1. Compilation and ReviewsImplementing SSARS 19Effective for Periods Ending After December 15, 2010

2. SSARS What year was the first SSARSissued? Grease was the big movie of thesummer Jimmy Carter was president Kenny Loggins had his first big soloalbum Cheech and Chong were Up inSmoke Saturday Night Live was doing 3. Significant Changes Compilations Reasons why CPA lacks independence Reviews Tailor procedures based on understandingof client and industry Materiality is discussed Compilations and Reviews More required documentation thanprevious standards 4. Significant ChangesDocumentDegree of ChangeCompilation ReportSubstantialReview Report SubstantialCompilation Engagement Letter SubstantialReview Engagement letterSubstantialRepresentation Letter Minor (reference toU.S.GAAP) 5. Significant Changes QC will update Compilation andReview Caseware templates oncePPC issues new forms and reports You will also receive guidance via thefirm Accounting and AuditingDatabase (on the intranet) Consider updating Caseware files andreports during downtime Some (maybe all) PPC forms will needto be completed from scratch (for thisyear). 6. Overview of SSARS 19 Section 1 Framework for Performingand Reporting on Compilation andReview Engagements Section 2 Compilation of FinancialStatements Section 3 Review of FinancialStatements 7. Exposure Draft = IssuedStatement? Two major differences: Independence for Reviews Limited assurance 8. Reviews IndependenceRequired Comments from the April, 2009exposure draft Confusion about what it means toestablish or maintain internal controls ARSC will seek more input from: AICPA Professional Ethics ExecutiveCommittee National Association of State Boards ofAccountancy 9. Reviews Still LimitedAssurance The draft used the term moderateassurance The issued statement uses the termlimited assurance The international review standard willlikely be changed from moderateassurance to limited assurance 10. Elements of aCompilation or a Review1. Three party relationship2. Applicable financial reporting framework3. Financial statements4. In a review, appropriate review evidence5. Written communication or report 11. Applicable FinancialReporting Framework U.S. GAAP GASB IFRSs (including SME GAAP) OCBOA Potentially a new little GAAP set ofstandards from the AICPA 12. Compilation Establish an Understanding Understand the Industry Obtain Knowledge of Client Read Financials Develop Documentation Create Report 13. Compilation Big Picture What level of assurance is provided? 14. Establish an Understanding Required to be in writing Required to include: Objective of engagement Accountant utilizes information of client:no assurance to be provided Management responsible for fairpresentation Management responsible to prevent fraud Management responsible to comply withlaws Management to provide all financialrecords to accountant 15. Establish an Understanding Accountant responsible for conductingthe engagement in accordance withSSARS Compilation different from a review oran audit Cant be relied on to disclose errors,fraud or illegal acts 16. Establish an Understanding Accountant will inform management oferrors, fraud or illegal acts noted Independence impairments will benoted in the compilation report, ifapplicable 17. Understand the Industry Understand the industry Understand the related accountingprinciples Accountant can accept engagementwithout this knowledge (or priorexperience), but must obtain theknowledge 18. Obtain Knowledge of Client Understand the business Operating characteristics Nature of assets, liabilities, revenues &expenses Accounting Principles 19. Read the Financials Accountant should read the financialstatements and consider whether theyare: Appropriate in form Free of material errors Contain adequate disclosure (whendisclosures are included as a part of theengagement) 20. Read the Financials If material error is noted, then requestrevision If revision is not made, then withdrawfrom the engagement 21. Compilation Cycle Establish UnderstandingIssueUnderstandCompilationClientReport Understand Read ReportIndustry 22. Documentation Include: Engagement letter Any findings or issues that are significant How did you resolve material errors noted while reading the financial statements? Communications regarding fraud or illegalacts 23. Reporting on Financials Issue compilation report if: Engaged to issue compilation report or If there is a reasonable expectation thatstatements will be used by a third party 24. Reporting on Financials Title Should have a title that clearly indicatesthat it is the accountants compilationreport; for example: Accountants Compilation Report or Independent Accountants Compilation Report (Suggested) Optional to include independent in title(per SSARS) 25. Reporting on Financials Dating the Compilation Report The date the accountant completes thecompilation Financial statement references to thereport should read: See accountants compilation report or See independent accountantscompilation report (Suggested) 26. Reporting on Financials OCBOA Statements (if client has notelected to omit disclosures): Must include a description of the OCBOA,including a summary of significantaccounting policies and a description ofthe primary differences from GAAP Must include informative disclosuressimilar to those required by GAAP if thefinancial statements contain items that arethe same as, or similar to, those infinancial statements prepared inaccordance with GAAP 27. Reporting on Financials Omitting substantially all disclosures Accountant, if engaged to do so, may omitsubstantially all disclosures Report language must state: Management has elected to omit substantially all disclosures The omission might influence the users conclusions Financials are not designed for those not informed about such matters 28. Reporting on Financials Entity may include selecteddisclosures Must title those notes as: Selected Information - Substantially All Disclosures Required by Accepted Accounting Principles Generally accepted in the United States of America are not included 29. Reporting on Financials When accountant is not independentinclude the following in the report: We are not independent with respect toXYZ Company. Optional to disclose reason for lackingindependence; for example: We are not independent with respect toXYZ Company as of and for the yearended December 31, 20XX, because amember of the engagement team had adirect financial interest in XYZ Company. 30. Reporting on Financials When may I start describing thereasons for lack of independence inmy compilation report? May I disclose the reasons for thelack of independence only forDecember 2009 compilations andsubsequent periods, or may I use itfor earlier compilations (for example,November 2009 compilations)? 31. Reporting on Financials May I use the new standard compilationreport illustrated in SSARS No. 19 afterthe standard is issued? Does SSARS No. 19 require me to statethe reasons why Im not independentwith respect to a compilation client? Are there any limitations on what thereport may say in regard to the lack ofindependence? 32. Reporting on Financials Assuming an accountant is notindependent for two reasons (forexample, a family relationship andownership) does each reason need tobe in a separate paragraph? May this independence provision beused for review reports as describedin the exposure draft? 33. Reporting on Financials What if the report is not expected tobe used by a third party? Accountant is not required to issue acompilation report Include on each page of the financials: Restricted for Managements Use Only or Solely for the information and use by the management of XYZ Company and not intended to be and should not be used by any other party Amend the engagement letterappropriately 34. Reporting on Financials If accountant is aware thatmanagement-use-only statements arein the hands of a third party, thenhe/she should: Contact the client and request thatstatements be returned If no response within a reasonable time period, then accountant should notify known third parties that the financial statements are not intended for third party use 35. Reporting on Financials Emphasis of a Matter (EOM) EOMs are never required; always optional Examples: Uncertainties Important subsequent events Change in accounting principles that affectscomparability Never use an EOM in the report tointroduce new information (informationnot included in the financial statementsor notes) 36. Reporting on Financials Departure from applicable reportingframework Modify report to disclose the departureand its effects (if known) 37. Reporting on Financials General use reports those notrestricted as to use Restricted use reports thoserestricted as to use Should restrict if: Subject matter is based on criteria contained in contractual agreements or regulatory provisions that are not GAAP 38. Reporting on Financials Adding Other Specified Parties If other specified parties (those not a partof the original agreement) are added tothe restricted use report, the accountantshould obtain affirmativeacknowledgment, preferably in writing,from those parties: Their understanding of the nature of the engagement The measurement and disclosure criteria used The related report 39. Reporting on Financials Restricted use language: A statement indicating that the report isintended solely for the information anduse of the specified parties An identification of the specified parties A statement that the report is not intendedto be and should not be used by anyoneother than the specified parties 40. Reporting on Financials Going Concern Reporting Accountant becomes aware of goingconcern red flags Not to exceed one year beyond the date of the financial statements being compiled Request that management considerpossible effects on the financials(including notes) Accountant should considermanagements conclusions 41. Reporting on Financials Going Concern Reporting If accountant disagrees with conclusions,then he/she should follow GAAPdeparture guidance for reporting Accountant may use an EOM paragraphprovided the uncertainty is disclosed inthe financial statements 42. Reporting on Financials Subsequent Events Accountant should request thatmanagement consider possible effects onthe financial statements, includingdisclosure If subsequent event is not adequatelyaccounted for, then consider modifyingreport for GAAP departure Can use an EOM paragraph if the issue isdisclosed in the financial statements 43. Subsequent Discovery ofFacts The accountant mayrealize, subsequent to issuance ofstatements, that they are in error orincomplete. 44. Subsequent Discovery ofFacts Consider: Issuing revised financial statements withaccountants report If issuance of financial statements for asubsequent period is imminent, appropriatedisclosure of the revision can be made insuch statements instead of reissuing theearlier statements When effect of error cant be promptlyresolved, ask client to contact users (e.g.banker) and let them know that revisedstatements will be issued as soon aspracticable 45. Subsequent Discovery ofFacts If client does not cooperate, consider(with the advice of legal counsel): Notifying the client that the accountantsreport must no longer be associated withthe financial statements Notifying any related regulatory agencieshaving jurisdiction over the client Notifying any known users of the financialstatements 46. Supplementary Information Clearly indicate the degree ofresponsibility If you compile the financial statementsand the supplementary information,you may: Issue one report addressing the financialsand the supplementary information Issue two reports: one for the financialsand another for the supplementaryinformation 47. Step Downs to a Compilation If the accountant is performing anaudit or a review and is asked to thenstep down to a compilation service,consider: Why the step down? If client had prohibited correspondence with entitys legal counsel (in an audit) or if client would not provide the accountant with a representation letter (in an audit or review), then the accountant is prohibited from issuing a compilation report. 48. Reviews Two key elements: Analytics Inquiry Precluded from performing a reviewengagement if the accountantsindependence is impaired for anyreason. 49. Reviews - Changes Introduction of the term reviewevidence Discussion of materiality Requires written engagement letter 50. Establish an Understanding Update your review engagementletters including: Managements responsibilities Accounting framework; for example:accounting principles generally acceptedin the United States of America 51. Review PerformanceRequirements Accumulate review evidence toprovide a reasonable basis forobtaining limited assurance that thereare no material modifications thatshould be made Review evidence: Analytical Procedures Inquiry Additional procedures if deemednecessary 52. Review Hierarchy Inquiry & Analytics Review EvidenceLimited Assurance 53. Understand the Industry Contractors Governmental Entity Banking Insurance Company Real Estate Company 54. Obtain Knowledge of theClient Understand the business Operating characteristics Nature of assets, liabilities, revenues &expenses Accounting Principles This knowledge will lend itself to theanalytical procedures that will beperformed. 55. Designing Review Procedures Based on: Understanding of client Understanding of industry Focus on risk areas Results of analytics and inquiry mayreveal additional risk Designing procedures may requireadditional partner/manager time 56. Review Cycle Understand ClientIssue ReviewUnderstand ReportIndustryIdentify Risk Perform of MaterialProceduresMisstatementPlan your Procedures 57. Analytical Procedures Knowledge of industry and client areused to: Create appropriate analytical procedures Compare the results with expectations 58. Analytical Procedures Sources of information forexpectations: Past experience with client Budgets or forecasts Relationships among elements offinancial information Information regarding the industry Relationships of financial information withrelevant nonfinancial information 59. Analytical Procedures Can be performed at: Financial statement level or Detailed account level The accountant may need to performother procedures when managementis unable to provide an explanation fordifferences 60. Inquiries Prepared in accordance withframework? Procedures for recording transactionsand accumulating disclosureinformation? Uncorrected misstatements from priorperiod? Subsequent events? Knowledge of fraud? Accountant not required to corroborateresponses, but consider 61. Old StandardsSSARS 19 Not required to document Must documentmanagements managementsexplanation forresponses to differencesdifferences (from(from expectations)expectations) Required to document Not required to document managementsmanagements responses to inquiriesresponses to inquiries Required to document No requirement tosignificant issuesdocument significantissuesDifferences 62. Management Letter Always required Make sure the letter covers all periodspresented in the financial statements If current management was notpresent during all periods covered bythe report, you must still obtain writtenrepresentations from currentmanagement. 63. Management Letter Changes include: No longer FASB 5; now FASB ASC 450 Add language specific to your accountingframework; for example, accountingprinciples generally accepted in theUnited States of America Managements responsibility fordesigning, implementing, and maintaininginternal controls 64. Management Letter Who should sign? Normally: Chief Executive Officer and Chief Financial Officer or others withequivalent positions The letter should be signed by thosemembers of management whom theaccountant believes are responsiblefor and knowledgeable about thematters covered in the representationletter. 65. Documentation Engagement Letter Analytical Procedures Expectations Results of comparison of expectation withactual Managements responses to inquiriesabout inconsistencies or differences fromexpectations Additional work performed in responseto significant unexpected differences 66. Documentation Significant matters covered throughinquiry Any findings or issues that aresignificant (e.g. findings indicating thestatements are materially misstated) Communications regarding fraud orillegal acts Representation letter 67. Documentation The accountant is not precluded fromsupporting the review report by othermeans in addition to the reviewdocumentation. Such other meansmight include written documentationin: Nonattest files (e.g. Tax Files) Quality Control files (e.g. IndependenceFiles) Oral explanations on their own do notrepresent sufficient support. 68. Reporting on Financials Title the report: Independent Accountants Review Report Primarily applying analytical proceduresand making inquiries Accountant performs procedures toobtain limited assurance that there areno material modifications that should bemade In accordance with accountingprinciples generally accepted in theUnited States of America 69. Reporting on Financials Date of Report Should not be datedprior to the date the accountant hasaccumulated review evidencesufficient to support the report. Not defined Safest rule Date of Quality Controlreview or after (guidance from SAS103 use date audited financials havebeen reviewed by Partner and QC) 70. Reporting on Financials References Each page should state: See Independent Accountants Review Report 71. Other Matters See slides in compilation section forguidance regarding: EOMs Departures from GAAP Going Concern Supplementary Information Subsequent Discovery of Facts General Use and Restricted Use Reports 72. Step Down from Audit to Review If the accountant is performing anaudit and is asked to then step downto a review service, consider: Why the step down? If client had prohibited correspondencewith entitys legal counsel (in an audit),then the accountant is prohibited fromissuing a review report.