The New Requirements are Now in Effect for Financial Statement Reviews

Statement on Standards for Accounting and Review Services (SSARS) No. 25, Materiality in a Review of Financial Statements and Adverse Conclusions was issued in February 2020, and brings significant new changes for financial statement review engagements and CPAs who perform such engagements. SSARS 25 amends number of areas throughout the standards that apply to financial statement review and compilation engagements. SSARS 25 also more closely aligns the U.S. standards with international standards.

There is now an explicit requirement to determine materiality

Accountants are now explicitly required to determine materiality for the financial statements as a whole. They also must apply this materiality when designing the procedures and evaluating the results obtained from those procedures. When performing procedures, accountants must now design and perform their analytical procedures and inquires to address all material items in the financial statements, including disclosures. While this concept existed previously, it is now an explicit requirement under the new standard.

Accountants can now issue an adverse review conclusion if they determine that the financial statements are materially and pervasively misstated

Before SSARS 25, accountants were prohibited from modifying the standard report to include a statement that the financial statements are not in accordance with the applicable financial reporting framework (that is, an adverse conclusion). No longer the case under the new SSARS 25, this change in the allowable reporting could be significant for some entities and provides more transparency for users of the financial statements.

Accountants must now make an explicit statement in their accountant’s review report regarding their independence and their duty to meet their applicable ethical standards

This is a brand new requirement that begins for calendar year 2021 reporting entities.  All accountants performing financial statement review engagements must now state that they are required to be independent and to meet their ethical requirements and responsibilities.  

When is the new standard effective

SSARS 25 is effective for engagements performed in accordance with SSARSs for periods ending on or after December 15, 2021 and all fiscal year-ends during 2022. Early implementation is permitted.

For additional information regarding the new requirements for financial statement review engagements, contact your Stone engagement team members.

Bob Page rpage@stonecpas.com and Rob Miller rmiller@stonecpas.com contributed to this article.