 Compilation Engagement Letter (paragraph 3) We will conduct our compilation engagement in accordance with the Statements on Standards for Accounting and Review Services (SSARS) promulgated by the Accounting and Review Services Committee of the AICPA and comply with the AICPA s Code of Professional Conduct, including the ethical principles of integrity, objectivity, professional competence, and due care. Compilation Engagement Letter (paragraph 4) We are not required to and will not verify the accuracy or completeness of the information you will provide to us for the compilation engagement or otherwise gather evidence for the purpose of expressing an opinion or a conclusion. Accordingly, we will not express an opinion or a conclusion nor provide any assurance on the financial statements. Compilation Engagement Letter (paragraph 5) Our engagement cannot be relied upon to disclose any financial statement misstatements, including those caused by fraud or error, or to identify or disclose any wrongdoing within the entity or noncompliance with laws and regulations. 9

10 Compilation Engagement Letter (paragraph 6) Your Responsibilities The engagement to be performed is conducted on the basis that you acknowledged and understand our role is the preparation of financial statements in accordance with the tax basis of accounting, and to assist you in the presentation of the financial statements in accordance with the tax basis of accounting. You have the following overall responsibilities that are fundamental to our undertaking the engagement in accordance with SSARS: Compilation Engagement Letter (paragraph 6) a. The preparation and fair presentation of financial statements in accordance with the tax basis of accounting. b. The inclusion of all informative disclosures that is appropriate for the tax basis of accounting. This includes: i. a description of the tax basis of accounting, including a summary of significant accounting policies, and how the tax basis of accounting differ form accounting principles generally accepted in the United States of America, the effects of which need not be quantified, and ii. Informative disclosures similar to those required by accounting principles generally accepted in the United States of America. Compilation Engagement Letter (paragraph 6) c. The design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements. d. The prevention and detection of fraud. e. To ensure that the entity complies with the laws and regulations applicable to its activities. 10

11 Compilation Engagement Letter (paragraph 6) f. To make all financial records and related information available to us. g. The accuracy and completeness of the records, documents, explanations, and other information, including significant judgments, you provide to us for the compilation engagement. Compilation Engagement Letter (paragraph 7) Our Report As part of our engagement, we will issue a report that will state that we did not audit or review the financial statements and that, accordingly, we do not express an opinion, a conclusion, nor provide any assurance on them. Compilation Engagement Letter (paragraph 8) Other Relevant Information Our fees for these services.. You agree to hold us harmless and to release, indemnify, and defend us from any liability or costs, including attorney s fees, resulting from management's knowing misrepresentations to us. Please sign. 11

12 SSARS No. 21 The Compilation Report Compilation Report SSARS No The new report format must be so different that it does not to lead a reader to conclude that any assurance is provided. [Not mini-review/audit] 2. There is an option to: a. Omit substantially all disclosures. b. Lack independence and/or disclose all reasons for the lack of independence. 3. There shall no longer be a distinction between general use statements and management use only financial statements. Compilations Each page of the financial statements should include a reference such as: See Accountant s Report Or See Accountant s Compilation Report 12

13 Compilation report (paragraph 1) Management is responsible for the accompanying financial statements of XYZ Company, which comprise the statements of assets, liabilities, and equity tax basis as of the years ended December 31, 2015 and 2014 and the related statements of revenue and expenses -- tax basis, and equity tax basis, for the years then ended in accordance with the tax basis of accounting. 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. Compilation report (optional paragraph 2) The financial statements are prepared in accordance with the tax basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Compilation report (optional paragraph 3) Management has elected to omit substantially all of the disclosures ordinarily included in financial statements prepared in accordance with the tax basis of accounting. If the omitted disclosures were included in the financial statements, they might influence the user s conclusions about the company s assets, liabilities, equity, revenue, and expenses. Accordingly, the financial statements are not designed for those who are not informed about such matters. 13

14 Comparisons Compilation 1. Applicable? When engaged to perform a compilation Preparation When engaged to prepare financial statements 2. Engagement Letter? Yes Yes 3. Independence issues? Yes No 4. Disclose lack of independence? Yes N/A 5. Report required? Yes No 6. Allowed to give to third parties? Yes Yes 7. May omit disclosures? Yes Yes SSARS No. 21 The Review Engagement Proposed Review SSARS : 2015 Seven Special Considerations: the Highlighted Paragraphs 1. The need to draw the user s attention to an emphasisof- a- matter paragraph or other-matter paragraph, such as the use of a non-gaap framework. 2. To express known departures from an applicable financial reporting framework. 3. To include an alert restricting the use of a report. 4. Consideration of going concern issues. 5. Consideration of subsequent events. 6. Information presented for supplementary analysis. 7. Change in scope of service. 14

15 Independent Accountant s Review Report I(We) have reviewed the accompanying financial statements of XYZ Inc., which comprise the statements of assets, liabilities, and equity tax basis as of December 31, 2015, and the related statements of revenues and expenses tax basis, and retained earnings tax basis for the year then ended, and the related notes to the financial statements. A review includes primarily applying analytical procedures to management's financial data and making inquiries of the company s management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, I (We) do not express such an opinion. Independent Accountant s Review Report Management s Responsibilities for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the basis of accounting the Company uses for income tax purposes; this includes determining that the basis of accounting that the company uses for income tax purposes is an acceptable basis for the preparation of financial statements in the circumstances. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Independent Accountant s Review Report Accountant s Responsibility My responsibility is to conduct the review engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the American Institute of Certified Public Accountants. Those standards require me to perform procedures to obtain limited assurance as a basis for reporting whether I am aware of any material modifications that should be made to the financial statements for them in accordance with the basis of accounting the Company uses for income tax purposes. I believe that the results of my procedures provide a reasonable basis for my report. 15

16 Independent Accountant s Review Report Accountant s Conclusion Based on my review, I am not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in accordance with the basis of accounting the Company uses for income tax purposes. Drawing Attention to a Non-GAAP Framework Basis of Accounting I draw attention to Note X of the financial statements, which describes the basis of accounting. The financial statements are prepared in accordance with the basis of accounting the Company uses for income tax purposes, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our conclusion is not modified with respect to this matter. Drawing Attention to Going Concern Issues Emphasis of a Matter The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note X to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises uncertainty about its ability to continue as a going concern. Management s plans in regard to these matters are also described in Note Y. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 16

17 Drawing Attention to Going Concern When Disclosures are Not Included Other Matter The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from operations and has a net capital deficiency that raises uncertainty about its ability to continue as a going concern. Management s plans in regard to these matters are [insert a summary of management s plans ] The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Drawing Attention to a Known Departure Known Departure from Accounting Principles Generally Accepted in the United States of America During our review engagement, I became aware of a departure from accounting principles generally accepted in the United States of America. As disclosed in Note X to the financial statements. Drawing Attention to a Known Departure: Emphasis of a Matter Known Departure from Accounting Principles Generally Accepted in the United States of America A statement of cash flows for the year ended December 31, 2015 has not been presented. Accounting principles generally accepted in the United States of America require that such a statement be presented when financial statements purport to present financial position and results of operations. 17

18 Drawing Attention to Supplementary Information Other Matter The [identify the information presented] is presented for purposes of additional analysis and is not a required part of the basis financial statements. Such information was not compiled, reviewed, or audited by me and, accordingly, I do not express an opinion or other form of assurance on it. New SSARS Guidance Format Audit Review Title Yes 2011 Introductory Paragraph Yes 2011 Management s Responsibility xxxxxx xxxxxx Accountant s Responsibility xxxxx xxxxx Opinion/Other xxxxx QUESTIONS? 18