Navigating the Impact of SSARS No. 25 on Your Financial Statements

Navigating the Impact of SSARS No. 25 on Your Financial Statements

In February 2020, the Accounting and Review Services Committee (ARSC) made waves in the accounting world by unveiling Statement on Standards for Accounting and Review Services (SSARS) No. 25. Titled "Materiality in a Review of Financial Statements and Adverse Conclusions," this new standard, effective for financial statements ending on or after December 15, 2021, has potential implications for engagements falling under AR-C sections 60, 70, 80, and 90. Early birds also have the green light for implementation.

Unraveling SSARS No. 25

The primary objective behind SSARS No. 25 was to align with the International Standard for Review Engagements (ISRE) 2400 (Revised), which deals with the review of historical financial statements. This alignment led to a series of wording changes, content reorganizations, and minor enhancements. In essence, while the changes brought about by SSARS No. 25 might not revolutionize existing practices, they do introduce subtle modifications. Let's delve into a few key aspects:

  • Disclosure of Substantial Omissions in Financial Statements:
        • SSARS No. 25 clarifies that in the preparation of financial statements, any substantial omission of disclosures should be explicitly disclosed. This disclosure can either find its place on the face of the financial statements or be presented in an accompanying disclaimer.
  • Special Purpose Framework in Compilations:
        • If a special purpose framework is applied in a compilation, the report must convey that the financial statements may not be suitable for purposes beyond the specified special purpose.
  • Professional Skepticism in Review Engagements:
        • The new standard mandates that a review accountant must plan and execute the engagement with professional skepticism. This underlines the importance of a critical mindset in the review process.
  • Timing of Engagement Letters in Reviews:
        • Engagement letters in a review engagement must now be obtained before the commencement of the review. This emphasizes the need for clear communication and agreement between the accountant and the client before initiating the review.
  • Introduction of Qualified or Adverse Review Conclusions:
      • A significant departure from previous practices is the allowance for issuing a qualified or adverse review conclusion. This modification expands the options available to accountants in SSARS review engagements.

    Materiality Redefined

    Beyond convergence efforts, SSARS No. 25 brings about a notable change in the concept of materiality. This change aligns with a recent update to Generally Accepted Auditing Standards (GAAS). According to the revised definition, misstatements or omissions are considered material if there is a substantial likelihood that, individually or collectively, they would impact the judgment of a reasonable user relying on the financial statements.

    Guidance from Jennifer

    It's crucial to note that the content shared in this article serves informational purposes and should not be considered tax advice. For advice tailored to your specific situation, consulting a tax advisor is recommended.

    Jennifer, with over 25 years of expertise, has been a driving force in designing top-notch training programs covering technical and soft skills essential for professional and organizational success. As the founder of Emergent Solutions Group, LLC, established in 2003, she has been dedicated to crafting and delivering practical and engaging accounting and auditing training. Jennifer commenced her career in audit with Deloitte & Touche and earned her B.B.A. in Accounting with summa cum laude honors from Marymount University.

    Navigating the SSARS Landscape

    As professionals navigate the evolving landscape of SSARS, the introduction of No. 25 signifies a step toward convergence with international standards and introduces nuanced adjustments to review engagements. These changes, coupled with the redefined concept of materiality, emphasize the importance of staying informed and adapting to the evolving regulatory environment. As the accounting world continues to evolve, professionals must stay attuned to the latest standards and their implications for financial reporting.

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