Reviews of Financial Statements - SAS 71 vs. SSARSs
Deciding when to apply SAS no. 71 and SSARSs can be difficult. In May 1992, the American Institute of CPAs auditing standards board issued Statement on Auditing Standards no. 71, Interim Financial Information, to provide accountants with guidance on conducting a review of interim financial information, typically that of a public entity. Statements on standards for accounting and review services (SSARSs) also provide guidance on performing and reporting on a review. How do these standards differ? APPLICABILITY There are three major differences in the applicability of a SAS no. 71 and a SSARS review. * Interim financial statements or information vs. annual financial statements. * Financial statements vs. financial information. * Public vs. nonpublic entities. Interim vs. annual. SSARSs apply to both annual and interim financial statements, although they do not address issues unique to interim statements. SAS no. 71 applies only to interim financial statements or information, which includes financial statements or information for less than a full year or for a 12-month period ending on a date other than an entity's normal yearend. The disclosures necessary for interim financial information to be presented in accordance with the minimum disclosure requirements of Accounting Principles Board Opinion no. 28, Interim Financial Reporting, are considerably less extensive than those for annual financial statements that present financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Statements vs. information. An accountant may perform a SSARS review only on a financial statement (for example, a balance sheet) or a set of financial statements (for example, a balance sheet, income statement and statement of cash flows). Under SAS no. 71, an accountant may review interim financial information or financial statements. SAS no. 71 and its predecessor SASs permit reviews of interim financial information because the Securities and Exchange Commission requires certain public companies to include in their annual reports selected quarterly financial data that typically are not in financial statement form. Both the SEC and SAS no. 71 require the information to be reviewed unless it is marked to indicate it has not been. Public vs. nonpublic. SSARSs provide guidance for the review of a nonpublic entity's financial statements. A nonpublic entity is any entity other than (1) one whose securities trade in a public market either on a stock exchange (domestic or foreign) or in the over-the-counter market, including securities quoted only locally or regionally, (2) one that makes a filing with a regulatory agency in preparation for the sale of any class of its securities in a public market or (3) a subsidiary, corporate joint venture or other entity controlled by an entity covered by (1) or (2). SAS no. 71 applies primarily to presentations of interim financial information by public entities (as did its predecessor, SAS no. 36, Review of Interim Financial Information, issued in April 1981). When a public or nonpublic entity includes interim financial information in a note to audited financial statements, either the accountant should conduct a SAS no. 71 review of that interim information or the note should say a review has not been performed. In other words, SAS no. 71 applies, not the SSARSs. However, if a nonpublic entity goes public and a SSARS review of the entity's quarterly financial statements already has been performed, the accountant need not also perform a SAS no. 71 review of those statements. Do SSARSs apply to a review of a public entity's financial statements? The answer is yes. A public entity that does not have its annual financial statements audited may engage an accountant to review its annual or interim financial statements in accordance with the SSARSs as stated in note 4 of SAS no. …