Private Accounting Solutions 101

You are an investor/entrepreneur, and your business is growing fast.

You need someone to help you bring order to your financial records and to assist your tax consultants with assessing your overall financial position and strategy. Or maybe you run a growing family office. You have an administrative employee, but the job has become more complex and now you need an accounting staff person.

The types of Private Accounting Solutions (PAS) clients vary, but often the need becomes most apparent when financial complexities outpace internal competencies. Services offered range from diagnostic reviews, investment accounting, and consulting to more routine tasks such as the coordination of bill-paying and cash management. One important service most PAS clients require is the preparation of financial statements on some sort of regular schedule. This article will focus on the preparation of financial statements and how to find the right people for the job.

What Guides Financial Statement Presentation?

In the last few years, the American Institute of Certified Public Accountants (AICPA) rules related to the preparation of financial statements have changed significantly. Prior to the issuance of Statement on Standards for Accounting and Review Services (SSARS) No. 21, Statement on Standards for Accounting and Review Services: Clarification and Recodification in late 2014, accountants in public practice who prepared financial statements were required to perform a compilation engagement in order to be in compliance with the standard set forth in SSARS No. 1, which was issued in late 1978. This outdated standard regulated the submission of financial statements to management or a third party by the accountant.

Why Is SSARS 21 Necessary?

In today’s world of cloud computing and shared access to data between the client and the accountant, it has become increasingly more difficult to determine who actually submitted the financial statements, either to the client or to a third party. As a result, questions arose as to the oversight of the preparation and soundness of statements themselves. SSARS 21 was created and adopted, in part, to bring financial statement preparation standards in line with the (more current) auditing standards, which regulate the engagement to prepare financial statements rather than the act of submitting the statements.

What Does SSARS 21 Mean?

SSARS 21 contains four sections that clarify and revise the standards for reviews, compilations and engagements to prepare financial statements. The focus here will be SSARS 21 AR-C Section 70, Preparation of Financial Statements, which applies when the accountant is engaged to prepare financial statements as a standalone engagement, but is not engaged to perform an audit, review or compilation on those financial statements. Specifically, SSARS 21 – AR-C Section 70 states:

  • Financial statements are to be issued without a report.
  • Preparation of financial statements is a non-attest service.
  • Issuance of prepared financial statements is permitted with or without disclosures to the client or a third party without restrictions.
  • Requirements include:
    • Accountant must obtain an engagement letter signed by the client’s management and the accountant (and include specific wording requirements).
    • Financial statements are to be issued without a report.
    • A no assurance legend must be included on each page of the financial statements.
    • (In most cases) the financial statements do not include a statement of cash flows (for GAAP departure) and a substantially all disclosures have been omitted legend must be on each page of the financial statements.
    • Accountant must be in public practice.
  • The requirement for the accountant to be independent of the client or to determine independence has been omitted.

Because of these reporting changes, those in need of PAS services must now seek out providers that can meet these standards. For those clients working with providers who offer such services, the opportunity exists to take advantage of having both tax and accounting needs fulfilled by licensed professionals who are already subject to codes of ethics and regulations.

Do I Need Financial Statement Preparation?

The answer to this question obviously depends upon the situation. Multiple types of investments or business interests, significant real estate holdings, a potential liquidity event or a significant growth opportunity can all indicate a need for PAS. Mid-size family offices  are often especially in need, as they typically would fit into some if not all of the above categories but may not have the full, in-house capabilities to deal  with current accounting pronouncements, not to mention tax law changes.

How to Find the Right Provider?

In the world of PAS, no two situations are alike. Often services need to be easily adaptable to fit the specific needs of each family or individual. Providers with experience and insight into a broad spectrum of similarly situated clients can help guide individuals and family offices through identifying and implementing the appropriate solutions.

The Takeaway

SSARS 21, issued by the AICPA, brings accounting standards more in line with the needs of financial statement users, particularly among privately held companies. Under this standard it is more important than ever for those in need of PAS services to work with providers who can meet these requirements.