Some firms struggle to implement SSARS 21

Jason Frick, CPA, CFE, Copeland Buhl & Company PLLP | February/March 2017 Footnote

We all make mistakes. Some are avoidable, as the MNCPA General Industries Task Force discovered.

One such occurrence involved the effective date for SSARS 21 for periods ending on or after Dec. 15, 2015. The task force identified numerous instances in which compilation and review reports for periods ending subsequent to that date either had not been updated from previous SSARS 19 guidance, or had not been completely implemented (i.e., missing section headings on the review report).

The task force annually provides a free service to firms with MNCPA members. The task force, composed of MNCPA member volunteers, provides constructive and confidential feedback on financial statements, which assists firms in improving their quality control process. The task force is not part of the Peer Review Committee or any other sanctioning authority.

Firms may submit up to two financial statements (and AU-C 260 and AU-C 265 letters, if applicable) from audits, reviews and/or compilations. Clients' names and other identifiable characteristics are asked to be removed. In addition, firms indicate the industry in which the client operates, and provide the number of professional staff in their firm. The reviews are then performed without access to any workpapers or supporting documentation.

Financial statements submitted are distributed to task force volunteers based on their individual industry experience.

Whenever possible, financial statements are reviewed by two separate professionals. Comments from those reviews are combined and provided to the member firms that submitted the reports.

Members of the task force meet and discuss comments and observations from the reviews performed. Comments are divided into two categories: 1) technical and 2) nontechnical, which include "for consideration" comments.

The most common items identified during the 2016 review process, are as follows:

Most frequent comments of reviewers Authoritative guidance
Compilation and review reports were not updated or not completely updated in accordance with standards that became effective for periods ended after Dec. 15, 2015. SSARS 21
Possible situations in which variable interest entities were not properly consolidated or no disclosure of adoption of the private company alternative as allowed for under ASU 2014-07. In addition to possible consolidation of variable interest entities, certain disclosures related to those entities (nature, purpose, size and activities) are required. ASC 810-10-50
Consolidation,
Variable Interest Entities
No inclusion of accounting policy related to revenue recognition. ASC 235-10-50-3 Notes to the Financial Statements
Fair value measurement disclosures not properly included or, if included, improperly applied, including no information related to the level of the fair value hierarchy or valuation techniques and inputs. ASC 820-10-50
Fair Value Measurements
Omitted disclosures regarding the concentration of credit risk for financial instruments, including cash held in financial institutions in excess of federal insurance limits. ASC 825-10-50-21
Financial Instruments, Disclosure
Related party disclosures appear to be missing or incomplete. In general, related party disclosures are required to include the following:
  • Nature of the relationship
  • Description of the transaction
  • Dollar amount of the transaction
  • Amounts due to or from related parties
ASC 850-10-50
Related Party Disclosures
Other common comments included:
  • Accounting policies need to be disclosed for those items that have options available or are otherwise required.
  • Various clerical errors, including typos, grammatical, spelling and footing errors.
  • Ensure amounts and disclosures repeated within the statements are consistent throughout (i.e., footnotes tie to the face of the financial statements).
  • Consistent use of verbiage throughout the financial statements, footnotes and the report.
  • This includes use of singular versus plural, GAAP versus special purpose framework, consolidated versus combined and other items mentioned in multiple places within the financial statements.
  • Ensure the report on the financial statements, and supplementary information, if applicable, refers to all periods presented.
  • Watch for industry-specific requirements and refer to the appropriate industry guide. This is especially true for construction contractors, not-for-profit entities and HUD related financial statements.
Generally accepted and "for consideration" comments

Jason Frick, CPA, CFE is a director at Copeland Buhl & Company PLLP. He may be reached at 952-476-7179 or jason_frick@copelandbuhl.com.

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