SSAE No. 16 Reporting on Controls at a Service Organization

The ASB has issued Statement on Standards for Attestation Engagements (SSAE) No. 16, Reporting on Controls at a Service Organization. With the issuance of this standard the requirements and guidance for service auditors and user auditors moves from SAS No. 70, Service Organizations (AU section 324) to SSAEs. Recall that the entity that outsources a task or function is known as a user entity, and the entity that performs a service for user entities is known as a service organization. Examples of service organizations include investment advisers that invest assets for user entities or a data center that provides applications and technology that enable user entities to process financial transactions.

SSAE No. 16 contains the requirements and guidance for a service auditor reporting on a service organization’s controls. It enables a service auditor to perform two types of engagements:

• A type 2 engagement in which the service auditor reports on the fairness of the presentation of management’s description of the service organization’s system and the suitability of the design and operating effectiveness of the controls to achieve the related control objectives included in the description throughout a specified period.
• A type 1 engagement in which the service auditor reports on the fairness of the presentation of management’s description of the service organization’s system and the suitability of the design of the controls to achieve the related control objectives included in the description as of a specified date.

SSAE No. 16 is effective for service auditors' reports for periods ending on or after June 15, 2011. Earlier implementation is permitted.

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Blue-Ribbon Panel Holds First Meeting

The first meeting of the panel was held April 12, 2010 in the New York offices of the AICPA. The key portion of the meeting featured the viewpoints of those panel members who use private company financial statements, including three lenders, a venture capitalist, a private equity manager, a surety, and a business owner.

Most members agreed that U.S. GAAP is seen as a gold standard in financial reporting, and that consistency of GAAP is key. In addition they said that financial statements are only a part of decision making and that management’s character plays an important role in those decisions. Panel members said in using financial statements, they make adjustments to fit their own needs and they would be willing to make further changes if GAAP were modified. But having too many exceptions and variances erodes the notion of what is considered to be generally accepted, they said.

At the panel’s next meeting preparers and auditors will share their viewpoints. In addition, representatives from the International Accounting Standards Board and the Canadian Accounting Standards Board will speak with the panel about IFRS for SMEs and Canadian GAAP for Private Enterprises.

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First Meeting of the Blue-Ribbon Panel on Private Company Financial Reporting April 12, 2010

The first meeting of the Blue-Ribbon Panel on Private Company Financial Reporting will be held on Monday April 12, 2010 in New York City. A public portion of the meeting will take place from 10:30 a.m. to 4:30 p.m. This portion of the meeting will be accessible via live audio stream. You may access the audio by going to the FASB website, fasb.org. and clicking on “Listen to Webcast of April 12, 2010 Meeting of “Blue Ribbon Panel” on Standard Setting for Private Companies” under “Recent Activity and News.”

In the first half of the public portion of the meeting, various people will provide an overview of the history on the debate of private company standards within the U.S. financial reporting system, provide a briefing on world actions on private company financial reporting, and provide a briefing on the current U.S. standard-setting process. There will also be an expert discussion by James Castellano, former chairman of the AICPA’s Private Company Financial Reporting Task Force and 2002 AICPA Board of Directors chairman.

In the second half of the public portion of the meeting, panel members will discuss their views on the following issues:

• Who are the actual users of private company financial statements?
• What is the key, decision-useful information that the various users need from U.S. GAAP financial statements? Is there information you don’t need or can’t get?
• Are current U.S. GAAP financial statements meeting those needs? Why or why not?
• Do you routinely “adjust” the U.S. GAAP financial statements to meet your needs?
• Are you concerned with the cost/benefit issues preparers experience in preparing U.S. GAAP financial statements?

The next meeting is scheduled for May 15, 2010.

How do you feel about the work of the Blue-Ribbon Panel? Is there a need for a separate set of standards for private companies? Tell us how you think it will affect your practice by adding a comment.

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Director Needed for New PCAOB Financial Reporting Fraud Resource Center

It seems as if fraud is always with us. so one of the recommendations from the Treasury Advisory Committee on the Auditing Profession called for the creation by the PCAOB of a national center to facilitate the prevention and detection of financial fraud. As a result the PCAOB is developing the Financial Fraud Resource Center. The Center is expected to maintain and develop information related to financial reporting fraud and will publish public reports on financial reporting fraud risks.

The PCOAB is looking for someone to head up the Center. If you are looking for a job and have the following qualification you might be interested in becoming the Center's director. You need to be able to monitor emerging fraud risks (financial and nonfinancial) and developments (geoeconomic and geopolitical) in domestic and foreign capital markets, industries and public companies and analyze and interpret financial trends, developments and anomalies to identify factors that may contribute to financial reporting fraud.

One of the director’s first duties will be to work with the Board and senior PCAOB staff to set up the operations and activities of the new center. After the launch of the center, the director will be responsible for its day-to-day operations, including hiring and managing staff.

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