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IJEFF SAILOR SEMINARS’ ACCOUNTING & AUDITING UPDATE AND REVIEW - © 2013

A Special Presentation to the FICPA Mid-Florida Chapter

P.O. Box 759 - Ocala, FL 34478 - (352)732-4422

www.jeffsailor.com

PRESENTED BY

FEATURING• Compilation & Review Update •

There's always something new to learn and Jeff makes it fun!

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JEFF SAILOR'S 2013ACCOUNTING & AUDITING UPDATE AND REVIEW

II JEFF SAILOR SEMINARS’ ACCOUNTING & AUDITING UPDATE AND REVIEW - © 2013

COMPILATION & REVIEW UPDATE

COMPILATION &REVIEW ENGAGEMENTS

Introduction• The standards are in three sections

- Framework for compilations and reviews•AR section 60

- Standards and guidance for compilations•AR section 80

- Standards and guidance for reviews•AR section 90

FRAMEWORk FOR PERFORMING & REPORTING ON COMPILATIONS AND REVIEWS

Definitions• Applicable Financial Reporting Framework

- The acceptable or required framework adopted by management or those charged with governance• Assurance Engagement

- Anengagementwithareporttoenhancetheconfidenceofthestatements• Attest Engagement

- An engagement requiring independence under AICPA guidelines• Financial Statements

- Structuredrepresentationofhistoricalfinancialinformationunderaframework - The term typically refers to a complete set, but may refer to a single statement

• Submission of Financial Statements - Thepresentationtomanagementfinancialstatementspreparedbytheaccountant

• Other Comprehensive Basis of Accounting (OCBOA) - AdefinitesetofcriteriaotherthanUSGAAPorIFRSwithsubstantialsupport

• Review Evidence - Information used by the accountant for a reasonable basis for limited assurance

• Third Party - Any one (including those charged with governance) other than management

• Those Charged with Governance - The people responsible for the strategic direction with regard to accountability

Objectives and Limitations of Compilations and Reviews• Compilation

- Objective•Assistwithmanagement’srepresentationsintheformoffinancialstatementswithoutobtainingassuranceoftheneedformaterialmodificationsforthestatementstobeinconformitywiththeapplicablereportingframework

- “Financial Statements” for SSARS purposes include where applicable:•Otherspecifiedelements,accountsoritemsofafinancialstatement•Proformafinancialinformation

- It is not an assurance engagement•Thus, it does not provide a basis for assurance on the statements

- It is an attest engagement - It differs greatly from a review or an audit

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COMP & REVIEW UPDATE - ENGAGEMENTS

• Review - Objective

•Obtainlimitedassurancethatnomaterialmodificationsareneededforthefinancialstatementstobeinconformity with applicable reporting framework

- Review evidence must be accumulated to obtain limited assurance - A review is both an assurance and an attest engagement

Compilation and Review Elements• Three party relationship

- Accountant - Management - User

• Applicable financial reporting framework• Financial information• Sufficient appropriate review evidence for a review• Report or other written communication

- This would not be appropriate if the accountant is not in the practice of public accounting

Materiality• Materiality is often addressed by the financial reporting framework• Definition:

- Misstatementsareconsideredmaterialiftheyareexpectedtoinfluenceeconomicdecisionsoftheusers• Materiality is relative to the circumstances

- It is affected by the misstatement size and nature• Consideration of the needs of the group of users should be made

- The possible effect on an individual should not be considered• Professional judgment must be applied• Assumptions for determining materiality

- Usershavereasonablefinancialknowledgeandwillstudythestatements - Usersunderstandtheconceptofmaterialityinthestatements - Usersrecognizetheinherentuncertaintiesinfinancialstatements - Usersmakereasonabledecisionsbasedontheinformation

CoMMoN ISSUES FoR CoMPIlATIoNS AND REVIEWS - AR SECTIONS 80 & 90

Emphasis of a Matter• Allowed, but never required• An emphasis paragraph may not be used without proper disclosure• Examples

- Uncertainties - The entity is part of a larger entity - Significantrelatedpartytransactions - Subsequent events - Comparability issues other than a change in accounting principles

Restricted Reports• General-use and restricted-use reports

- General-usereportsarethosenotrestrictedtocertainparties - GAAPorOCBOAstatementreportsaregenerallynotrestricted - Restricted-usereportsarethoseintendedforonlyoneormorespecifiedthirdparties

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- The need for this may be due to the purpose of the report and the chance of it being misunderstood out of context

- The report should be restricted when the subject matter is based on contractual or regulatory criteria thatisnotinconformitywithGAAPorOCBOA

• Limiting the distribution of reports - Theclientshouldbeinformedthatthereportsarenottobedistributedtootherthanthespecifiedparties - This may be accomplished in the engagement letter or similar - The accountant is not responsible for controlling client distribution of the report - The report should alert readers that it is restricted and should not be used by anyone other than the specifiedparties

• A restricted-use report should have a separate ending paragraph with the following elements: - Statementthatthereportisintendedsolelyfortheinformationanduseofthespecifiedparties - Identificationoftheparties - Statement that it is not to be used by anyone else

• Nothing in this statement would prevent the restriction of the use of any report

Going Concern• During a compilation or review, information may indicate a going concern problem• The accountant should request that management consider the effects of the uncertainty• This will include the possible need for disclosure• The accountant should consider the reasonableness of management’s response• If the conclusions are unreasonable or disclosure is inadequate, the report should be modified to indi-

cate departure from standards

Subsequent Events• This involves events occurring after the balance sheet date but before issuance of the statements• These may be discovered either during the compilation or after the report date but before the release date• Management should consider the effect• If the event is not properly accounted for, the report should be modified for departures• An emphasis paragraph may be added to the report, provided proper disclosure is made

Subsequent Discovery of Facts• After the date of the report, the accountant may become aware of information relating to the financial

statements - Not known by the accountant at the time of the report - Information that would have been considered had it been known

• Legal counsel may be necessary• After the date of the report, there is no obligation to perform any compilation procedures unless new

information comes to the accountant’s attention• If the further use of the original statements or report should not be made, the accountant should ad-

vise the client to make disclosures to anyone using the statements - The method will depend on the circumstances

• If they can be done promptly, revised statements should be prepared• If close to issuance of subsequent period statements, disclosure may be made in those statements• If revision cannot be done promptly, then the users should be advised and the statements issued as

soon as possible• Notify users that the old statements should no longer be used• If the client refuses to make the disclosures, then the accountant must notify the highest level in the

entity of the refusal• If disclosure is still refused, the accountant should consult an attorney and consider the following steps:

- Notify the client that the report may no longer be used - Notify regulatory agencies that the statements should no longer be used

VJEFF SAILOR SEMINARS’ ACCOUNTING & AUDITING UPDATE AND REVIEW - © 2013

- Notify users that the statements should no longer be used•Include a description of the issue and the effect on the statements•Beaspreciseandfactualaspossiblewithoutgoingbeyondthebasicinformation•Avoid comments on motives

Communications with Management and Others• Any evidence or information about illegal acts should be communicated to the proper level of management• Those which are clearly inconsequential need not be reported• Where the acts involve senior management, the report needs to be to the owner or board of directors• Communications may be oral or written

- Oral communication should be documented• If the act involves the owner, the accountant should consider resigning• The accountant should also consider consulting legal counsel or the insurance provider when fraud or

illegal acts may have occurred• Due to confidentiality, communications outside the organization are usually precluded

- Exceptions include:•Compliance with legal and regulatory requirements•Successor communications•Response to a subpoena

Required Supplementary Information• You are not required to apply procedures to required supplementary information for either a compila-

tion or review• If supplementary information is omitted in statements that omit substantially all disclosures, the omis-

sion may NOT be disclosed in the same paragraph that discloses the lack of disclosures

Personal Financial Statements• The standard compilation and review reports in SSARS 19 do apply to personal financial statements• The client may need to be educated as to the contextual meaning of internal control

STANDARDS & GUIDANCE FOR COMPILATIONS - AR SECTION 80

Establishing an Understanding• Written documentation of understanding of the engagement with management is required• An illustrative engagement letter can be found in AR 80.63• Engagement letters are required for each engagement

- “Theengagement”isnotspecificallydefined•Thus professional judgment is required

- For monthly compilations an annual letter would be appropriate•This could also cover the annual report

- An engagement letter could cover multiple years•You should be prepared to defend this position•The key is the understanding between the accountant and the client•The letter would need to be reviewed for appropriateness each year

Performance Requirements• Understanding the industry• knowledge of the client• Reading the financial statements• other procedures


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Documentation• Documentation should provide a clear understanding of the work performed

- Nospecifiedformatisrequired - Certainitemsmaybesupportedinotherfiles

• It supports the representation that the accountant followed the SSARS• Required elements

- Engagement letter - Significantfindings - Communications about fraud or illegal acts

Reporting• Basic

- The report has three paragraphs•Introductory•Management’s responsibilities•Accountant’s responsibility and the compilation objective

• Illustrative compilation reports can be found in AR 80.64• OCBOA financial statements must include:

- DescriptionoftheOCBOA,policiesanddifferencesfromGAAP•DifferencesfromGAAPdonothaveto bequantified

- DisclosuressimilartoGAAPforsimilaritems• Statements that omit substantially all disclosures

- Statement that management has elected to omit substantially all disclosures required by the frame-work or ordinarily included•Thestatementofcashflowsaswell,ifapplicable

- Statementthatthedisclosuresmightinfluencetheuser’sconclusions - Statement that they are not designed for the uninformed

• Lack of independence - Modify the report to indicate the lack of independence - The reason for lack of independence may be given

•If given, all must be given•Level of detail is up to the practitioner•Some have indicated this could indicate a level of assurance

- Example:•“IamnotindependentwithrespecttoNoGoodatAccounting,LLCbecauseIperformedaccountingser-

vices that impaired my independence.”

Statements Not to be Used by a Third Party• No report is required• Each page must reference the restricted nature

- “RestrictedforManagement’sUseOnly”

Departures from the Reporting Framework• Consider modifying the report by adding a paragraph describing the departure and effects if known• If modification is not appropriate, then the accountant should withdraw

Supplementary Information• Indicate level of responsibility in report or separate report• The separate report should indicate the usual disclaimers found in the compilation report


VIIJEFF SAILOR SEMINARS’ ACCOUNTING & AUDITING UPDATE AND REVIEW - © 2013

STANDARDS AND GUIDANCE FOR REVIEWS- AR SECTION 90

Establishing an Understanding• Written documentation of understanding of the engagement with management is required• Required elements of the understanding

- Objective - Information is the representation of management - Management is responsible for:

•The statements•Internal control•Preventing and detecting fraud•Laws and regulation compliance•Makingfinancialrecordsandinformationavailabletotheaccountant

- The accountant is responsible for following the SSARS - Limitations of a review - Lack of reliance to detect fraud, errors or illegal acts

•The accountant will inform the client of any evidence or information• An illustrative engagement letter can be found in AR 90.70

Performance Requirements• Understanding the industry• knowledge of the client• Designing and performing procedures• Analytical procedures

- Understandingisessentialforevaluation - A knowledge of the industry and client is critical - The accountant must understand the purpose and limitations of the procedures - Professional judgment is required - Actual results must be compared to expectations - Sources of information for expectations include:

•Prior year statements•Budgets•Relationships among elements•Industry information•Relationbetweenfinancialandnonfinancialinformation

- Proceduresmaybeperformedatfinancialstatementordetaillevels - Any differences should be investigated

•Inquiries of management•Other procedures

- Review evidence may be obtained by evaluating management responses - Other procedures may be needed when management responses are not appropriate

• Inquiries - Various inquiries “should be considered” - Inquire of management about the following:

•Statements in conformity with the applicable framework•Practices and principles•Unusualorcomplexitems•Significanttransactionsnearyear-end•Status of prior-year uncorrected misstatements•Questions from procedures•Subsequent events•Knowledge or suspicion of fraud•Significantjournalentries•Communications from regulatory agencies


VIII JEFF SAILOR SEMINARS’ ACCOUNTING & AUDITING UPDATE AND REVIEW - © 2013

COMP & REVIEW UPDATE - ENGAGEMENTS - Inquiries for “those charged with governance”

•Ask about stockholder or board meetings•Larger issues

• other procedures - Readthefinancialstatements - Obtain reports from other accountants engaged to audit or review components - Although corroboration of management responses is not required, the accountant should consider their reasonableness and consistency

• It is more than just the parts - Inquiries - Analytical procedures

• It is an assurance engagement - It is based on an accumulation of evidence - It results in limited assurance

• Procedures should be selected based on - Understandingoftheclient - Understandingoftheindustry - Awareness of the risk of an improper report

• Audit procedures are allowed - No procedure performed will convert the engagement to an audit - An audit must be established through an engagement understanding by management - Any procedures needed to achieve the limited assurance are allowed

• Risk assessment is not required - Awareness of risk should be used to design procedures - You will want to spend more time in known problem areas

• Unsatisfactory information - Management should consider the effects of incorrect information found during the review - Additional procedures should be performed to obtain reasonable assurance - If the statements are materially misstated, the accountant should follow the guidance for departures from the applicable framework

• Management representations - Written representations are required for all periods covered - Current management should sign for all periods covered - Specificrepresentationswilldependonthecircumstances - Theletterconfirmstheexplicitandimplicitrepresentationsmadeduringtheengagementandwillreduce the possibility of misunderstanding

- Representations should include:•Management’sacknowledgmentofresponsibilityforthefairpresentationofthefinancialstatements•Management’s belief that the statements are correct•Management’s acknowledgment of responsibility for internal control•Management’s acknowledgment of responsibility to prevent and detect fraud•Knowledge of any fraud or suspected fraud•Management’s full and truthful responses•Completeness of information•Subsequent events

- Inadditiontotheabove,thelettershouldbetailoredforspecificitemsrelatedtotheengagement - An illustrative representation letter can be found in AR 80.71 - Optional items which may be necessary may also be found in AR 80.71

Documentation• Documentation is required and should meet the circumstances of the engagement• This documentation is the principal record of the procedures performed and conclusions reached• The accountant is not precluded from supporting the review report by other means in addition to

documentation - Documentationinanotherengagementfile - Consultationfiles

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• Documentation of the inquiries and analytical procedures should include: - Engagement letter - Analytical procedures performed

•Expectations•Results of comparison of the expectations to recorded amounts or ratios•Management’s responses to inquiries of differences

- Additional procedures performed for unexpected differences - Significantmattersintheinquiries - Significantfindings - Significantunusualmatters - Communications to management about fraud - Representation letter

Reporting• Basic

- The report has four paragraphs•Introductory•Management’s responsibilities•Accountant’s responsibilities•The limited assurance

• Reporting on a single statement - Allowed if the scope has not been restricted

• Illustrative review reports can be found in AR 90.73• Departures from the framework

- Revise the statements or modify the report, if appropriate•Disclose the departures in a separate paragraph•Ifamodificationisnotappropriate,thentheaccountantshouldwithdraw

• Supplementary Information - The degree of responsibility for the supplementary information should be stated - The information may have been reviewed or not


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EXPOSURE DRAFT -PROPOSED SSARS

-Association with Unaudited Financial Statements-Compilation of Financial Statements-Compilation of Financial Statements- Special Considerations

Overview• Part of the clarity project

- In May 2010 the ARSC began a project to clarify the compilation and review standards similar to the ASBclarityproject

- UnliketheASB,theSSARSclarityprojectwouldnotincludespecialguidanceforgovernmentalandsmall entities

- The standards will have the following format:•Objectives•Definitions•Requirements•Explanatory information

- Theclarifiedstandardswillalsoincludeformattingtechniquessuchasbulletedlists - There will be no convergence with international standards

• This SSARS will supersede the following: - SSARS 19

•Compilation and review - SSARS 3

•Prescribed forms - SSARS 13

•Specifiedelements,accountsoritems - SSARS 6

•Personalfinancialstatementsinwrittenfinancialplans• The goal is to split compilation standards into two sections

- Sec 80 will cover general topics - New Sec 85 will cover less frequent issues

• Effective Date - Periods ending on or after December 15, 2014

• This is being re-exposed to address certain issues

ASSOCIATION WITh UNAUDITED FINANCIAL STATEMENTS

Objective• To prevent misinterpretation of the degree of accountant’s responsibility when their name is associated

with unaudited statements that have not been compiled or reviewed

Definitions• Association with Unaudited Financial Statements

- The accountant is associated when the accountant’s name is in the report, document or other written communicationcontainingunauditedfinancialstatementseventhoughtheyhavenotbeencom-piled or reviewed or the accountant has prepared the statements even if their name is not presented

XIJEFF SAILOR SEMINARS’ ACCOUNTING & AUDITING UPDATE AND REVIEW - © 2013

Requirements• If the accountant’s name will be associated with the statements

- Read the statements - Decide whether they appear to be free from material inconsistencies based on other knowledge - Includeinthefinancialstatementsanoticethatthestatementswerenotcompiled,reviewedoraudited

• If the accountant’s name will not be associated with the statements - The accountant should request that the entity indicate that the statements were not compiled, reviewed or audited

Guidance• Scope

- This does not apply to information solely for tax preparation• Notice example for each page of the financial statements

- “These statements have not been compiled, reviewed or audited.”• A report may be attached to prepared financial statements

- Example•“ThefinancialstatementsofTooCheapEvenforaCompilation,Inc.asofandfortheyearendedDecem-

ber 31, 2014 were not compiled, reviewed or audited by me and, accordingly, I do not express an opinion or any other form of assurance on them.”

• If the accountant’s name has been used without consent, they should consider the following: - Informing the entity that permission has not been granted - Contacting legal counsel - Reporting to law enforcement

CoMPIlATIoN oF FINANCIAl STATEMENTS

Introduction• Current guidance requires at a least a compilation when the statements have been submitted

- This means that the accountant presents to management statements he or she has prepared• A compilation will now be required when the accountant has been engaged to perform a compilation• In June 2012 a revision was proposed to Ethics 101-3

- Thisclarifiedthatthepreparationoffinancialstatementsisanonattestservice•Thisputitinlinewiththe2011YellowBook•Many practitioners have felt that preparation has always been management’s responsibility

- Preparation cannot be both attest and nonattest• Compilation services no longer include the preparation

- Thus, it does not matter who prepares them or if third parties will use them

Objectives• Read the financial statements and consider whether they are free from obvious material errors• Prepare an appropriate report

Definitions• Special Purpose Framework

- AframeworkotherthanGAAPthatisoneofthefollowing:•Cash basis

- Includesmodifiedcash•Tax basis•Regulatory basis•Contractual basis

- Basisisunderanagreementbetweentheentityandanotherparty(nottheaccountant)•Other basis having substantial support

- OCBOAincludes:•Cash •Tax •Regulatory

COMP & REVIEW UPDATE - EXPOSURE DRAFT

XII JEFF SAILOR SEMINARS’ ACCOUNTING & AUDITING UPDATE AND REVIEW - © 2013

RequiRements

Professional Judgment• Definition-

- Application of experience, training and knowledge under the professional standards for decision making in an engagement

• When performing a compilation, the accountant should exercise professional judgment• This has always been assumed, but is now specifically required• This involves the application of experience, training and knowledge• It must be based on known facts up to the date of the report

- Understandingofthebusiness - Knowledge gained from nonattest services

Engagement Acceptance & Continuance• Only accept an engagement when the professional competence ethical requirements appear to have

been met• A written engagement letter is required for compilation engagements

- AverbalunderstandingisNOTsufficient - The letter must be signed by both:

•Theaccountantorfirmand•Management or those charged with governance

- Illustrative Engagement Letter•Exhibit A- A66 of the standard

Other Compilation Procedures• During the compilation engagement, if the accountant becomes aware that the information is incom-

plete, incorrect, or unsatisfactory, or the possibility of any fraud or noncompliance with laws or regu-lations, this should be communicated to management to consider and report back to the accountant on the effects

• The accountant should then consider the effect of the additional or revised information• If the entity refuses to provide revised information with regard to these matters, the accountant should

withdraw from the engagement

Reporting on the Financial Statements• New Report!• headings are now required

- “Management’s Responsibility for the Financial Statements” - “Accountant’s Responsibility”

• City and state of the issuing office are now required after the signature• Date of the report

- Noearlierthanwhenthantheprocedureswerecompletedandthefinancialstatementshavebeenprepared and management has taken responsibility

Reporting on a Special Purpose Framework• The financial statements must have:

- Suitable title - Summaryofsignificantaccountingpolicies - DescribehowtheframeworkdiffersfromGAAP - Quantificationisnotrequired - Whendisclosuresarepresented,disclosuresforitemssimilartoGAAPshouldbeconsidered

• Contractual - Thefinancialstatementsshoulddescribeanysignificantinterpretationsofthecontract

• Reporting - When management has a choice of frameworks, the report should reference the responsibility of


XIIIJEFF SAILOR SEMINARS’ ACCOUNTING & AUDITING UPDATE AND REVIEW - © 2013

management to determine the acceptability of the framework - For contractual or regulatory either describe the purpose or refer to a footnote - The report must contain an emphasis-of-matter or other-matter paragraph

•The paragraph will have a heading•The paragraph should:

- State that the statements are prepared in accordance with the framework - Refer to a note describing the framework (if applicable) - StatethattheframeworkisotherthanGAAP

•For contractual or regulatory the report must also contain an emphasis-of-matter paragraph to restrict the report

Comparative Financial Statements• The report should refer to each period presented• A report should not be issued when one or more, but not all of the periods omit substantially all disclosures

Guidance

Scope• Compilations may include

- Specifiedelements,accountsoritemsofafinancialstatement - Supplementary information - Required supplementary information - Financial information contained in a tax return

Understanding of the Industry• An accountant must have an understanding of the industry• A lack of previous experience will not prevent the accountant from accepting a compilation engagement• The accountant must obtain the required level of knowledge

- AICPAGuides - Industry publications - Textbooks or similar - CPE - Consultation with other professionals - Financial statements of others in the industry

knowledge of the Entity• Sources of knowledge

- Inquiry of entity personnel - Experience with the entity - Review of entity documents

• knowledge may include - Understandingofthebusiness - Understandingoftheprinciplesandpracticesused

Reading the Financial Statements• Errors

- In this context, this means mistakes in the statement preparation - Examples:

•Math errors•Clerical mistakes•Accounting principle mistakes•Inadequate disclosures

Materiality• Misstatements are considered material if they could “reasonably be expected” to influence the eco-

nomic decisions of the users


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• The possible effect on specific individual users is not considered• If a framework does not address the concept of materiality, the accountant should use the standard

guidance in the SSARS

Other Compilation Procedures• Additional information is required when the accountant becomes aware the statements are incorrect• The accountant may become aware as the result of:

- Reading the statements - Inquiries - Other procedures performed - Knowledge gained from other engagements

Characteristics of Fraud• Distinction from errors

- Errors are unintentional - Fraud is intentional

• Fraud is a broader legal concept than that used in the SSARS• Under the SSARS, the accountant is primarily concerned with fraud that causes a material misstate-

ment in the financial statements• There are two relevant types of intentional misstatements

- Fraudulentfinancialreporting - Misappropriation of assets

• The requirement is not to make a legal determination of whether fraud occurred, but to assess the potential impact on the financial statements

Reports• A written report includes not only paper format, but electronic as well• The report could become separated from the statements

- Thisiswhatpromptstherequirementforthereferencetothereportoneachpageofthefinancialstatements•“See accountant’s compilation report”•“Read independent accountant’s compilation report”

Financial Statements that Omit Substantially all Disclosures• A statement of comprehensive income is required for a full set of financial statements• If omitted, the report should indicate its absence

- “Management has elected to omit substantially all the disclosures and the display of comprehensive income…”

• Disclosure of uncertainties is not required when substantially all disclosures have been omitted

CoMPIlATIoN oF FINANCIAl STATEMENTS- SPECIAL CONSIDERATIONS

Objectives• To address special situations when they are present in a compilation• Special situations covered

- Emphasis-of-matter or other-matter paragraphs - Express known departures from the applicable framework in a compilation - Restricted report alert - Goingconcern - Subsequent events and subsequent discovery of facts - Supplementary information - Step down engagement

XVJEFF SAILOR SEMINARS’ ACCOUNTING & AUDITING UPDATE AND REVIEW - © 2013

Definitions• Emphasis-of-matter paragraph

- A paragraph in the report that is required by the SSARS or added at the discretion of the accountant thatreferstoamatterdisclosedinthefinancialstatementsthatisofimportancetounderstanding

• Other-matter paragraph - A paragraph in the report that is required by the SSARS or added at the discretion of the accountant thatreferstoamatterNOTdisclosedinthefinancialstatementsthatisofimportancetounderstanding

• Report release date - Thedatetheaccountanthasgivenpermissiontousethecompilationreportwiththefinancialstatements

• Required supplementary information - Informationrequiredbyadesignatedaccountingstandardsettertoaccompanythebasicfinancialstatements

RequiRements

Emphasis-of-Matter Paragraph• In the past, these were never required

- They are now, under certain circumstances• This should be used to draw attention to something disclosed in the financial statements• If the paragraph will be used, the expectation and wording should be communicated to management• The paragraph should be included after the accountant’s responsibility paragraph• It should have the heading “Emphasis of Matter”• It should clearly reference the matter emphasized and where the related disclosures my be found• It is required in the following circumstances

- Special purpose framework - Reportonpriorstatementswithachangedreferencetoadeparturefromtheapplicablefinancialreporting framework

- Known material departure from the framework - Revised report due to subsequent discovery of facts

• Other circumstances should be considered if they have significant importance to the understanding• Other circumstances to consider the paragraph

- Goingconcern - Litigation or regulatory action uncertainty - Major catastrophe - Significantrelatedpartytransactions - Important subsequent events

other-Matter Paragraph• This should be used to draw attention to something NOT disclosed in the financial statements• If the paragraph will be used, the expectation and wording should be communicated to management• The paragraph should be included after the accountant’s responsibility paragraph and any emphasis-of-

matter paragraphs• Examples

- Multiple statements under different frameworks - Restricted report

known Departures from the Framework• Modify the report for the departure, if appropriate• This is an emphasis-of-mater paragraph• A heading is required

- Examples•“KnownDeparturesFromAccountingPrinciplesGenerallyAcceptedintheUnitedStatesofAmerica”•“KnownDeparturesFromtheModifiedCashBasisofAccounting”

• Describe the effects of the departure or a statement that they cannot be determined


XVI JEFF SAILOR SEMINARS’ ACCOUNTING & AUDITING UPDATE AND REVIEW - © 2013


Restricted Reports• An alert paragraph is required in a report in the following circumstances:

- Criteria is used that is only suitable for a limited number of users - Thecriteriaisonlyavailabletospecifiedparties

• This is an other-matter paragraph• The SSARS do not preclude a restricted alert in any compilation report

Going Concern• Consider the uncertainty of the entity to continue for a reasonable period of time

- This is a period not to exceed one year from the date of the statements• Events and conditions to consider

- Negative trends - Loandefaultorotherfinancialdifficultyindicators - Internal matters such as labor issues - External matters such as legislation or legal proceedings

• Management should consider the possible effects on the statements, including a need for a disclosure• An emphasis-of-matter or other-matter paragraph should be considered• Potential disclosure items

- Conditions leading to the going concern uncertainty - Possible effect of the conditions - Management’s evaluation - Possible discontinuance of operations - Management’s plans - Information about recoverability of assets - Informationaboutclassificationofassetsorliabilities

Compliance hot List• The SSARS compilation provisions only apply when the accountant has been engaged to perform a

compilation• Requirement for a disclaimer of compilation review or audit when unaudited statements not compiled

or reviewed and the accountant’s name is used• Engagement letters must be signed by the client• New report that includes headings and city and state of issuing office• New requirements for special purpose frameworks• Requirement of certain emphasis of matter and other matter paragraphs

XVIIJEFF SAILOR SEMINARS’ ACCOUNTING & AUDITING UPDATE AND REVIEW - © 2013


EXPOSURE DRAFT --Review of Financial Statements-Review of Financial Statements- Special Considerations

Overview• Also part of the clarity project• This SSARS will supersede the review guidance in SSARS 19• This will split the review guidance into two sections

- Sec 90 will cover general topics - Sec 95 will cover less frequent issues

• Most of the changes will simply put the standards and guidance into the clarified format• Effective Date

- EffectiveforreviewsoffinancialstatementsforperiodsendingonorafterDecember15,2014

MOST SIGNIFICANT ChANGES

Review of financial statements

Scope• SSARS review guidance may be applied and adapted as necessary to other historical financial information• Examples

- Specifiedelements,accountsoritemsofafinancialstatement - Supplementary information - Required supplementary information - Financial information in a tax return - Otherfinancialinformation

Professional Judgment• There is now an explicit requirement to exercise professional judgment• In theory, this should not change anything in practice• Definition

- Application of experience, training and knowledge under the professional standards for decision making in an engagement

• The engagement should be approached with the understanding that the financial statements could be materially misstated

- This requires the application of professional judgment

Signed Engagement Letter• This SSARS requires that the engagement letter or similar written document be signed by both

- The accountant - Management or those charged with governance

•This would depend on the circumstances

Review Report• The report is changing again• headings are required to distinguish the various sections• The report must report the issuing office city and state

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Special Purpose Framework Reporting• Many new provisions depending on the circumstances• General

- Consideration of suitable titles - Summaryofsignificantaccountingpolicies - ExplanationofdifferencesbetweentheframeworkandGAAP - Consideration by the accountant of disclosures

•ForitemssimilartoGAAPitems•For items not on the face of the statements•Other disclosures necessary for fair presentation

• Contractual Basis - Requiresconsiderationofadequatedescriptionofanysignificantcontractualinterpretations

• Choice of frameworks - Make reference to management’s responsibility that the framework is acceptable in the circumstances

• Regulatory or contractual - Describe the purpose or refer to a note with that information

• Emphasis of matter paragraph required for all special purpose frameworks - Indicate use of the framework - Refer to the note describing the framework - StatethatitisotherthanGAAP

• Other matter paragraph - Required for contractual or regulatory not for general use - It will restrict the use to those in the contract or the agencies

Review of financial statements- special consideRations

Emphasis of Matter Paragraphs• Required due to the following:

- Special purpose framework - Subsequent discovery of fact where the revised report differs from the original - The accountant feels it is necessary to draw attention to something adequately disclosed that is im-portantandfundamentaltotheuser’sunderstandingofthefinancialstatements•This cannot be used if the statements are materially misstated

• The expectation of the use of the paragraph must be communicated to management

other Matter Paragraphs• Required when the accountant feels it is necessary to draw attention to something NOT disclosed that

is important and fundamental to the user’s understanding of any of the following: - The review - Accountant’s responsibilities - The review report

• The expectation of the use of the paragraph must be communicated to management

Required Supplementary Information• Defines required supplementary information• Defines a designated standard setter• Requires an other matter paragraph to refer to the required supplementary information• Report language is required for the following:

- Information is included and has been compiled - Information is included and has been reviewed


XIXJEFF SAILOR SEMINARS’ ACCOUNTING & AUDITING UPDATE AND REVIEW - © 2013

- Information is included and has been compiled, reviewed or audited•A statement that the information is required to be presented•Although not part of the basic statements, it is essential to the reporting for proper context•Statement that the information has not been compiled, reviewed or audited•Statement that no opinion or assurance is given

- Information is omitted•Statement that management has omitted the information•Statement that it is required by a standard setter•Statement that although it is not part of the basic statements, it is essential for proper context

- Some of the information is omitted•Statement of what management has omitted•Statement that although it is not part of the basic statements, it is essential for proper context

- The information has departures from the guidelines•State that there are departures and what they are

- The accountant has unresolved doubts about the proper presentation•Statementthattheaccountanthasdoubtsaboutwhethermaterialmodificationsarenecessary


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