The AICPA’s Accounting and Review Services Committee (ARSC) has issued the Exposure Draft, Proposed Statement on Standards for Accounting and Review Services: Materiality in a Review of Financial Statements, Adverse Conclusions, and Special Purpose Frameworks.
Changes to Review Engagements
If adopted as proposed, this new standard would make significantly changes to the requirements for conducting review engagements. These changes would:
- Provide a definition of limited assurance as:
- The level of assurance obtained at which the risk that the accountant expresses an inappropriate conclusion is greater than it is in an audit engagement but is at an acceptably low level in the circumstances of the engagement as the basis for expressing a conclusion about whether the accountant is aware of any material modifications that should be made to the financial statements in order for them to be in accordance with the applicable financial reporting framework;
- Require the accountant to plan and perform the review with professional skepticism;
- Require the accountant to determine and document materiality for the financial statements as a whole and apply this materiality in designing the procedures and evaluating the results obtained from those procedures;
- Require the accountant to inquire of members of management who have responsibility for financial and accounting matters concerning the financial statements about:
- Material commitments, contractual obligations, or contingencies that have affected or may affect the entity’s financial statements, including disclosures; and
- Material nonmonetary transactions or transactions for no consideration in the financial reporting period under consideration;
- Add requirements for related party relationships and transactions;
- Provide the ability for the accountant to express an adverse conclusion in a review report; and
- Require the accountant to document information identified during the engagement that is inconsistent with the accountant’s findings regarding significant matters affecting the financial statements and how the inconsistency was addressed.
The Exposure Draft also includes provisions that would converge several key items with international review standards, U.S attestation standards, and U.S. auditing standards. As noted in the Introduction, ARSC “believes that it is important for the SSARSs literature to be closely converged with ISRE 2400 (Revised) to facilitate the accountant’s ability to perform and report on engagements in accordance with both sets of standards.” The amendments, if adopted as proposed, should eliminate “unnecessary differences between the standards,” which, in the view of ARSC, might otherwise “result in confusion about whether a review engagement performed in accordance with one set of standards results in the accountant obtaining a different level of assurance than that which would have been obtained had the engagement been performed in accordance with the other set of standards.”
The ARSC further indicated that, despite significant differences, SSARS engagements and audit engagements have concepts that are consistent regardless of the level of service. The Exposure Draft specifically noted the standard-setting agenda of the Auditing Standards Board (ASB) and the recent issuance by the ASB of its Exposure Draft of the proposed Statement on Auditing Standard (SAS), Amendments to the Description of the Concept of Materiality, and the proposed Statement on Standards for Attestation Engagements (SSAE), Amendments to the Description of the Concept of Materiality.
In addition to the changes above, the proposed SSARS would, if adopted as proposed, also amend the following provisions:
- AR-C section 60, General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting and Review Services;
- AR-C section 70, Preparation of Financial Statements; and
- AR-C section 80, Compilation Engagements.
The Exposure Draft includes specific requests for comment on a number of issues related to the proposals. The comment deadline is September 20, 2019. If adopted as proposed the revised AR-C sections would be effective for engagements performed in accordance with SSARSs on financial statements for periods ending on or after June 15, 2021. Early implementation would be permitted.