SSARS 21 is the new professional standard that created the financial statement preparation service. SSARS 21 draws a bright line between CPA-assisted accounting services (leading to financial statement preparation) and traditional financial reporting services (compilation, review and audit). Have you ever been surprised when a little extra bookkeeping ends up triggering a compilation service? The new financial statement preparation service under SSARS 21 clarifies that blurriness. Under the former rules, CPAs were required to attach a compilation report when they were deemed to “submit” a financial statement to their client. However, those rules did not clearly define what “submission” was. Overlaying that environment are cloud-based accounting platforms which allow CPAs direct and efficient access to their clients’ accounting records. This creates unintended confusion around whether your CPA merely provided the bookkeeping assistance you hired him or her for, or in substance, compiled your financial statements. Under SSARS 21, in the same scenario, clients will engage their CPA for the professional service that they need—preparation or compilation. The CPA will perform the service that he or she is engaged for. Concerns over accidentally submitting financial statements are resolved.
For example, a CPA performs bookkeeping services for a client. The CPA has access to the client’s cloud-computing system and records journal entries for sales and payroll taxes, depreciation expenses, accrued liabilities and revenue adjustments for a given period. The company’s internal bookkeeper records most other financial activity. At the end of each month, the bookkeeper prints the financial statements from the cloud accounting software for the owner’s use. Who prepared those financial statements? The CPA? The bookkeeper? The software package? The answer is difficult to determine, and CPAs will often come to different conclusions given the same set of circumstances. This inconsistency in practice is not in the public’s interest. Under SSARS 21, the company can engage its CPA to prepare the financial statements, with or without footnotes, and may share those statements with third parties.
When does the new SSARS 21 standard apply?
It may be early implemented now.
How can I decide whether to engage my CPA for a compilation, the new preparation service, or simple bookkeeping assistance?
As CPAs, we have professional standards that we must follow when we are associated with financial statements of our clients. We will discuss your specific needs with you and jointly determine what service level is the best fit.
Does the financial statement preparation engagement require a report?
No, however, each page of the financial statements should include at a minimum the words, “No assurance is provided on these financial statements,” or something very similar.
May I share the “prepared” financial statements with third-party users?
May the prepared financial statements omit footnotes? And a statement of cash flows?
Yes and yes.
My CPA is not independent. Does that have to be disclosed under the new preparation standard?
No, however, if your CPA compiles your financial statements, the lack of independence must be disclosed in the accountants’ compilation report.
If I engage my CPA to perform a preparation service, will I have to sign anything?
Yes, your CPA is required to obtain an engagement letter from you.
If I engage my CPA to perform a financial statement preparation, will my CPA verify the accuracy or completeness of the financial information?
No, the CPA does not provide any assurance on prepared financial statements. Remember, however, that a CPA’s professional ethics prohibit a CPA from issuing financial statements that are intentionally misleading.
What are some examples of scenarios that the new preparation service will be useful for?
The new financial statement preparation service under SSARS 21 may very well be the practical fit for the collaborative, real-time accounting environment you manage your business in. It eliminates those situations where the present rules drive the CPA’s professional service up to a compilation. It will leverage today’s electronic environment of cloud computing and functionalities built in to many purchased accounting software products.
WithumSmith+Brown is pleased that we have an additional financial reporting service option that we can provide to you. Please contact us so that we can discuss your financial reporting requirements, and whether the new preparation service can meet your needs.
To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.