AICPA white paper on internal use-only financial statements


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Appendix C

Procedures Required by SSARS and the Applicability of SSARS

An issue that the Accounting and Review Services Committee (ARSC) has devoted a great deal of attention to is the applicability of Statements on Standards for Accounting and Review Services (SSARSs). SSARS No. 1, Compilation and Review of Financial Statements, states that if an accountant submits financial statements to a client or others, the CPA is required to at least compile those statements. Accordingly, if a CPA submits financial statements, he or she must at least compile them; if the CPA does not submit financial statements, there is no requirement to compile. Paragraph 7 of SSARS No. 1 defines the submission of financial statements and specifies which acts trigger the requirement to compile. Submission of financial statements is currently defined as presenting to a client or others financial statements that the accountant has C

1. Generated, either manually or through the use of computer software, or

2. Modified by materially changing account classification, amounts, or disclosures directly on client-prepared financial statements

Paragraph 7 also states that the following services do not constitute a submission of financial statements and thus do not require that an accountant report on them.

  • Reading client-prepared financial statements

  • Typing or reproducing client-prepared financial statements, without modification, as an accommodation to a client

  • Proposing correcting journal entries or disclosures to the financial statements, either orally or in written form, that materially change client-prepared financial statements, as long as the accountant does not directly modify the client-prepared financial statements

· Preparing standard monthly journal entries (e.g., standard entries for depreciation and expiration of prepaid expenses)

· Providing a client with a financial statement format that does not include dollar amounts, to be used by the client to prepare financial statements

· Advising a client about the selection or use of computer software that the client will use to generate statements

· Providing the client with the use of or access to computer hardware or software that the client will use to generate statements

Under current standards, submitting financial statements to a client or others triggers the requirement to perform all of the following compilation procedures:

· Acquiring knowledge about the accounting principles and practices of the industry in which the entity operates that will enable the accountant to compile financial statements that are appropriate in form for an entity operating in that industry.

· Obtaining a general understanding of the nature of the entity's business transactions, the form of its accounting records, the stated qualifications of its accounting personnel, the accounting basis on which the financial statements are to be presented, and the form and content of the financial statements.

· Reading the compiled financial statements and considering whether they appear to be appropriate in form and free of obvious material errors. If information comes to the accountant’s attention that causes him or her to believe that information supplied by the entity is incorrect, incomplete or unsatisfactory for the purpose of compiling financial statements, the accountant should obtain additional or revised information.

· Reporting on the financial statements. If the financial statements contain material departures from GAAP or another comprehensive basis of accounting, the departures must be disclosed in the report. The dollar effects of those departures on the financial statements must be disclosed in the report if they have been determined by management or are known as a result of the accountant's procedures. However, the accountant is not required to determine the effects of the departures if management has not done so. In that case, the accountant adds a statement to the report indicating that the effects of the departures have not been determined.

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