SSARS 24 Special Purpose Financial Statements and International

SSARS 24, Special Purpose Financial Statements and International Reporting Issues Presented by: James D. Miller, CPA, CGMA Prepared by: Mike Glynn, CPA, CGMA AICPA (New York, NY) mike. glynn@aicpa-cima. com

DISCLAIMER Views expressed by AICPA employees are expressed for purposes of deliberation, providing member services and other purposes exclusive of practicing public accounting. Views expressed by AICPA staff do not necessarily represent the official views of the AICPA unless otherwise noted. Official AICPA positions are determined through certain specific committee procedures, due process and deliberation.

Session Objectives • Discuss the requirements and best practices with respect to financial statement preparation, compilation, and review engagements: • Compilation of financial statements that omit substantially all disclosures and audit/review of full disclosure financial statements • Special Purpose Financial Statements • When to perform review in accordance with AR-C section 90 vs AU-C section 930 • Common peer review findings

Session Objectives • Discuss recently issued SSARS No. 24 • Consideration of going concern in a review engagement • International reporting issues • Reference the work of other accountants in the review report • Discuss the ARSC’s current active agenda

Preparation of Financial Statements

When Does Section 70 Apply? AR-C section 70 applies when the accountant is engaged to prepare f/s but not engaged to perform an audit, review, or compilation on those f/s

Preparation of Financial Statements Preparation vs Bookkeeping Service • SSARSs preparation service is required when the accountant is engaged to prepare financial statements • It is important to understand what the client has hired the CPA to do!

Preparation of Financial Statements Engagement acceptance/continuance considerations • Consider management integrity • Consider whether the engagement team has the appropriate competency in accounting and financial reporting with respect to the applicable FRF • No need to consider independence – but other ethical responsibilities apply • Consider whether a compilation may be more appropriate. • Requires an engagement letter signed by both the accountant and management/those charged with governance

Preparation of Financial Statements If the financial statements contain known framework departure(s) – required to disclose in the financial statements • May be on the face of the financial statements or in a note • Do not prepare financial statements if omission of disclosures or other known framework departures are done to mislead users Remember, in a compilation, the departures are disclosed in the report.

Preparation of Financial Statements Requires a legend on each page of the f/s stating that no assurance is being provided • Normally placed on the bottom of each page of the financial statements – including related notes • Ensures that users are able to readily identify that the accountant is providing no assurance with respect to the financial statements.

Preparation of Financial Statements If management refuses or cannot include the legend, the accountant can: • Issue a disclaimer report, • Perform a compilation, or • Resign.

Preparation of Financial Statements When preparing financial statements in accordance with 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.

Preparation of Financial Statements If the financial statements omit substantially all disclosures – disclose the omission in the financial statements • Can be disclosed in the titles: XYZ Company Balance Sheet Substantially All Disclosures Required by GAAP Omitted December 31, 20 X 2 • Can be in the legend: – Substantially all disclosures required by GAAP omitted. No assurance is provided on these financial statements. • Can be in a selected note to the financial statements.

Compilation Engagements

Compilation of Financial Statements That Omit Substantially All Disclosures The accountant’s compilation report is required to include a statement that the accountant “did not audit or review the f/s” Can the accountant audit or review a set of full-disclosure f/s and issue a compilation report on the same basic financial statements w/o notes? • YES

Compilation of Financial Statements That Omit Substantially All Disclosures • The financial statements are substantially different • The set w/o notes was not audited or reviewed. • Consider adding an OM paragraph to the accountant’s compilation report stating that corresponding full disclosure financial statements were audited (or reviewed) and a reference to the auditor’s report (or accountant’s review report) on those f/s.

Review of Financial Statements

Review of Financial Statements – Consideration of Going Concern Requirements revised by SSARS No. 24 • Effective for reviews of financial statements for periods ending on or after June 15, 2019 Required written representation that management has disclosed, to the accountant, all information relevant to the use of the going concern assumption

Review of Financial Statements – Consideration of Going Concern If the FRF includes requirements for management (e. g. , US GAAP, IFRS), perform procedures related to • Whether the going concern basis of accounting is appropriate • Management’s evaluation of whethere are conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern • If there are conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern, management’s plans to mitigate those matters • The adequacy of the related disclosures in the financial statements

Review of Financial Statements – Consideration of Going Concern If the FRF does not include a requirement for management (e. g. , cash or tax basis) and • Conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time existed at the date of the prior period f/s (regardless of whether the substantial doubt was alleviated by the accountant’s consideration of management’s plans) or, • In the course of performing procedures on the current period f/s, the accountant becomes aware of conditions or events that raise substantial doubt about the entity's ability to continue as a going concern:

Review of Financial Statements – Consideration of Going Concern • Inquire of management whether the going concern basis of accounting is appropriate. • Inquire of management about its plans for dealing with the adverse effects of the conditions and events. • Consider the adequacy of the disclosure about such matters in the financial statements.

Review of Financial Statements – Consideration of Going Concern Reporting • If, after considering conditions or events and management’s plans, the accountant concludes that substantial doubt about the entity’s ability to continue as a going concern remains, include an EOM – Do not use conditional language concerning the existence of substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time. • If adequate disclosure is not made in the f/s, treat as a known departure from the FRF.

Review of Financial Statements – Reference to the Work of Other Accountant’s in Report Should not be made if the other accountant’s issued an audit or review report that includes an alert that restricts its use.

Review of Financial Statements – Reference to the Work of Other Accountant’s in Report Regardless as to whether referencing in your report, communicate with the other accountants and determine the following: • The other accountants are aware that the f/s of the component are to be included in the f/s of the reporting entity and that the other accountants’ report thereon will be relied upon and, where applicable, referred to in the report on the f/s of the reporting entity.

Review of Financial Statements – Reference to the Work of Other Accountant’s in Report • The other accountants are familiar with the FRF and with SSARSs or GAAS, as applicable, and will conduct the review or audit in accordance therewith. – If other accountant’s report says that the engagement was performed in accordance with SSARSs or GAAS is sufficient. – If other engagement was not performed in accordance with GAAS or SSARSs, use professional judgment as to whether other standards meet minimum requirements of GAAS or SSARSs (planning and performance – not reporting) – ISRE 2400 (Revised) and ISA engagements are likely too meet requirements – Other accountants can perform additional procedures, if needed, to comply with SSARSs or GAAS

Review of Financial Statements – Reference to the Work of Other Accountant’s in Report • The other accountants understand the ethical requirements that are relevant to the engagement and, in particular, are independent. – If other accountants are not covered by AICPA Code of Professional Conduct, International Ethics Standards Board’s Code is sufficient. • A review will be made of matters affecting elimination of intercompany transactions and accounts and, if appropriate in the circumstances, the uniformity of accounting practices among the components included in the financial statements.

Review of Financial Statements – Reference to the Work of Other Accountant’s in Report Determining Whether to Make Reference When the FRF is Not the Same • Reference to the review or audit of the other accountants in the should not be made unless the following apply: – The accountant has determined that the measurement, recognition, presentation, and disclosure criteria that are applicable to all material items in the component’s f/s in accordance with the FRF used by the component are similar to the criteria that are applicable to all material items in the reporting entity’s f/s in accordance with the FRF used by the reporting entity.

Review of Financial Statements – Reference to the Work of Other Accountant’s in Report - The accountant of the reporting entity has obtained sufficient appropriate review evidence for purposes of evaluating the appropriateness of the adjustments to convert the component’s f/s to the financial reporting framework used by the reporting entity without the need to assume responsibility for, and thus be involved in, the work of the other accountants.

AR-C section 90 vs AU-C section 930 If engaged to review financial statements, look first to AR-C section 90. However, AU-C section 930 applies: • If the entity’s latest annual f/s have been audited by the accountant or a predecessor; • the accountant either – has been engaged to audit the entity’s current year f/s or – audited the entity’s latest annual f/s and, in situations in which it is expected that the current year f/s will be audited, the engagement of another accountant to audit the current year f/s is not effective prior to the beginning of the period covered by the review; AND • the entity prepares its interims in accordance with the same FRF as that used to prepare the annual f/s

Review of Financial Statements – Content of the Accountant’s Review Report - Amends AR-C 90, Review of Financial Statements, specifically AR-C 90. 39, to make the requirements regarding the content of the accountant’s review report consistent with the illustrative examples in Exhibit C of AR-C 90. - Unlike the other amendments made by SSARS 24, this amendment to AR-C 90. 39 is effective upon the issuance of SSARS 24 (i. e. , effective now).

Review of Financial Statements – Content of the Accountant’s Review Report - Practice Note: Accountants who have been reporting in accordance with the illustrative reports provided in Exhibit C of AR-C 90 or the illustrative reports in paragraph 1. 239 of the AICPA Guide, Preparation, Compilation, and Review Engagements, will not need to update their report templates. This amendment only brings the requirements in line with the report; it does not change the report illustrations. Accountants who have not been reporting in accordance with the illustrative reports may need to update their report templates. Note that our understanding is that the PPC/Checkpoint report templates include the appropriate wording. Nevertheless, accountants who use those report templates should ensure the appropriate wording, as required by AR-C 90, is being used.

Special Purpose Financial Statements – Preparation, Compilation, and Review

Special Purpose Financial Statements Financial reporting framework = criteria for the preparation and presentation of f/s Two types of financial reporting frameworks: • General purpose framework – Designed to meet the financial needs of a wide range of users – Example – GAAP • Special purpose framework

Special Purpose Financial Statements Special Purpose Framework • A financial reporting framework other than GAAP that is one of the following bases of accounting: – Cash basis – Tax basis – Regulatory basis – Contractual basis – Other basis

Special Purpose Financial Statements The cash-basis, tax-basis, regulatory-basis, and other-basis of accounting are commonly referred to as other comprehensive bases of accounting (OCBOA).

SSARSs Engagements on Special Purpose Financial Statements Management is responsible for the preparation and fair presentation of financial statements and for the inclusion of all required disclosures • When f/s prepared in accordance with a special purpose framework: – F/S should include a description of the framework – Summary of significant accounting policies – How the framework differs from GAAP (effects need not be quantified) – Disclosures similar to those required by GAAP if f/s contain items that are the same as, or similar to, those in GAAP financial statements

SSARSs Engagements on Special Purpose Financial Statements • If the f/s are prepared in accordance with a contractual basis of accounting, f/s should include a description of any significant interpretations of the contact. • Additional disclosures may be required to achieve fair presentation. For compilations and reviews of financial statements, management is required to acknowledge its responsibility as a condition for the accountant’s acceptance of the engagement.

SSARSs Engagements on Special Purpose Financial Statements Compilation and Review Reports on SPF f/s : • Required to modify report when the f/s do not include – Description of the framework – Summary of significant accounting policies – Adequate description of how SPF differs from GAAP – Informative disclosures similar to those required by GAAP • Not required to modify report if compilation of f/s that omit substantially all disclosures • If contractual basis of accounting, modify report if f/s do not describe interpretations.

SSARSs Engagements on Special Purpose Financial Statements Compilation and Review Reports on SPF f/s : • Make reference to management’s responsibility for determining that the SPF is acceptable in the circumstances when management has a choice of FRFs in the preparation of f/s. • For regulatory or contractual basis f/s, describe the purpose for which the f/s are prepared or refer to a note in the f/s that contains that information

SSARSs Engagements on Special Purpose Financial Statements Compilation and Review Reports on SPF: • Include an EOM that – Indicates that the f/s are prepared in accordance with the SPF, – Refers to the note to the f/s that describes the framework, and – States that the SPF is a basis of accounting other than GAAP. • Review report on contractual or regulatory basis f/s is required to include an alert that restricts its use.

International Reporting Issues

International Reporting Issues CPA may be engaged to perform a compilation or review of financial statements when: • The f/s have been prepared in accordance with an FRF generally accepted in another country (not IFRS or IFRS – SME). • The compilation or review engagement is to be performed in accordance with both SSARSs and another set of compilation or review standards, such as ISRS 4410 (Revised) or ISRE 2400 (Revised).

International Reporting Issues SSARS No. 24 issued in May 2018 Effective for compilations and reviews of financial statements for periods ending on or after June 15, 2019.

International Reporting Issues Engagement Acceptance • Determine whether foreign FRF is acceptable by gaining an understanding of: – The purpose for which the f/s are prepared – Intended users – Steps taken by management to determine that FRF is acceptable

International Reporting Issues Reporting • If f/s are intended for use only outside of the US, may use the form and content of another country – If using SSARSs report, do not include required paragraph with respect to SPF – Include a reference to the note that describes the basis of presentation – including the country of origin • If f/s are to be used in the US – required to report in accordance with SSARSs • If engagement performed in accordance with SSARSs and another set of standards, cannot state compliance unless both sets of standards were followed

International Reporting Issues Substantive differences between SSARSs review and ISRE 2400 (Revised) review: • ISRE 2400 (Revised) requires the issuance of an adverse review conclusion when misstatements are material and pervasive – SSARSs prohibits an adverse conclusion – either list out all known departures in an “except for” paragraph or withdraw • ISRE 2400 (Revised) permits the issuance of a disclaimer of conclusion – SSARSs does not provide for a disclaimer and requires withdrawal when the CPA is unable to obtain limited assurance.

International Reporting Issues Substantive differences between SSARSs review and ISRE 2400 (Revised) review: • ISRE 2400 (Revised) includes an explicit requirement to determine materiality and apply in the designing procedures and evaluating results • ISRE 2400 (Revised) includes specific and explicit requirements for the accountant to consider related parties.

Common Peer Review Findings

Common Peer Review Findings - Compilations Failure to prepare reports in accordance with professional standards • Examples of common peer review findings include: – Issuance of reports that are not in accordance with current AR-C section 80. – Failure to properly specify the date or period covered by the f/s – Failure to include a separate paragraph or issue a separate report when SI accompanies f/s and the accountant’s report thereon. – Failure to include a separate paragraph in the accountant’s compilation report that includes the required elements when reporting on f/s that omit substantially all disclosures required by the FRF.

Common Peer Review Findings - Compilations Failure to properly document the agreed-upon terms of the engagement • Examples of common peer review findings include: – Failure to properly include the expected form and content of the accountant’s compilation report when the accountant’s independence is impaired. – Failure to properly identify the applicable financial reporting framework for the preparation of the financial statements.

Common Peer Review Findings - Reviews Failure to request management to provide specific written representations • Examples of common peer review findings include: – Failure to request all required representations. – Failure to request representations that are dated as of the date of the accountant’s review report. – Failure to request representations for all periods covered by the review.

Common Peer Review Findings - Reviews Failure to prepare reports in accordance with Professional Standards • Examples of common peer review findings include: – Failure to properly specify the date or period covered by the reviewed financial statements – Failure to include section headings. – Failure to clearly indicate the degree of responsibility, if any, the accountant is taking with respect to supplementary information that accompanies financial statements and the accountant’s review report thereon

Common Peer Review Findings - Reviews Failure to properly prepare review documentation • Failure to properly document the development of expectations. • Failure to properly document the comparison of recorded amounts or ratios developed from recorded amounts to expectations.

Standard Setting Projects in Development

Proposed Revised AT-C sections ASB has been debating proposed revisions to AT-C sections to enable a CPA to report on subject matter without having to obtain a written assertion from the responsible party Would more closely align with ISAE 3000 (Revised) ARSC is providing feedback with respect to proposed revisions to AT -C sections 105 and 210 • Change name of AT-C 210 engagement to “limited assurance engagement” • Require description of procedures performed in report

Proposed Revised AT-C section 215 Joint ASB/ARSC project Exposure draft of proposed SSAE, Selected Procedures issued in September 2017; comment period ended December 2017 • Proposed flexibility to be included in proposed revised AT-C section 215 – The practitioner may determine the procedures to be performed without any party required to take responsibility for the sufficiency of the procedures – Prior to the issuance of the report, engaging party would be required to provide written acknowledgment that the procedures performed are appropriate for the intended purpose of the engagement – Would allow for general-use reports

Proposed Revisions to AR-C section 90 to Harmonize with ISRE 2400 (Revised) • Proposed requirement to determine materiality and apply materiality in designing procedures and evaluating results – Not considered to be a significant change in practice since the CPA currently needs an understanding of materiality to conclude whether any material modifications need to be made to the f/s • Allow for the expression of an adverse review conclusion when f/s are materially and pervasively misstated • Require a statement regarding independence in the accountant’s review report. May be exposed for public comment in the 3 rd quarter of 2018

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