Reviews, Compilations & Agreed-Upon Procedures

Why this topic matters

Many private companies need something less than an audit. The Statements on Standards for Accounting and Review Services (SSARS) cover preparation, compilation, and review engagements; the attestation standards cover agreed-upon procedures (AUP) engagements; and generally accepted auditing standards (GAAS) cover reviews of interim financial information. Auditing and Attestation (AUD) tests which engagement requires independence, what procedures each involves, and what each report says.

The three SSARS engagements compared

	Preparation	Compilation	Review
Assurance	None	None	Limited
Independence required?	No — and no need to determine it	No — but lack of independence must be disclosed in the report	Yes
Report	None; each page must state "No assurance is provided" (or issue a disclaimer)	Compilation report	Review report
Engagement letter	Required, signed by accountant and management	Required	Required
Main procedures	Prepare the statements; read them for obvious material misstatements	Read the statements for obvious material misstatements; understand the framework and the entity's accounting	Analytical procedures and inquiries; reconcile to records
Management representation letter	No	No	Required
Understanding internal control, assessing fraud risk, obtaining corroborating evidence	No	No	No — a review does not require these

In all three, the accountant must be engaged by the client; merely preparing statements as part of bookkeeping is a preparation engagement if the accountant is engaged to prepare them. Omitting substantially all disclosures is allowed in preparation and compilation engagements (if clearly indicated), but not in a review.

Compilation engagements

• Performed to assist management in presenting financial information without assurance.
• Report elements: a statement that management is responsible for the statements; that the accountant performed the compilation in accordance with SSARS; that the accountant did not audit or review and does not express an opinion, conclusion, or any assurance; signature, city and state, and date.
• Lack of independence: add a final paragraph stating the accountant is not independent; describing the reasons is optional, but if any reasons are given, all must be given.
• Departures from the framework are disclosed in a separate paragraph (with the effect if known).
• Supplementary information and omitted disclosures must be addressed in the report.

Review engagements

• Objective: obtain limited assurance that no material modifications are needed for the statements to conform with the framework.
• Procedures focus on areas where the accountant believes risks of material misstatement are higher; materiality is determined and applied.
• Inquiries include: accounting principles and practices, procedures for recording and summarizing transactions, actions at board and shareholder meetings, significant or unusual transactions, subsequent events, going concern, fraud knowledge, related parties, and litigation.
• Analytical procedures: compare with prior periods, expectations, and industry data; investigate unexpected fluctuations.
• Reconcile the financial statements to the accounting records.
• If the accountant becomes aware that information is incorrect, incomplete, or unsatisfactory, perform additional procedures.
• Representation letter from management, dated as of the review report date; refusal → the accountant cannot complete the review and must withdraw (no report).

Review report

• Title including "independent" (Independent Accountant's Review Report).
• States that a review is substantially less in scope than an audit, and that the accountant does not express an opinion.
• Conclusion: "we are not aware of any material modifications that should be made…" (limited assurance, expressed negatively).
• Modifications for known departures from the framework; emphasis-of-matter and other-matter paragraphs as needed.
• There is no "disclaimer" in a review: if the accountant cannot complete the review because of a scope limitation, it withdraws.

Changing from an audit to a review or compilation

Acceptable if there is reasonable justification (changed circumstances or a misunderstanding). The new report does not mention the original engagement. If the change is sought to avoid an audit problem (refusal to allow a confirmation with the lawyer, for example), the accountant generally should not issue a review or compilation report.

Agreed-upon procedures (Statement on Standards for Attestation Engagements (SSAE) No. 19)

• The practitioner performs specific procedures and reports findings — no opinion or conclusion.
• Independence is required.
• The engaging party must acknowledge that the procedures are appropriate for the intended purpose before the report is issued; other users need not agree to the procedures.
• Procedures may be developed or refined during the engagement.
• Findings are reported without vague terms such as "nothing came to our attention" or "reasonable".
• The report may be general use unless the practitioner decides to restrict it.
• A written assertion from the responsible party is not required (only requested where appropriate).

Reviews of interim financial information

• Nonissuers: performed by the entity's auditor under GAAS — the clarified auditing standards (AU-C), section AU-C 930 — requiring an understanding of the entity and its internal control; limited assurance.
• Issuers: quarterly reviews under Public Company Accounting Oversight Board (PCAOB) Auditing Standard (AS) 4105 are required before Form 10-Q filing.

How it is tested

• Match an engagement to its independence, assurance, and procedure requirements.
• Identify required report language (limited assurance, disclosure of lack of independence).
• Respond to a refusal to provide representations in a review.
• Apply SSAE No. 19 rules for agreed-upon procedures.