SSARS 21 Section 70 Provides Much-Needed Framework for Additional Services
Cloud software like QuickBooks® Online has revolutionized the ways we provide accounting services to our clients. But until recently, the professional standards for CPAs didn’t reflect that reality.
The new guidance from the AICPA, Statements on Standards for Accounting and Review Services 21 (SSARS 21), provides a much-needed framework for firms of the future who want to provide additional services to their clients.
Section 70 of the new standard, issued in October 2014, introduces a new level of service: preparation of financial statements. This is ideal for clients who need financials, but don’t want to go through the expense or complexity of a compilation, review or audit. For an overview of this standard, see this article.
For this level of service, the link between preparation and reporting has been severed. No assurance is provided, which is made explicit to users by the requirement that each page carry a notice along the lines of “No assurance is provided,” or that a disclaimer be included.
Practitioners may need to educate their clients and possible third-party users, such as bankers, what this means, as the presence of this notice may actually cause users to place more reliance on the financials than is appropriate.
The trigger for this guidance is clear: Section 70 applies when a client hires a practitioner to prepare financial statements. An engagement letter is required, which you can read about here.
Which services does Section 70 apply to?
A big question for many practitioners is what types of services this standard applies to. Here’s a list of the types of services for which SSARS 21 Section 70 does apply:
- Preparation of financial statements at the request of a client
- Preparation of financial statements prior to audit or review by another accountant
- Preparation of a single financial statement, such as an income statement with substantially all relevant disclosures omitted.
Which services does Section 70 NOT apply to?
And here are the types of services for which SSARS 21 Section 70 does not apply:
- Making adjustments to general ledger accounts or performing other bookkeeping services
- Maintaining depreciation schedules
- Drafting financial statement notes
- Preparation of financial statements as an input for another service including the following:
- Tax returns
- Personal financial plans
- Litigation support
- Business valuations
However, if financial statements will be provided alongside any of those services, and are not simply the starting point for a service, then Section 70 applies. This means that practitioners who, for example, provide a client with a balance sheet and income statement along with their tax return may want to add a few lines to their tax engagement letter to include the information required by Section 70.
Other covered services
Section 70 is not limited to the preparation of historical financials. Paragraph A1 notes that this guidance also applies to prospective financials as well as to these other services:
- Specified elements, accounts, or items of a financial statement, such as schedules of rentals, royalties, profit participation or provision for income taxes.
- Supplementary information.
- Required supplementary information.
- Pro forma financial information.
- Prospective financial information, including budgets, forecasts or projections.
Why is this important for practitioners who perhaps have already been providing some of these services?
When Section 70 applies, the practitioner is also subject to Paragraph 25 in Section 60, which describes the conditions for accepting the engagement and outlines the responsibilities of management.
Engagements should be accepted when the practitioner has (or will obtain) the competence to provide the services, when the reporting framework is determined to be acceptable by the practitioner and when management acknowledges responsibility for the underlying data and systems of internal control, including prevention of fraud, and for providing the practitioner with access to the required data.
While we already follow this guidance as part of being professionals, this is a good reminder to our clients that at this level of service, where no assurance is being provided, they are the ones who are responsible for the accuracy and completeness of their numbers.
In addition, because independence is not required for this level of service, this guidance provides a framework for working with clients as more of a mentor than a disinterested observer, and to provide services beyond compliance work.
Providing services beyond compliance work is how we move our firms into the future and help our clients achieve their dreams.