ARSC issues proposals in response to Reliability Task Force recommendations

The AICPA’s Accounting and Review Services Committee (ARSC) issued an exposure draft that would revise the standards for compilation and review engagements.

The changes would affect the interplay between the standards and independence rules, permitting an accountant to issue a review report on financial statements when the accountant’s independence is impaired by performing nonattest services that were designed to improve the reliability of the client’s financial information.

The draft includes three proposed standards:

• Framework and Objectives for Performing and Reporting on Compilation and Review Engagements
• Compilation of Financial Statements
• Review of Financial Statements

In drafting the proposed standards, the committee considered recommendations from the AICPA’s Private Company Practice Section (PCPS) Reliability Task Force, responding to their concerns for smaller business owners, users of small business financial statements and CPAs that serve smaller entities.

The proposed standards would also harmonize the AICPA’s review standard with the International Auditing and Assurance Standards Board’s (IAASB) review standard ISRE No. 2400.

Significant changes proposed include:

• The introduction the new terms such as moderate assurance, review evidence and review risk to the review literature to harmonize with international review standards
  
  
• A discussion of materiality in the context of a review engagement
  
  
• A requirement that an accountant establish an understanding with management regarding the services to be performed through a written communication, that is, an engagement letter
  
  
• The establishment of enhanced documentation requirements for compilation and review engagements
  
  
• Guidance for practitioners who are engaged to perform a compilation or review engagement when they have also been engaged to perform nonattest services. The guidance includes reporting requirements for instances in which the accountant’s independence is impaired due to the performance of these services
  
  
• The ability for an accountant to include a general description in the accountant’s compilation report regarding the reason(s) for an independence impairment

Deadline to comment deadline is July 31. The proposed effective date is for compilations and reviews of financial statements for periods beginning on or after Dec. 15, 2010. Early application would be permitted.

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