Howard Zangwill, CPA, Managing Director of Audit and Accounting in the Oakland office.
Howard ZangwillCPAview bio

A New Standard for Review Engagements Becomes Effective Very Soon

12/3/2021

Last February, the American Institute of Certified Public Accountants (AICPA) Accounting and Review Services Committee (ARSC) issued a Statement on Standards for Accounting and Review Services (SSARS) on the “Materiality in a Review of Financial Statements and Adverse Conclusions.”
 
Up until this standard was issued, there has been no requirement for auditors to document materiality in review engagements. The SSARS issued earlier this year emphasizes that the importance of materiality in a review is no less relevant than in an audit.
 
In general SSARS documents clarify and revise the standards for reviews, compilations, and engagements to prepare financial statements. They can also include significant revisions that affect the standards for accountants in public practice who prepare financial statements for their clients. February’s new standard statement, SSAR #25 in the series, adds significant requirements for most review engagements.
 
SSARS No. 25 – Materiality is Significant
Materiality has a significant impact on risk and identifying, assessing, and accounting for risk has become the principal focus of financial reporting, especially in an assurance engagement.
In a review engagement, the auditor must obtain sufficient review evidence to serve as the basis for a conclusion on the financial statements as a whole. 
 
The new standard requires auditors to determine materiality for the financial statements and apply the materiality benchmarks in designing procedures and evaluating results. Additionally, the auditor must design and perform analytical procedures to address all material items in the statements (including disclosures) and all areas where they believe there are increased risks of material misstatement.
 
Adverse Conclusion/Independence
SSARS No. 25 allows auditors to issue an adverse conclusion in their review reports if they find evidence of material misstatement in the financial statements. Previously, auditors could not change the standard report and there only choice was to withdraw from the engagement.
 
SSARS No. 25 also requires a statement in the accountant’s review report that the auditor needs to be independent with respect to the entity and to comply with ethical responsibilities during the review engagement.
 
Effective Date is Approaching
SSARS No. 25 becomes effective for review engagements performed in accordance with SSARSs on financial statements for periods ending on or after December 15, 2021.
 
RINA’s Audit team, has extensive experience working on review engagements. We are ready to adhere to the new standard although we note that the added standards will increase the auditors’ work for most engagements and therefore will often result in a higher cost for the reviews.
 
For additional information or questions, please contact a member of our audit team.
 
 The SSARS content contained in this article is for informational purposes only and is not tax advice. You should consult a tax advisor for advice applicable to your situation.

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