October 11, 2004 -- The Accounting and Review Services Committee ( ARSC ) of the AICPA, released SSARS 10, Performance of Review Engagements, in May 2004. It is effective for reporting periods ending after December 14, 2004 . 

SSARS 10, which amends SSARS 1, brings three significant changes to review engagements by expanding guidance for CPAs in applying analytical procedures, adding managements representations on fraud, and specific requirements regarding written documentation.

Performing analytical procedures during review engagements continues to be the basis for evaluating the reasonableness of the financial information provided by management.   The CPA’s professional judgment still makes the final determination in which method or methods to use in analytics (i.e., trend analysis, ratio analysis, model-based procedures), but SSARS 10 has required specific documentation of the accountants expectations and how they were developed. These expectations which the ARSC considers “the most important phase of the analytical procedure process,” should be based on the CPA’s understanding of the reporting entity and the industry in which it operates.

Time to revise those representation letters! SSARS 10 now requires management representation regarding fraud. Management must acknowledge its responsibility to prevent and detect fraud and to disclose knowledge of any fraud or suspected fraud affecting the entity where it could have a material effect on the financial statements.

SSARS 10 now requires written documentation of procedures performed, conclusions reached, and any significant findings and issues.  At a minimum, documentation should include the following:

• Matters covered in the accountant’s inquiries.
• Analytical procedures performed.
• Significant expectations that were not otherwise noted in the documentation of work performed and factors considered in the development of those expectations.
• Results of the comparison of the expectations to the recorded amounts of ratios that are developed from the recorded amounts.
• Any additional procedures performed in response to significant unexpected differences arising from the analytical procedures and the results of such procedures.
• Unusual matters.
• The management’s representation letter.

The ARSC also published an issues paper which gives examples of how an accountant can document expectations. To get the issues paper, and for more information on SSARS 10 requirements, visit the AICPA website at www.aicpa.org or click here http://www.aicpa.org/index.htm.  At Asher, contact Cristi Rescinti for more information.

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