Another SARS Outbreak

No, I’m not talking about the virus that made such headlines a few years ago. This article is about "Statements on Standards for Accounting and Review Services" issued by the AICPA. The AICPA is proposing substantial changes to these standards. An exposure draft was released on April 28, 2009. Comments can be made until July 31, 2009.

These standards govern two levels of services that are performed by CPA’s. Compilations are limited to the CPA preparing financial statements from the client’s trial balance and other records. A CPA does not give any assurance when he issues a compilation. Reviews are a step ahead of compilations and include inquiry and analytical procedures. A CPA gives "negative assurance" when he does a review; that is to say he is not aware of any material errors related to the financial statements.

The following is a discussion of several areas where the proposed changes are different from the original :

1. The term for the level of assurance is changed for reviews. Limited assurance has been replaced by the term moderate assurance.

2. For reviews, the terms "review risk" and "review evidence" are introduced and described.

3. CPA is required to obtain a written engagement letter from the client.

4. The new standard describes the term "internal control service". For instance preparing a bank reconciliation is now an internal control service and if performed would impair a CPA’s independence.

5. CPA’s who perform compilations for clients for whom they are not independent can now include an explanation of why they are not independent in the report.

6. Finally, the changes will result in new compilation and review report models.

If it is adopted, the new standards would be effective for financial statements for periods beginning after December 15, 2010.