Useful Reminders About Professional Responsibilities From SSARS 21 Section 60
In the years since 2014 – when the AICPA issued Statements on Standards for Accounting and Review Services 21 (SSARS 21) – Section 70 has received the most attention. That section describes a new level of service for practitioners: a preparation engagement, but I think Section 60 also deserves some attention and is well worth a read.
The goal of Section 60 is to set out the professional responsibilities of accountants when we perform preparation, compilation, reviews or the other engagements that fall under the scope of this standard.
SSARS 21 stresses that while these standards can serve as a useful foundation for other types of work, they are not to be relied on as a substitute for legal or regulatory standards for that work. In case of a conflict with SSARS 21, legal or regulatory standards are the ones to follow.
Much of Section 60 feels like common sense. These are the things we do when we’re sticking to the ethical high road. For example, paragraph 21 says that if you accept a client engagement, and then find out something that would have made you refuse that engagement if you had known about it earlier, you need to tell your firm about it so that appropriate action can be taken.
Section 60 delineates the reasons for accepting or rejecting engagements. Even though these points may seem obvious, it’s well worth taking the time to consider these before jumping into something you may regret later.
Reasons to Reject an Engagement
Since it’s a shorter list, here are the reasons to flat-out reject an engagement:
- The ethical requirements for performing the engagement can’t be fulfilled.
- The needed information won’t be available or reliable.
- Management’s integrity is questionable.
Consider These Before Accepting an Engagement
If the engagement passes those few obstacles, here’s what you need to consider before you accept an engagement:
- Your preliminary knowledge indicates that the ethical requirements for performing the engagement are likely to be fulfilled.
- The financial reporting framework selected by management appears appropriate.
- Is the engagement team competent to perform the engagement, and will the team have the needed capabilities, including time and resources?
- Consider any previous experience you or your team has had with that client, and any other relevant knowledge about that client.
- What about the integrity of management? Remember that any problems with your client’s integrity may haunt you.
- If this is a review engagement, you and team members must also be independent of the client.
- Normal adjusting entries to a client’s books are OK, but any doubts as to whether the information you need is likely to be complete and reliable are not.
- Management must agree to be responsible for the following matters. You may have to spend time explaining these to some clients.
- Choice of an appropriate financial reporting framework.
- Design, implementation and maintenance of internal controls.
- Prevention and detection of fraud.
- Compliance with relevant laws and regulations.
- Financial records and documentation are complete and accurate.
- The accountant will be given access to any and all records, personnel, or other information that will be needed.
What is Professional Judgment?
The accounting literature is filled with exhortations for us to exercise “professional judgment,” but what does that mean? Paragraphs A15 through A19 of Section 60 explain that “professional judgment” means that the accountant has the competency, training, knowledge and experience needed to make informed decisions. When our personal knowledge fails, consulting with outside experts is perfectly acceptable.
We must also bring into play all relevant knowledge and experience we’ve had with the client, and the facts and circumstances of a particular engagement when exercising professional judgment. Our application of professional judgment is to be evaluated in light of what we know up to the date that financials are issued.
Need More Guidance?
The standards concede that accountants aren’t expected to have an exhaustive knowledge of all the literature that has been published about the standards. Instead, we should rely on authoritative guidance from AICPA that’s been reviewed by AICPA Audit and Attest Standards staff. An exhibit in the standards has a listing of the “other sources” that can be relied on.
That means that you shouldn’t rely on this article for everything you need to know about SSARS 21! You need to look at the standards yourself, and develop your own understanding so that you can serve your clients in the best professional way.