Standards for Accounting and Review Services (SSARS)

16.1 Standards for Accounting and Review Services (SSARS)

The Standards for Accounting and Review Services (SSARS) establish the framework for accountants who provide unaudited financial statement services to nonpublic (private) entities. While these engagements do not require the extensive scope of an audit, they must still follow the guidelines promulgated by the American Institute of Certified Public Accountants (AICPA) Accounting and Review Services Committee (ARSC). SSARS typically apply when management desires either a compilation, review, or preparation of their financial statements but does not need a basis for expressing an audit opinion on those statements.

This chapter covers the core principles of SSARS, including a discussion of relevant AR-C sections and how SSARS engagements differ from audits. Through this material, you will gain a deeper understanding of why SSARS engagements are widely used by small and medium-sized private businesses, what levels of assurance (if any) are provided, and how practitioners guide clients through the reporting process.

1. Governing Framework

1.1 The Role of the ARSC and AICPA

The AICPA’s Accounting and Review Services Committee (ARSC) issues Statements on Standards for Accounting and Review Services (SSARS). These standards govern certain engagements where a CPA assists a client with the following types of services:

• Preparation of financial statements (no assurance).
• Compilation engagements (no assurance).
• Review engagements (limited assurance).

Unlike an audit, these services do not result in an opinion on the fairness of the financial statements in accordance with Generally Accepted Accounting Principles (GAAP). However, SSARS establish clear objectives and requirements for CPAs performing these services, ensuring consistency, transparency, and quality across the profession.

1.2 Applicability to Nonpublic Entities

SSARS primarily apply when financial statements are prepared for privately held entities that do not require an audit under regulatory or contractual obligations. Many small to mid-sized entities prefer these lower-level engagements due to cost considerations and less regulatory burden. Even though a SSARS engagement does not provide an audit opinion, it still adheres to a professional standard of care and requires certain procedures, documentation, and communication with management or those charged with governance.

2. Key Pronouncements

The SSARS standards are codified in the AICPA Professional Standards under AR-C Sections 60, 70, 80, and 90. These sections outline the requirements, responsibilities, and guidance for preparation, compilation, and review engagements.

2.1 AR-C Section 60: General Principles for SSARS Engagements

AR-C Section 60 establishes the overarching principles that apply to all SSARS engagements. It includes:

• Ethical requirements: Emphasizes that practitioners must comply with the AICPA Code of Professional Conduct.
• Professional judgment: Stipulates that accountants should exercise sound judgment in selecting procedures and in evaluating evidence and findings.
• Quality control: Requires firms to maintain quality control systems consistent with applicable standards.
• Documentation: Reinforces the need for thorough and organized documentation showing that the engagement was conducted according to SSARS.

These general principles inform practitioners on how to plan, perform, and report on any SSARS engagement, laying a solid foundation before focusing on the specific type of engagement (preparation, compilation, or review).

2.2 AR-C Section 70: Preparation of Financial Statements

This section governs the accountant’s involvement when preparing financial statements. Key attributes include:

• No assurance is provided: The accountant’s role is limited to preparing financial statements based on the information provided by management.
• Independence: Not required in a preparation engagement, but the lack of independence must be disclosed if the accountant is aware of any independence impairments.
• Engagement letter: Outlines the scope, limitations, and accountant’s responsibilities, as well as management’s responsibilities for the financial statements.
• Reporting: A formal report is not typically issued for a preparation engagement, but each page of the financial statements must include a legend or statement such as “No assurance is provided.”

2.3 AR-C Section 80: Compilation Engagements

Under a compilation engagement:

• No assurance is provided: Although the accountant compiles the financial statements using client-provided information, there is generally no statement on their reliability or fairness.
• Independence: Not required, but the accountant must disclose any lack of independence.
• Understanding of the client’s business: The practitioner should gain a limited understanding of the client’s industry, business environment, and financial reporting framework to compile the statements appropriately.
• Compilation report: A short-form report is issued, clarifying that the financial statements are presented based on information provided by management, and that no opinion or assurance is expressed.

2.4 AR-C Section 90: Review Engagements

Review engagements provide limited assurance on the financial statements. The practitioner performs primarily inquiry and analytical procedures. Key characteristics include:

• Limited assurance: The CPA states that they are not aware of any material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework.
• Independence: Required for a review engagement; if independence is impaired, the CPA cannot perform a review.
• Inquiry and analytical procedures: The foundation of a review is discussing key accounting practices, identifying unusual or significant entries, and comparing current-period financial statements to prior periods or to industry benchmarks.
• Review report: Provides a statement of limited assurance and mentions that the engagement consists primarily of inquiry and analytical procedures.

3. Differences from Audits

A typical audit engagement aims to provide reasonable assurance (the highest level of assurance) that the financial statements are free from material misstatement. SSARS services, on the other hand, offer either limited assurance (review) or no assurance (compilation, preparation). Unlike an audit, which involves extensive testing of internal controls and detailed substantive procedures, a review emphasizes inquiries and analytical review, and a compilation simply organizes client information into proper financial statement format without verifying its accuracy.

Below is a simplified visual comparison of the different SSARS engagements vs. audits:

    flowchart LR
	    A(Preparation: AR-C 70) -->|No Assurance| B(Compilation: AR-C 80)
	    B -->|No Assurance| C(Review: AR-C 90)
	    C -->|Limited Assurance| D(Audit)
	    
	    style A fill:#f9f,stroke:#333,stroke-width:1px
	    style B fill:#ff9,stroke:#333,stroke-width:1px
	    style C fill:#9ff,stroke:#333,stroke-width:1px
	    style D fill:#9f9,stroke:#333,stroke-width:1px

1. Preparation (AR-C 70): The CPA prepares the statements without providing any form of assurance.
2. Compilation (AR-C 80): The CPA compiles the data into a financial statement format, but still offers no opinion or assurance.
3. Review (AR-C 90): The CPA performs limited procedures (inquiry and analytics) to express “limited assurance.”
4. Audit: The highest level of assurance, governed by auditing standards rather than SSARS.

4. Practical Insights and Best Practices

• Engagement Letters: Whether it’s preparation, compilation, or review, well-crafted engagement letters are crucial. They define the scope, clarify management’s responsibilities, and limit misunderstandings.
• Professional Skepticism: Even though SSARS engagements are less rigorous than audits, practitioners should remain alert for signs of material misstatement, fraud, or noncompliance.
• Tailored Procedures: For a review, inquiry and analytical procedures should be customized to the client’s risks, industry, and financial complexities.
• Documentation: Good documentation practices ensure that the accountant’s work can be reviewed and understood easily by peers, regulators, or the courts in case of disputes.
• Reporting Clarity: Use clear language in preparation, compilation, or review reports to manage client and third-party expectations, avoiding any impression that an audit-level assurance is provided.

5. Glossary

• AICPA’s ARSC (Accounting and Review Services Committee): The committee responsible for issuing SSARS to govern unaudited financial statement services.
• Limited Assurance: A moderate level of assurance, indicating that the practitioner did not note any material modifications that should be made to the financial statements.
• No Assurance: A service (compilation or preparation) in which the CPA makes no claims about the reliability or accuracy of the financial statements.

6. References and Resources

6.1 Official References

• AICPA SSARS: The authoritative source for the latest SSARS standards and guidance.

6.2 Additional Resources

• Wiley’s Guide to Compilations and Reviews: Offers practical checklists, sample reports, and best-practice recommendations for practitioners.
• AICPA Training Modules on SSARS: Walkthroughs and insights on how to implement each type of engagement effectively.

Quiz: Essential SSARS Engagements

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