Exposure Draft Issued Proposing Revisions to Compilation and Review Standards

Via the AICPA

Based on recommendations form the Private Company Practice Section Reliability Task Force, the exposure 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

The full text of the exposure draft can be found here.

The PCPS task force recommended revising the standards to allow an accountant to issue a review report in situations where the accountant’s independence is impaired in connection with the performance of a nonattest service relating to the design or operation of an aspect of internal control over financial reporting.

According to the Journal of Accountancy article, significant changes to the standards would 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.

Barry Melancon, president of the AICPA, has issued a brief explanatory video here.

The comment deadline is July 31 and the proposed effective date fo the changes is for financial statements for periods on or after December 15, 2010.

Filed under: CPA Professional Standards, Financial Statements

Navigating the Minefield of Third-Party Requests for Client Information

Via AICPA’s Journal of Accountancey

For mortgage refinancings, loan applications and various other reasons, clients often ask tax-return preparers to verify the client’s financial information to third parties. It seems like a simple request, but tax practitioners should tread carefully because professional standards, privacy statutes and the Internal Revenue Code can make this area a minefield for the unwary.

It has always been a confusing prospect for our firm, trying to be our client’s advocate, going the extra mile, by providing whatever information we can.  But, those people asking for the information seem to not always have our client’s best interests in mind, and, there is a litany of state and federal law, and professional standards controlling what we can and can’t do.

This article from the Journal of Accountancy helps with this issue.

Concerns About CPA Letters to Third Parties

Filed under: CPA Professional Standards