Accounting and Tax Blog
SubTitle: Accountant Anxiety
A History of SSARS 8 Type Engagements
SSARS 1 (1978) Members of the AICPA were not allowed to generate or modify client financial statements without issuing a compilation report. Before SSARS 1, these statements were called “unaudited” and needed no report.
SSARS 8 (effective in 2001) introduced the “management use only” type of compilation engagement. An engagement letter was required (they weren't required for other compilations) and the financial statements were required to be marked on each page “for management use only” or something similar to that. No compilation report was needed. These were commonly referred to as SSARS 8 engagements. SSARS 8 engagements were not normally selected for peer review.
SSARS 19 (effective for periods ending on or after Dec. 15, 2010) didn’t really change the SSARS 8 engagement but added the requirement that all compilations must have engagement letters, not just SSARS 8 type engagements.
SSARS 21 (effective for periods ending on or after December 15, 2015, early implementation is permitted) makes a significant change to the old SSARS 8 engagement, which is now called a “preparation” engagement rather than a compilation. The standards have changed in the following ways:
- Only the engagement letter controls whether you have a compilation or a preparation engagement. You have a preparation engagement unless you are engaged to perform a compilation, review or audit.
- Use by third parties is allowed (a good reason for early implementation).
- Independence is not required or even considered in a preparation engagement.
You might think that these modestly regulated preparation engagements would allow you to provide financial statements straight from QuickBooks, (like the old “unaudited” statements before SSARS 1), but you would be wrong. Leave it to the standard setters to set plenty of standards. Here's a summary:
- When issuing under a special purpose framework (OCBOA), the accountant is required to include a description of the financial reporting framework on the face of the financial statements or in a note to the financial statements. This could be handled in the titles to the statements or in a legend. Obviously the statement titles should be appropriate for OCBOA (cash or tax basis, etc.) statements. Specific titles are not required but they should not be balance sheet or income statement since those titles imply conformity with GAAP. Also, it probably would not be good to use the QuickBooks title profit and loss, since
that statement title has been outdated forever. These titles can be modified within QuickBooks’ customize report options.
- Since the financial statements have not been subjected to a compilation, review or audit engagement, each page must be marked with the legend “no assurance is being provided” or something similar to that. Each page must also disclose the accounting framework (GAAP or OCBOA) departures, so the legend may need to read “no assurances or disclosures are provided”, since there are usually no notes issued with QuickBooks statements.
- Alternatively to the legend, a disclaimer letter may be issued stating something like, “The accompanying financial statements of XYZ Company, as and for the year ended December 31, 20XX, 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.”
- Although preparation engagements are not expected to be selected for per review, members are still subject to the AICPA Code of Conduct, which states that a member’s name should not be associated with misleading financial statements. So, disclaimer or not, beware of misleading financial statements. (see AR-C 70.17 to 70.20)