Providing flexibility to CPAs performing attestation examinations
What the issuance of SSAE No. 21 means
Rich Daisley, CPA | April 2021 Footnote
Editor's note: Updated March 31, 2021
CPAs have traditionally provided their expertise on financial-related matters. Looking ahead, there’s a growing area of nonfinancial subjects that warrant a CPA’s examination and opinion, but a client may not have resources to initially measure it. SSAE No. 21 addresses this issue, allowing CPAs to provide additional value to clients and further public service.
When engaged to perform an attestation engagement, CPAs must follow the AICPA’s Attestation standards, codified in the AICPA’s AT-C Standards (AT-C standards). The AT-C standards provide guidance on common concepts related to all attestation engagements performed under the AT-C standards, level of service guidance related to examination, review and agreed-upon-procedures (AUP) engagements, as well as guidance related to the subject matter covered by the engagement. This collective guidance can be found in sections 100, 200 and 300, respectively, of the AT-C standards.
Until recently, the common thread to the level of service provided in attestation engagements is that the party responsible for the subject matter must measure or evaluate that underlying subject matter against a set of criteria, and the responsible party must provide a written assertion concerning its measurement or evaluation. Without such an assertion, a CPA currently cannot perform an attestation engagement under the examination AT-C standards found in Section 205 of the AT-C standards.
Recognizing the challenges responsible parties may face related to making an assertion concerning new, complex or emerging nonfinancial subject matters, the AICPA’s Auditing Standards Board recently issued Statement on Standards for Attestation Engagements No. 21,
Direct Examination Engagements (SSAE No. 21), which allows CPAs to also perform examination engagements related to the subject matter’s conformity with the criteria without first obtaining the responsible party’s assertion related to the subject matter. SSAE No. 21 added AT-C 206 in the codification of AT-C Standards.
With the newly issued AT-C Section 206,
Direct Examination Engagements (Section 206) guidance, effective for attestation examination reports dated on or after June 15, 2022 (early implementation is permitted), a CPA can now perform an examination on such subject matter without the responsible party either measuring or evaluating the underlying subject matter against the criteria or providing a written assertion to the CPA. In other words, a CPA can perform examinations with or without the assertion of a responsible party. When an assertion is provided under AT-C 205, the engagement is referred to as an assertion-based examination engagement.
Changes in SSAE No. 21 are similar to those made to AUP engagements with the issuance of SSAE No. 19, in December 2019, which is effective for AUP reports dated on or after July 15, 2021.
Engagements that might be performed under AT-C 206
A CPA might be engaged to perform a Section 206 engagement to measure the rates of return (the subject matter information) on an entity’s investment transactions over a period of time (the subject matter) based on specified criteria. Other scenarios could address whether an entity’s environmental, social and governance information (ES&G information) is prepared in accordance with appropriate criteria, or an evaluation of an entity’s controls related to data security, availability, processing integrity, confidentiality and privacy against the AICPA’s Trust Services Principles and Criteria.
Similarities and distinctions between engagements under AT-C 205 and AT-C 206
In performing both Section 205 and Section 206 engagements, the CPA must follow all of the applicable AT-C standards, contained in Section 105,
Common Concepts to All Attestation Engagements. This section deals with such issues as engagement preconditions, acceptance and continuance (A&C) procedures, quality control, engagement documentation and other considerations related to all attest engagements. Further, the CPA must be independent of the responsible party and engaging party, if different, when performing the examination engagement.
The biggest distinction between Section 205 and 206 engagements is their respective objectives. In a Section 205 engagement, a responsible party measures or evaluates the underlying subject matter against criteria and provides the CPA with a written assertion about the outcome of the measurement or evaluation. The CPA then expresses an opinion about whether the underlying subject matter is in accordance with (or based on) the criteria, or whether the responsible party’s assertion is fairly stated.
In a Section 206 engagement, the CPA measures or evaluates the underlying subject matter against the criteria and performs other procedures to obtain sufficient appropriate evidence to express an opinion that conveys the results of that measurement or evaluation. The responsible party does not provide an assertion about the results of its measurement or evaluation of the underlying subject matter against the criteria. Practically speaking, a Section 205 engagement requires an assertion from the responsible party while a Section 206 engagement doesn’t.
In a Section 206 engagement, the CPA applies the other applicable requirements of a Section 205 engagement, with limited exceptions. Section 206 may also require the CPA to apply certain different or additional requirements as well. These differences cover certain A&C procedures, the terms of the engagement, contents of the representation letter and the elements of the examination report.
Before accepting a Section 206 examination, the CPA should obtain an understanding of the following through inquiries of the appropriate party:
- The intended purpose of the engagement, how the CPA’s report will be used and why the engaging party wishes to engage the CPA.
- Why the responsible party has not measured or evaluated the underlying subject matter against the criteria if such measurement has not occurred.
- If such measurement has occurred, why the responsible party does not intend to provide an assertion related to the measurement.
The CPA should use this information, plus that from previous engagements performed for the engaging party, if any, and preliminary discussions with the engaging party to decide whether to perform the engagement.
Section 206 engagement letters also require inclusion of the following terms:
- That the responsible party is responsible for the underlying subject matter.
- That the responsible party or engaging party, as applicable, is responsible for the following:
- Selecting the criteria for the measurement, evaluation or disclosure of the underlying subject matter.
- Determining that such criteria are suitable, they will be available to the intended users and are appropriate for the purpose of the engagement.
Also, certain representations related to the responsible party’s assertion that are made in a Section 205 representation letter are not applicable in a Section 206 engagement and are thereby not included in a Section 206 representation letter. Further, representations related to the immateriality of uncorrected misstatements and significant assumptions used in making material estimates, are not required in a Section 206 engagement representation letter.
Lastly, the content of the CPA’s report is different in a Section 206 engagement, as compared to that of a Section 205 engagement. As the objectives of Sections 205 and 206 engagements differ, the independent accountant’s report on such engagements will be different as well. Exhibits in Section 206 provide sample reports which could be issued for such engagements.
Required thoroughness
The issuance of the new AT-C Section 206 guidance via SSAE No. 21 significantly increases the flexibility of CPAs to perform examination engagements. As with all engagements, it is critically important that CPAs read and thoroughly comprehend the key requirements of a Section 206 engagement as well as its similarities and differences from a Section 205 engagement.
Rich Daisley, CPA is vice president of accounting and auditing curriculum at Surgent CPE with more than 30 years of experience in the accounting and auditing field. He has worked in both the client service setting as well as in internal capacities as a facilitator of accounting and auditing courses. You may reach him at daisleyr@surgent.com.
