New SSARS Approved - Non-Independent Review Not In It

The AICPA Accounting and Review Services Committee (ARSC) approved a new compilation and review standard in November 2009. We have previously discussed the exposure draft that resulted in this new standard. The effective date of the new standard is for periods ending on or after December 15, 2010. However paragraph 2.21 may be implemented early. This is the paragraph that that allows CPAs to explain in their compilation reports the reasons why they are not independent.

There are two differences in the exposure draft and the final standard. The ARSC retained the concept of limited assurance rather than moderate assurance and the non-independent review is not part of the final standard. Because of the number of comments on this proposal, for and against, the ARSC decided to defer this issue so the Committee could hold additional meetings with key stakeholders.

The new SSARS contains a number of changes. One change of interest to small firms is that compilation guidance is separated from review guidance. Other significant changes include:

• A discussion of how the accountant obtains limited assurance through the performance of review procedures.
• The introduction of the term review evidence to the review literature.
• A discussion of tailoring the review procedures based on the accountant’s understanding of the client’s industry, knowledge of the client, and awareness of the risk that he or she may unknowingly fail to modify the accountant’s review report on financial statements that are materially misstated.
• A discussion of materiality in the context of a review engagement.
• A requirement that an accountant document the establishment of an understanding with management through an engagement letter regarding the services to be performed.
• Enhanced documentation requirements for compilation and review engagements.

The AICPA has issued a white paper, Significant Change for Compilation Reporting Requirements When Independence is Impaired. It is available from the AICPA at http://www.aicpa.org/.

Let us know what you think about the ability to issue a non-independent review report.

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