Applying the SSARS Framework to Preparation, Compilation, and Review Engagements

SSARS governs many financial statement services for nonpublic entities when the accountant is not performing an audit. The exam tests whether you can match each engagement type to its assurance level, required procedures, independence rule, and report or legend.

The three core SSARS services are preparation, compilation, and review. They are not interchangeable. A review provides limited assurance. A compilation and a preparation engagement provide no assurance.

    flowchart LR
	    A["Preparation AR-C 70"] --> B["No assurance; no report; legend required"]
	    C["Compilation AR-C 80"] --> D["No assurance; compilation report issued"]
	    E["Review AR-C 90"] --> F["Limited assurance; inquiry and analytical procedures"]
	    B --> G["Lower service level than review"]
	    D --> G
	    F --> H["Higher SSARS assurance level, but still not an audit"]

SSARS Scope

Statements on Standards for Accounting and Review Services apply primarily to accountants performing unaudited financial statement services for nonpublic entities. They are different from generally accepted auditing standards, which govern audits, and different from PCAOB standards, which govern issuer audits.

SSARS matters on AUD because candidates must avoid over-assurance. The accountant’s report should not imply an audit opinion when the engagement was only a review, compilation, or preparation.

Core AR-C Sections

The exam frequently asks which section applies. AR-C 70 is preparation, AR-C 80 is compilation, and AR-C 90 is review.

Engagement Comparison

Independence is a high-value distinction. A CPA who is not independent can perform a preparation or compilation engagement if the reporting requirements are met, but cannot perform a review engagement.

Assurance Ladder

SSARS services sit below an audit in assurance level.

The review is the highest assurance service under SSARS, but it is still substantially less in scope than an audit.

Required Professional Responsibilities

Even when no assurance is provided, the accountant still has professional responsibilities. SSARS engagements require ethical conduct, professional judgment, an understanding with management, and documentation appropriate to the engagement.

Key responsibilities include:

• Establish an understanding with management, usually through an engagement letter.
• Identify the applicable financial reporting framework.
• Understand management’s responsibility for the financial statements.
• Avoid report language that implies more assurance than the engagement provides.
• Address obvious misstatements, incomplete information, or misleading presentation that comes to the accountant’s attention.
• Document the work performed and conclusions reached.

The accountant is not required to audit the information in a preparation or compilation engagement, but the accountant cannot knowingly be associated with materially misleading financial statements.

Exam Traps

• A compilation has a report; a preparation engagement normally does not.
• Preparation and compilation both provide no assurance.
• A review provides limited assurance, not reasonable assurance.
• Independence is required for review, but not for preparation or compilation.
• A compilation report disclaims assurance; a review report provides negative assurance.
• SSARS applies to nonpublic financial statement services, not issuer audits.

Quick Review

Use this sequence when a question gives a nonpublic financial statement service:

1. Identify whether the CPA prepared, compiled, reviewed, or audited the statements.
2. Match the engagement to AR-C 70, 80, or 90.
3. Determine assurance level.
4. Check independence requirements.
5. Determine whether a report or no-assurance legend is required.
6. Avoid choosing audit procedures unless the fact pattern says audit.

Review Questions