Statement of the Future: Statement on Standards for Accounting and Review Services No. 21 by Michael B. Allmon, CPA & Michael L. Moore, PH.D., CPA

1. 18 C A L I F O R N I A C P A JANUARY/FEBRUARY 2015 www.calcpa.org
he new Statement on
Standards for Accounting and
Review No. 21 (SSARS 21) clarifies
and revises the existing standards for reviews,
compilations and engagements by accountants
in public practice who prepare financial
statements for clients.
The AICPA, as part of its initiative to
make standards easier to read, understand
and apply, began issuing clarified standards in
2011 (Statement on Auditing Standards Nos.
122-124). This new statement presents general
principles intended to help accountants better
understand professional responsibilities when
performing engagements in accordance with
SSARS, introduces a new financial statement
preparation service (called “preparations”),
and makes significant changes to compilation
and review engagements.
These new standards have a SSARS
designation to differentiate them from
standards designated “AR.” This statement has
an effective date for engagements performed,
engagements to prepare financial statements,
compilations for financial statements and
reviews of financial statements for periods
ending on or after Dec. 15, 2015. Early
implementation is permitted. SSARS 21
supersedes all of the existing AR sections other
than AR 120, Compilation of Pro Forma Financial
Information, which will be addressed by ARSC.
SSARS No. 21 has four sections:
Sec. 60, General Principles for Engagements
Performed in Accordance with Statements on
Standards for Accounting and Review Services; Sec.
70, Preparation of Financial Statements; Sec. 80,
Compilation Engagements; Sec. 90, Review of
Financial Statements.
General Principles: SSARS 21, Sec. 60
SSARS 21 Sec. 60 provides general principles
for engagements performed in accordance with
SSARS 21. It’s intended to help accountants
better understand their professional
responsibilities when performing engagements
to prepare financial statements, compilations
or reviews. Along with an explanation of its
application and other explanatory materials,
there are six requirements:
1. Financial statements: The financial
statements subject to the engagement
performed in accordance with SSARSs
are those of the entity. The preparation
and fair presentation of such financial
statements requires identification of the
applicable framework, preparation of
the financial statements in accordance
with that framework and inclusion of an
adequate description of that framework in
the financial statements. The framework
can be a general-purpose framework or a
special-purpose framework, depending on
the needs of the users.
2. Ethical requirements: The accountant
should comply with relevant ethical
responsibilities relating to engagements
performed in accordance with SSARSs,
as well as the AICPA Code of Professional
Conduct, the rules of state boards of
accountancy and other regulatory bodies.
3. Professional judgment: The
accountant is expected to have the training,
knowledge and experience to develop
the necessary competencies to make
professional judgment in an engagement.
4. Conduct of the engagement in
accordance with SSARS: The
requirement includes complying
with SSARS sections relevant to the
engagement; complying with relevant
requirements; defining professional
responsibilities; and other preparation,
compilation and review publications.
5. Engagement level quality control:
Engagement teams are responsible for
implementing quality control procedures
applicable to the engagement and in the
context of the firm’s quality control system.
6. Acceptance and continuance of client
relationships and engagements
to prepare financial statements:
The accountant should only accept an
engagement for which there is reason
to believe ethical requirements will be
satisfied. The accountant’s preliminary
understanding of the engagement indicates
that the information needed to perform
the engagement is likely to be available
and reliable. Finally, the accountant should
have no cause to doubt the management’s
integrity as to the effect on the performance
of the engagement.
Preparation of Financial Statements:
SSARS 21, Sec. 70
SSARS 70, Preparation of Financial Statements,
covers a new type of service regarding financial
statement preparation. This type of service
is distinguished from compilation services by
being engaged to prepare financial statements
(compilation services) and assisting in preparing
financial statements (the new service).
The following are examples of services to
which Sec. 70 applies (compilation services
that are covered in Sec. 80 are mentioned
later in the article). The items below are
not exhaustive, and there may be additional
services based on the accountant’s professional
judgment. In addition, SSARS Sec. 70,
paragraph A20, provides an illustration of an
t
Statement of the Future
Statement on Standards
for Accounting and
Review Services No. 21
regulatoryupdate
BY MICHAEL B. ALLMON, MBT, CPA & MICHAEL L. MOORE, PH.D., CPA

2. SSARS21
JANUARY/FEBRUARY 2015 C A L I F O R N I A C P A 19www.calcpa.org
engagement letter for preparation of financial
statements in accordance with the accounting
principles accepted in the United States. It’s
pointed out that the engagement letter will
vary according to individual requirements and
circumstances, and that the accountant may
seek legal advice about the suitability of a
proposed letter.
Services covered by SSARS Sec. 70 include:
• Preparation of financial statements prior to
audit or review by another accountant;
• Preparation of financial statements for an
entity to be presented alongside the entity’s
tax return;
• Preparation of personal financial
statements for presentation alongside a
financial plan;
• Preparation of single financial statements,
such as a balance sheet of income
statement for financial statements with
substantially all disclosures omitted; and
• Using the information in a general ledger
to prepare financial statements outside an
accounting software system.
Some examples of services not covered
by SSARS Sec. 70 that are considered
engagements to prepare financial statements:
• Preparation of financial statements when
the accountant is engaged to perform
an audit, review or compilation of such
financial statements;
• Preparation of financial statements with a
tax return solely for submission to taxing
authorities;
• Personal financial statements that are
prepared for inclusion in written personal
financial plans prepared by the accountant;
• Financial statements prepared in
conjunction with litigation services that
involve pending or potential legal of
regulatory proceedings;
• Financial statements prepared in
conjunction with business valuation
services;
• Maintaining depreciation schedules;
• Preparing or proposing certain adjustments,
such as those applicable to deferred taxes,
depreciation or leases;
• Drafting financial statement notes; and
• Entering general ledger transactions or
processing payments (general bookkeeping)
in an accounting software system.
Financial statements under these new rules
should be prepared using records, documents,
explanations and other information provided
by management. Sec. 70 does not require
an accountant’s report (opinion letter). As a
minimum, appearing on each page of the
financial statements, including notes, should be
a statement that no assurance is provided, such
as “No assurance is provided on these financial
statements” or “These financial statements
have not been subjected to an audit or review
or compilation engagement, and no assurance
is provided on them.”
If such a statement cannot be made on
each page of the financial statements, then
the accountant should issue a disclaimer that
makes it clear that no assurance is provided on
the financial statements. An example is:
“The accompanying financial statements
of XYZ Company as of and for the
year ended Dec. 31, XXXX, were
not subjected to an audit, review or
compilation engagement by me (us)
and, accordingly, I (we) do not express
an opinion, a conclusion or provide any
assurance on them.”
For special-purpose financial statements, a
description of the special-purpose framework is
usually placed under the title, although it may
be placed elsewhere.
If the financial statements contain a
material misstatement of misstatements, the
disclosure may be made on either the face of
the financial statements or in a note to the
financial statements. For statements that omit
substantially all the disclosures required by
applicable financial reporting framework, the
disclosure may be made on the face of the
financial statements in a selected note to the
financial statements.
If the accountant prepares financial
statements that include disclosures about
only a few matters in the notes to the
financial statements, then the disclosure may
be labeled “Selected Information—
Substantially All Disclosures Required
by [the applicable financial reporting
framework] Are Not Included.”
Financial statements in formats dictated
by others (such as accountings pursuant to the
Uniform Probate Code) can now be issued
without an accountant’s opinion (but with
the required engagement letter), clarifying
previously unclear rules with respect to such
statements in a required format.
Compilation Engagements:
SSARS 21, Sec. 80
The existing requirements and guidance for
compilations are relatively unchanged by
SSARS. SSARS 21, Sec. 80 does contain some
important modifications:
• Previously, accountants determined
whether they were required to compile
financial statements based on whether they
had submitted financial statements under
SSARS (submission driven). Under SSARS
21, accountants only compiles financial
statements when they are engaged to do so
(engagement driven).
• Compilations always require a report.
Non-reporting, management-use-only
engagements are covered under SSARS 21,
Sec. 70.
• The accountant must obtain an
engagement letter signed by both the CPA
and the client’s management.
• The compilation report is shorter and
usually contains only one paragraph
(instead of three) with no headings. It also
must include the city and state where the
accountant practices.
• Compilations may be prepared with
or without disclosure. In those cases,
where financial statements that include
substantially all disclosures are prepared
in conformity with a special purpose
framework, the compilation report will
include a separate paragraph regarding
that framework.
A determination as to whether the
accountant is independent also is required
in addition to the general principles
required to comply with SSARS, Sec. 60.
In addition to paragraph .25 of Sec. 60, the
accountant should agree upon the terms of
the engagement with management with an
engagement letter or other suitable form of
written communication.
This communication should include
the objectives of the engagement; the
responsibilities of management; the
responsibilities of the accountant; the
limitations of the compilation agreement;
identification of the applicable financial
reporting framework; and the expected form
of the accountant’s compilation report and a
statement that there may be circumstances in
which the report may differ from its expected
form and content. Examples of engagement
letters are in SSARS, Sec. 80, par .A42,
Exhibit A: Illustrative Engagement Letters.
The accountant’s compilation report
should be in writing and include:
• A statement that management (owners)
is (are) responsible for the financial
statements.
• The financial statements that have been
subjected to the compilation engagement
should be identified.
• The entity whose financial statements
have been subjected to the compilation
engagement should be identified.
• The date or period covered by the financial
statements should be specified.
• A statement that the accountant
performed the compilation engagement
in accordance with SSARSs promulgated
by the Accounting and Review Services
Committee of the AICPA.
• A statement that neither did the
accountant audit or review the
financial statements, nor was the
accountant required to perform any

3. procedure to verify the accuracy or
completeness of the information
provided by management. Moreover,
the statement should make clear the
accountant neither expresses an opinion
or conclusion, nor provides any assurance
on the financial statements.
• The signature of the accountant or the
accountant’s firm.
• The city and state where the accountant
practices.
• The date of the report, which should be the
date that the accountant has completed the
required procedures.
In addition, other modifications to the
compilation report are made:
• When financial statements are prepared
in accordance with a special-purpose
framework;
• When the accountant is not independent;
and
• On financial statements that omit
substantially all disclosures required by the
applicable financial reporting framework,
reporting known departures from the
applicable reporting framework and
supplementary information.
SSARS 21, Sec. 80, Exhibit A
contains illustrative engagement letters.
Exhibit B contains illustrative examples of
the accountant’s compilation report on
financial statements.
Review Engagements: SSARS 21, Sec. 90
The review engagement guidance under
SSARS 90 remains mainly intact under
SSARS 21, but there are important changes:
• As with the changes in sections 70 and
80 above, the accountant must obtain an
engagement letter signed by the accountant
and the client’s management.
• The reviewed financial statements report
must incorporate headings similar to
those in a report on audited statements
and include the city and state where the
accountant practices.
• In those cases where reviewed financial
statements are prepared in conformity with
a special-purpose framework, the review
report will include a separate paragraph
regarding that framework.
• The accountant must obtain evidence that
the financial statements reconcile to the
accounting records.
• In certain circumstances, the accountant
is required to include paragraphs in the
review report for emphasis-of-matter and
other-matters as used in audit literature.
• SSARS 21 introduces requirements when
using the work of other accountants.
• The accountant must determine whether
modifications should be made to the
financial statements based on accumulated
and evaluated misstatements identified
while performing review procedures.
• The accountant should consider
modifications to the standard review report
are necessary if there are known departures
from the applicable financial-reporting
framework. The accountant also should
consider whether modifications adequately
address the departures, or whether he or
she should withdraw from the engagement.
SSARS, Sec. 90, Exhibit A contains
illustrative engagement letters. Exhibit B shows
an illustrative representation letter. Exhibit
C shows illustrations of accountants’ review
reports on financial statements.
Michael B.Allmon, MBT, CPA is a partner
at Michael B. Allmon & Associates, LLP
CPAs and founding chair of the CalCPA
Estate Planning Committee. Michael L.
Moore, Ph.D., CPA is professor in residence of
accounting at Loyola Marymount University.
You can reach them at mike@mbacpas.com and
michael.moore@lmu.edu.
Statement of the Future
regulatoryupdate