Compilations and Reviews of Financial Statements (Portfolio 5450)

Bloomberg BNA Tax and Accounting Portfolio 5450, Compilations and Reviews of Financial Statements, (Accounting Policy and Practice Series), examines in detail the AICPA's Statement on Standards for Accounting and Review Services (SSARS), which set the requirements an accountant must follow when performing a compilation or a review of financial statements. To access this Portfolio, visit Bloomberg Tax Financial Accounting Resource Center for a free trial. 

 

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Description

Bloomberg BNA Tax and Accounting Portfolio 5450, Compilations and Reviews of Financial Statements, (Accounting Policy and Practice Series), examines in detail the AICPA's Statement on Standards for Accounting and Review Services (SSARS), which set the requirements an accountant must follow when performing a compilation or a review of financial statements. This portfolio describes the objectives, limitations, and elements of compilation and review engagements.

The AICPA issued SSARS No. 21, Statements on Standards for Accounting and Review Services: Clarification and Recodification, October 2014, to clarify and revise standards for compilations, reviews, and engagements to prepare financial statements. SSARS No.21 includes significant revisions that affect the standards for accountants in public practice who prepare financial statements for their clients. SSARS No. 21 will supersede all existing Accounting and Review (AR) Sections except AR Section 120, Compilation of Pro Forma Financial Information.

The AICPA issued SSARS No. 22, Compilation of Pro Forma Financial Information, Sept. 2016, to clarify the standards for compilations on pro forma financial information. SSARS No. 22 supersedes AR Section 120, Compilation of Pro Forma Financial Information.

The AICPA issued SSARS No. 23, Omnibus Statement on Standards for Accounting and Review Services in October, 2016 and introduces a number of amendments to expand on, revise and clarify the standards for accounting and review services.

This Portfolio contains sections for compilations and reviews of financial statements for SSARS No. 21, SSARS No. 22, and SSARS No. 23.

This Portfolio may be cited as Bloomberg BNA Tax and Accounting Portfolio 5450, Roque, Compilations and Reviews of Financial Statements (Accounting Policy and Practice Series).

Authors

Erica Roque, CPA, Esq.

An attorney and Certified Public Accountant, Rachel Erica Roque is a well-rounded business professional with more than 13 years of taxation, operational, financial, and auditing experience. In her role as Principal, Erica provided tax consulting and planning services and managed compliance matters, in addition to training and mentoring staff. Erica's experience includes providing income tax planning and compliance services for S corporations, partnerships, individuals, and corporations, including various tax-exempt organizations, such as foundations, trade associations, and charitable organizations. Erica began her career with Halt, Buzas & Powell in 2002 as an Accountant. During her time there, she earned her B.S. in Accountancy from The George Washington University School of Business and quickly advanced to a management position. In 2009, Erica decided to pursue a law degree with concentrations in Tax and Corporate Law from the George Mason University School of Law. During this time, Erica left Halt, Buzas & Powell to complete her law degree and gain experience in a law firm environment. She also served on the Board of Directors for the Literacy Council of Northern Virginia from 2010-2013 (as Board Secretary from 2012-2013). In 2013, Erica re-joined Halt, Buzas & Powell as Manager in the Tax Department. Currently, she works for the law firm, Arent Fox, as an associate in the Washington, D.C. office. Her practice focuses on a wide variety of commercial transactions, including: corporate structuring; mergers and acquisitions; corporate compliance; sponsorship deals; and general corporate law, as well as technology transactions, including: negotiating and drafting licensing; software; service; and other technology related agreements.

Table of Contents

Detailed Analysis
I. Performing and Reporting on Compilation and Review of Financial Statements
Introductory Material
A. Relevant Definitions
B. Objectives and Limitations of Compilation and Review engagements
1. What is a compilation engagement?
2. What is a review engagement?
3. What is an engagement to prepare financial statements (i.e., preparation engagement)?
4. What is an engagement to prepare prospective financial information (SSARS 23)?
C. Professional Requirements and Acceptance
D. Compilation and Review Guidance
1. Compilation and Review Publications
2. Ethical Principles and Quality Control Standards
E. Elements of a Compilation and Review Engagement (Pre-SSARS 21)
1. Third Party Relationship
2. Applicable Financial Reporting Framework
3. Financial Statements or Financial Information
4. Evidence
5. Accountant's Written Report
F. Materiality (pre-SSARS 21)
II. Compilation of Financial Statements (pre SSARS No. 21)
Introductory Material
A. Accepting and Planning the Engagement
1. Communication Between Predecessor and Successor Accountants
2. Establishing an Understanding (Engagement Letter Between Accountant and Client)
B. Fieldwork
1. Procedures
a. Understanding the Client's Industry and Business
b. Reading the Financial Statements
2. Documentation
C. Reporting on the Financial Statements
1. The Accountant's Report
2. Comparative Financial Statements
3. Reporting When the Accountant Is Not Independent
4. Reporting When Substantially All Disclosures Are Omitted
5. Reporting on Emphasis of a Matter
6. Reporting When There Is a Departure from the Applicable Reporting Framework
7. Reporting When an Accountant's Report Is Restricted to Specified Users
8. Reporting on Subsequent Events
a. Subsequent Discovery of Facts Existing at the Date of the Report
9. Reporting on Going Concern Matters
10. Reporting on Financial Statements Prepared in Accordance With Other Comprehensive Basis of Accounting (OCBOA)
11. Reporting on Supplementary Information
12. Reporting When Financial Statements Will Not Be Used By a Third Party
13. Communicating Evidence of Fraud or an Illegal Act to Management and Others
14. Change of Engagement from Audit or Review to Compilation
D. Financial Information Compiled Based on Contractual Agreements or Regulatory Provisions
E. Compilation of Specified Elements, Accounts, or Items of a Financial Statement
F. Compilation of Pro Forma Financial Information
G. Compilation of Reports on Financial Statements Included In Certain Prescribed Forms
H. Reporting on Personal Financial Statements Included in Written Personal Financial Plans
III. Preparation Versus Compilation of Financial Statements (post SSARS No. 23)
Introductory Material
A. Preparation of Financial Statements
1. Acceptance of Preparation Engagement
2. Engagement Letter Between Accountant and Client
3. Understanding the Entity's Financial Reporting Framework
4. Preparing the Financial Statements
5. Documentation in a Preparation Engagement
B. Compilation of Financial Statements
1. Determine if the Accountant is Independent
2. Acceptance of Compilation Engagement
3. Engagement Letter Between Accountant and Client
4. Understanding the Entity's Financial Reporting Framework
5. Compilation Procedures
6. The Accountant's Compilation Report
a. Reporting When the Accountant Is Not Independent
b. Reporting When Substantially All Disclosures Are Omitted
c. Reporting When There Is a Known Departure from the Applicable Reporting Framework
d. Reporting on Supplementary Information
(1) Required Supplementary Information
(2) Non-Required Supplementary Information
e. Reporting on Prospective Financial Information
f. Reporting on Pro Forma Information
7. Documentation in a Compilation Engagement
IV. Review of Financial Statements (pre SSARS No. 21)
Introductory Material
A. Accepting and Planning the Engagement
1. Communication Between Predecessor and Successor Accountants
2. Establishing and Understanding (Engagement Letter Between Accountant and Client)
B. Fieldwork
1. Procedures
a. Understanding the Client's Industry and Business
b. Analytical Procedures
c. Inquiries and Other Review Procedures
d. Incorrect, Incomplete, or Otherwise Unsatisfactory Information
2. Management's Representation Letter
a. Updating the Management Representation Letter
3. Documentation
C. Accountant's Report
1. How To Prepare The Accountant's Report
2. Incomplete Review Engagements
3. Financial Statements Prepared In Accordance With an OCBOA
4. Comparative Financial Statements
5. Reporting on Matters That Deserve Emphasis
6. Reporting When There Is a Departure from the Applicable Reporting Framework
7. Reporting When an Accountant's Reports Restricted to Specified Users
8. Reporting on Subsequent Events
a. Subsequent Discovery of Facts Existing at the Date of the Report
9. Reporting on Going Concern Matters
10. Reporting on Financial Statements Prepared in Accordance with Other Comprehensive Basis of Accounting (OCBOA)
11. Reporting on Supplementary Information
12. Communicating Evidence of Fraud or an Illegal Act to Management and Others
13. Change of Engagement from Audit to Review
14. Financial Statements Prepared to Comply With Contractual Agreements or Regulatory Provisions
V. Review of Financial Statements (post SSARS No. 23)
Introductory Material
A. Accepting and Planning the Engagement
1. Acceptance of Review Engagement
2. Engagement Letter Between Accountant and Client
B. Fieldwork
1. Procedures
a. Understanding the Client's Industry and Business
b. Analytical Procedures
c. Inquiries and Other Review Procedures
d. Incorrect, Incomplete, or Otherwise Unsatisfactory Information
2. Management's Representation Letter
3. Documentation
C. Accountant's Report
1. How To Prepare The Accountant's Report
2. Comparative Financial Statements
3. Reporting on Matters That Deserve Emphasis
4. Reporting When There Is a Departure from the Applicable Reporting Framework
5. Reporting on Subsequent Events
6. Reporting on Going Concern Matters
7. Reporting on Supplementary Information
8. Communicating Evidence of Fraud or an Illegal Act to Management and Others
9. Change of Engagement from Audit to Review
VI. Reporting on Comparative Financial Statements
A. Standards for Reporting on Comparative Financial Statements
1. Accountant's Report
a. Continuing Accountant's Report
b. Predecessor Accountant's Report
(1) Predecessor's Compilation or Review Report Not Presented
(2) Predecessor's Compilation or Review Report Reissued
c. Restated Prior Period Financial Statements
(1) Restated Prior-Period Financial Statements by the Predecessor Accountant
(2) Restated Prior-Period Financial Statements by the Successor (Current) Accountant
(3) Restated Prior-Period Financial Statements with No Report
VII. Compilation of Pro Forma Financial Information (SSARS No. 22)
Introductory Material
1. Requirements
2. Acceptance and Continuance of Client Relationships
3. Agreement on Engagement Terms
4. The Accountant's Knowledge and Understanding of the Entity's Financial Reporting Framework
5. Compilation Procedures
6. The Accountant's Compilation Report on Pro Forma Financial Information
7. Documentation

Working Papers

TABLE OF WORKSHEETS
Worksheet 1 Compilation of Financial Statements Checklist (post AR-C Section 70)
Worksheet 2 Review of Financial Statements Checklist (post AR-C Section 90)
Worksheet 3 Compilation of Financial Statements Checklist (pre AR-C Section 70)
Worksheet 4 Review of Financial Statements Checklist (pre AR-C Section 70)
Worksheet 5 Illustrations