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901 Authoritative Literature
The authoritative literature that CPAs should follow in compiling or
reviewing financial statements can be grouped into the following
a. Accounting literature.
b. Compilation and review literature.c. Engagement conduct standards.d. Quality control standards.
Accounting Literature901.2 Generally Accepted Accounting Principles
The phrase “generally accepted accounting principles” (referred to in
the compilation and review literature as “accounting principles
generally accepted in the United States of America”) is a technical
accounting term that encompasses the conventions, rules, and procedures
necessary to define accepted accounting practice at a particular time.
It includes not only broad guidelines of general application
- but also detailed practices and
- procedures. Those conventions, rules, and procedures provide a standard
- by which to measure financial presentations. The definition of GAAP
- applies to compiled and reviewed financial statements, as well as to
- audited financial statements. The application of generally accepted
- accounting principles to CIRAs is discussed in Chapter 3.
Compilation and Review Literature
901.3 The compilation and review literature, discussed in detail in PPC's Guide to Compilation and Review Engagements, applies to all industries. Such literature includes the following:
- a. Statements on Standards for Accounting and Review Services (SSARS).
- SSARS apply when CPAs in public practice are associated with
- unaudited financial statements or other unaudited financial information
- of nonpublic companies. SSARS No. 19 1
- provides basic guidance and procedures applicable to compilation and
- most review engagements. SSARS are not applicable to reviews of interim
- financial information if the entity's most recent annual financial
- statements have been audited, the current year annual financial
- statements are expected to be audited, and the interim financial
- information is prepared using the same reporting framework used to
- prepare the annual financial statements. In these instances, accountants
- should perform the reviews in accordance with SAS No. 116, Interim Financial Information. 2 SSARS No. 19 also allows CPAs to provide financial statements without issuing a compilation report if the statements are not reasonably expected to be used by third parties. (The SSARS are located in the AR Section of the AICPA Professional Standards.)
- b. SSARS Interpretations.
- Periodically, the AICPA issues interpretations of the SSARS. Those
- interpretations provide useful guidance regarding specific aspects of
- the pronouncements. In December 2010, the Interpretations to AR 100 were renumbered and conformed to the requirements of SSARS No. 19
- .c. Compilation and Review Alert.
- Every year the AICPA Accounting and Auditing Publications Team
- publishes a nonauthoritative practice alert that summarizes new
- professional pronouncements and suggests ways to implement them during
- compilation and review engagements.
- d. Technical Practice Aids. Section TIS 9150
- of the AICPA Technical Practice Aids pertains to compilation and review
- engagements. Those aids represent the personal views of the staff of
- the Technical Information Service of the AICPA and do not represent the
- official opinions of the AICPA or the Accounting and Review Services
- Committee of the AICPA.
- e. AICPA Compilation and Review Guide. AICPA Audit & Accounting Guide, Compilation and Review Engagements
- (AICPA CAR Guide), issued in 2010 and revised in 2011, was developed
- under the supervision and authority of ARSC and is considered an
- interpretative publication pursuant to AR 60.18
- (which addresses the hierarchy of compilation and review standards and
- guidance). The purpose of the AICPA CAR Guide is to assist accountants
- in compiling or reviewing financial statements in accordance with the
- SSARS. 3
Engagement Conduct Standards
901.4 When performing compilation or review services, CPAs must comply with Rule 201 (ET 201) of the AICPA Code of Professional Conduct. Rule 201 provides
- the general standards that must be followed during any engagement and
- requires compliance with the applicable SSARS pronouncements and
- interpretations. Rule 202 (ET 202) of the Code
- establishes the authority of SSARS. In addition, the practitioner must
- use judgment and guidance from other accounting literature for areas not
- addressed in SSARS
Quality Control Standards
901.5 Statement on Quality Control Standard (SQCS) No. 8 4 also affects practitioners providing compilation and review services.
- SQCS No. 8 establishes standards and provides guidance for a CPA firm's
- responsibilities for its system of quality control for its accounting
- and auditing practice, which includes compilations and reviews. 5
- As the QC standard indicates, a firm's system of quality control is a
- system designed to provide the firm with reasonable assurance that the
- firm is (a) complying with professional standards and legal and
- regulatory requirements, and (b) issuing reports that are appropriate in
- the circumstances. In developing and maintaining its quality control
- system, a firm establishes policies designed to achieve the objectives
- associated with obtaining reasonable assurance and procedures required
- to implement and monitor compliance with the policies. It must cover
- interim, as well as year-end, financial statements. AR 60 refers to the relationship between compilation and review standards and quality control standards. AR 60.25
- clarifies that deficiencies in or noncompliance with a firms' quality
- control system do not, in and of themselves, indicate that an engagement
- was not performed in accordance with the SSARS