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SSARS 21: Compilation and Review Standards for Non-Issuer Engagements

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SSARS 21 is the AICPA standard set that governs compilation, review, and preparation engagements for non-issuers, the work a CPA does when a full audit is not what the client needs. Issued by the Accounting and Review Services Committee in October 2014 and effective for periods ending on or after December 15, 2015, it clarified and recodified the literature into the AR-C sections. It is the reason a CPA can prepare financial statements with no assurance, compile them with a report, or review them for limited assurance, each under a clearly separated rulebook.

What is SSARS 21?

SSARS 21 is Statement on Standards for Accounting and Review Services No. 21, issued by the AICPA Accounting and Review Services Committee. Its full title is Statements on Standards for Accounting and Review Services: Clarification and Recodification, and like the parallel projects in the audit and attestation literature, it rewrote the existing guidance using the AICPA clarity drafting conventions and renumbered it into the AR-C sections.

SSARS engagements are the unaudited services CPAs provide to non-issuers, typically privately held businesses that need financial statements for a lender, an owner, or internal management but do not need or cannot justify the cost of an audit. The literature covers three distinct services. A preparation engagement produces financial statements with no assurance and no accountant’s report. A compilation produces financial statements with no assurance but with a one-paragraph report. A review provides limited assurance, the level of comfort that comes from inquiry and analytical procedures rather than the testing and verification of an audit.

The structural innovation of SSARS 21 was carving out the preparation engagement as its own service in AR-C 70. Before SSARS 21, when a CPA prepared financial statements for a client, that act was generally swept into a compilation. SSARS 21 split the two. Preparation is a nonattest service the accountant can perform even when not independent, with no report attached. Compilation remains a separate engagement with its own report. That separation gave practitioners a cleaner, lower-cost option for clients who simply need financial statements drafted.

Why SSARS 21 matters

SSARS 21 matters because most CPA firm engagements are not audits. The vast majority of financial statements a small or midsize business produces run through a preparation, compilation, or review engagement, not a full audit. SSARS 21 is the standard that governs that high-volume, lower-assurance work, and getting the engagement type right is a recurring source of professional liability when a practitioner blurs the lines.

The level of assurance is the heart of it. A user of financial statements needs to know what comfort the CPA is providing. A preparation engagement provides none and carries no report. A compilation provides none but attaches a report stating the accountant did not audit or review the statements and expresses no opinion or conclusion. A review provides limited assurance, expressed as a conclusion that the accountant is not aware of any material modifications that should be made. An audit provides reasonable assurance through an opinion. Conflating these levels misleads the user and exposes the firm. The full ladder of services is laid out in our audit vs review vs compilation comparison.

SSARS 21 also matters for cost and access. A review under AR-C 90 is far less expensive than an audit because it relies on inquiry and analytics rather than substantive testing, yet it still gives a lender or investor a meaningful level of comfort. The preparation engagement is cheaper still. For a buyer running diligence on a small target, understanding which SSARS service produced the historical statements tells you how much comfort to place in them, which is exactly the question a quality of earnings analysis exists to answer.

How SSARS 21 works (the requirements)

SSARS engagements share a common foundation in AR-C 60 and then split by service. The requirements differ in what the accountant must do and what the deliverable looks like.

General principles (AR-C 60)

AR-C 60 applies to all SSARS engagements. It requires an understanding with management documented in an engagement letter signed by both the accountant and management, and it addresses independence, professional judgment, and the conduct of the engagement. The engagement letter is mandatory and sets the scope, the responsibilities of each party, and the nature of the service.

Preparation (AR-C 70)

In a preparation engagement, the accountant prepares financial statements but provides no assurance and issues no report. Each page of the financial statements must include a statement that no assurance is provided, or the accountant issues a disclaimer. The accountant need not be independent and is not required to verify the accuracy or completeness of the information management provides. Preparation is a nonattest service.

Compilation (AR-C 80)

In a compilation, the accountant assists management in presenting financial statements and issues a compilation report. The accountant does not obtain or provide any assurance. The accountant reads the financial statements in light of the applicable financial reporting framework and considers whether they appear appropriate in form and free from obvious material misstatement, but performs no inquiry, analytical, or verification procedures. If the accountant is not independent, the compilation report must disclose that fact, though the reason need not be given.

Review (AR-C 90)

A review provides limited assurance. The accountant performs inquiry of management and others within the entity and applies analytical procedures to identify items that appear unusual or inconsistent (AR-C 90). The accountant must be independent. The accountant accumulates evidence sufficient to obtain limited assurance and obtains a management representation letter. The review report expresses a conclusion in the form of negative assurance: based on the review, the accountant is not aware of any material modifications that should be made to the financial statements for them to be in accordance with the applicable financial reporting framework.

The four SSARS services compared

The line that trips practitioners up most is the one between preparation and compilation. Both are no-assurance services, but a preparation has no report and can be done without independence, while a compilation requires a report. The other recurring confusion is treating a review as a cheap audit. A review under AR-C 90 provides limited assurance only and involves no testing of detail, no observation of inventory, and no confirmation of receivables.

Worked example: choosing and performing a review under AR-C 90

Assume Harbor Tools LLC, a privately held distributor, needs financial statements for a $2 million bank line of credit. The bank’s covenant requires reviewed financial statements. The CPA firm must select the right SSARS service and perform it correctly.

Engagement selection. Because the lender requires limited assurance, a preparation or compilation will not satisfy the covenant. The engagement is a review under AR-C 90. The firm confirms it is independent, because a review requires independence (AR-C 90).

Engagement letter (AR-C 60). The firm and Harbor Tools sign an engagement letter describing the review, the responsibilities of management for the financial statements and for the design of internal control, and the accountant’s responsibility to conduct the review under SSARS.

Inquiry and analytics. The firm performs analytical procedures comparing the current year to prior years and to industry benchmarks. Gross margin has dropped from 34 percent to 27 percent. The firm inquires of management and learns the company took on a low-margin private-label contract. The firm documents the explanation and corroborates it against the contract. The firm also inquires about subsequent events, related-party transactions, and the basis for significant estimates such as the allowance for doubtful accounts.

Evidence and representations. The procedures are inquiry and analytical only. The firm does not confirm receivables or observe inventory, because those are audit procedures. The firm obtains a management representation letter covering management’s responsibility for the statements and the completeness of information provided (AR-C 90).

Report. The firm issues a review report concluding that, based on its review, it is not aware of any material modifications that should be made to the financial statements for them to be in accordance with US GAAP. That negative-assurance conclusion is the defining output of a review and is what the bank covenant required.

Contrast. Had Harbor Tools only needed statements for its own internal planning, a preparation engagement under AR-C 70 with no report and no independence requirement would have been the right, cheaper choice. Had a small supplier merely wanted CPA-associated statements with no assurance, a compilation under AR-C 80 would have fit. The covenant is what forced the step up to a review.

Recent changes (effective dates, superseding standards)

SSARS 21 was effective for compilation, review, and preparation engagements on financial statements for periods ending on or after December 15, 2015, and it remains the foundation of the AR-C recodification. The committee has issued later SSARS that amend and extend the AR-C sections.

• SSARS No. 23 amended the AR-C sections to address preparation and compilation engagements on prospective financial information, bringing that subject matter under SSARS.
• SSARS No. 24 updated the review report and added requirements for reviews and compilations of financial statements prepared in accordance with a financial reporting framework generally accepted in another country, and addressed going-concern considerations in a review.
• SSARS No. 25 significantly revised AR-C 60, AR-C 90, and related sections to converge the review standard with the international review standard, including changes to materiality and the accountant’s responsibilities in a review. It was effective for reviews of financial statements for periods ending on or after December 15, 2021.
• SSARS No. 26 made conforming amendments addressing accountant reporting and quality management terminology consistent with the AICPA quality management standards.

The practical point is that AR-C 90 in particular has been updated since SSARS 21, most notably by SSARS No. 25, so a practitioner performing a review today applies the current AR-C 90 as amended rather than the original 2014 text.

Common pitfalls under this standard

• Confusing a preparation with a compilation (AR-C 70, AR-C 80). Both provide no assurance, but a preparation has no report and does not require independence, while a compilation requires a report. Issuing a compilation report on a preparation engagement, or vice versa, mischaracterizes the service.
• Performing a review without independence (AR-C 90). A review requires independence. An accountant who is not independent cannot perform a review and must step down to a compilation or preparation.
• Omitting the engagement letter (AR-C 60). Every SSARS engagement requires an engagement letter signed by both the accountant and management. Proceeding without one is a documentation failure that also clouds the scope of responsibility.
• Failing to disclose lack of independence in a compilation report (AR-C 80). When the accountant is not independent, the compilation report must disclose that fact. The reason is optional, but the disclosure is mandatory.
• Treating a review like an audit (AR-C 90). A review is inquiry and analytical procedures only. Confirming receivables, observing inventory, or testing transactions is audit work and is not required or implied by a review. Over-performing blurs the assurance level and the fee basis.
• Missing the no-assurance legend in a preparation (AR-C 70). Each page of preparation financial statements must state that no assurance is provided, or the accountant must attach a disclaimer. Omitting the legend leaves users without notice of the absence of assurance.
• Ignoring going-concern in a review (AR-C 90, as amended). SSARS No. 24 and later amendments require the accountant to consider whether there is substantial doubt about the entity’s ability to continue as a going concern and to address it in the review report when relevant.

Frequently asked questions

What is the difference between a preparation and a compilation under SSARS 21?

A preparation under AR-C 70 produces financial statements with no assurance and no accountant’s report, and the accountant need not be independent. A compilation under AR-C 80 also provides no assurance but requires a compilation report. Both are nonattest or no-assurance services, but only the compilation comes with a report.

Does a review provide assurance?

Yes, limited assurance. Under AR-C 90 the accountant performs inquiry and analytical procedures and concludes whether it is aware of any material modifications that should be made to the financial statements. That negative-assurance conclusion is less than the reasonable assurance an audit opinion provides.

Does an accountant need to be independent to perform a compilation?

No, but the compilation report must disclose the lack of independence under AR-C 80. The accountant may state the reason but is not required to. A review under AR-C 90, by contrast, does require independence.

Is an engagement letter required for a SSARS engagement?

Yes. AR-C 60 requires an engagement letter or other suitable written agreement signed by both the accountant and management for preparation, compilation, and review engagements.

What procedures does an accountant perform in a review?

Primarily inquiry of management and others within the entity and analytical procedures, plus obtaining a management representation letter (AR-C 90). A review does not include the tests of detail, confirmations, or observations that characterize an audit.

What does a compilation report say?

It states that the accountant compiled the financial statements, did not audit or review them, and does not express an opinion, a conclusion, or any assurance. If the accountant is not independent, the report discloses that fact.

Can the same firm prepare and then audit the same financial statements?

Preparation is a nonattest service. Whether a firm can both prepare statements and provide an attest service on them depends on the AICPA independence rules on nonattest services, which require safeguards and a client that accepts responsibility for the statements. The independence analysis is separate from SSARS itself.

Has AR-C 90 changed since SSARS 21 was issued?

Yes. SSARS No. 25 significantly revised the review standard, including materiality and the accountant’s responsibilities, effective for reviews of financial statements for periods ending on or after December 15, 2021. A current review applies AR-C 90 as amended, not the original 2014 text.