Academic journal article Journal of Accountancy

A Bright Line in SSARSs: New Standards for Compilations and Engagements to Prepare Financial Statements in SSARS No. 21 Clearly Separate Accounting and Reporting Services

Academic journal article Journal of Accountancy

A Bright Line in SSARSs: New Standards for Compilations and Engagements to Prepare Financial Statements in SSARS No. 21 Clearly Separate Accounting and Reporting Services

Article excerpt

Accountants in public practice who prepare financial statements for clients will find significant changes in new standards for accounting and review services that were issued in October.

Statement on Standards for Accounting and Review Services (SSARS) No. 21, Statements on Standards for Accounting and Review Services: Clarification and Recodification, is the result of efforts by the AICPA Accounting and Review Services Committee (ARSC) to clarify and revise the standards for reviews, compilations, and engagements to prepare financial statements. The standard is available online at

The basic standard for accountants who prepare and present financial statements to their clients or to third parties was issued as SSARS No. 1, Compilation and Review of Financial Statements, in December 1978. Paragraph 7 of SSARS No. 1 stated that "the accountant should not submit unaudited financial statements of a nonpublic entity to his client or others unless, as a minimum, he complies with the provisions of this statement applicable to a compilation engagement." The SSARS defined "submission" as "presenting to management financial statements that the accountant has prepared." The bottom line is that accountants in public practice who prepared financial statements were required to, at a minimum, perform a compilation engagement with respect to those financial statements.

Submission worked well as a trigger for the compilation service when SSARS No. 1 was issued. At that time, paper financial statements were prepared, bound, and presented to clients by the CPA. However, in today's electronic environment, financial data are typically recorded and organized across multiple computer platforms, including some in the cloud. The use of computer software by the client and by the CPA makes it difficult to determine who (or what) has prepared the financial statements and thus whether the accountant is required to perform a compilation engagement.

For example, take a situation where an accountant performs bookkeeping services for a client. Perhaps the accountant has access to the client's cloud-computing system and makes a number of journal entries to record payroll tax payments, sales tax payments, depreciation expense, and revenue adjustments for a given period. The company's internal bookkeeper records amounts billed and certain recurring expenses such as utilities and office expenses. At the end of each month, the bookkeeper prints, from the cloud accounting software, a copy of the financial statements for presentation to the owner. Has the accountant prepared those financial statements? The bookkeeper? The application itself? The answer is difficult to determine, and often accountants will come to different conclusions given the same set of circumstances. This diversity in practice is not in the public interest.

SSARS No. 21 eliminates the need for the accountant to determine an answer to that question by eliminating the submission requirement and making the compilation literature apply when the accountant is engaged to perform a compilation service.


SSARS No. 21 supersedes all existing AR sections with the exception of AR Section 120, Compilation of Pro Forma Financial Information. Proposed standards regarding compilation of pro forma information and compilation of prospective financial information are expected to be exposed for public comment in 2015.


SSARS No. 21 is formatted into four sections:

* Section 60, General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting and Review Services.

* Section 70, Preparation of Financial Statements.

* Section 80, Compilation Engagements.

* Section 90, Review of Financial Statements.

These sections will be codified with the prefix "AR-C" to distinguish them from the extant AR sections. …

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