A small contractor calls and asks the CPA to "put together our financials for the bank." AR-C 70 governs that engagement. Get the engagement letter wrong, omit the no-assurance legend, or quietly fix a framework departure without disclosure, and the practitioner has performed the wrong service. The exam tests whether you know exactly where AR-C 70 starts, where it stops, and how it differs from AR-C 80.
HIGH-FREQUENCY: SSARS 21, codified in AR-C 70, governs the preparation of financial statements. It applies when the practitioner is engaged to prepare financial statements but is not engaged to perform a compilation, review, or audit on those same statements. The engagement type is determined by what the practitioner is engaged to do, not what the practitioner physically performs.
A preparation engagement is a nonattest service. The practitioner produces financial statements as a deliverable, much like a bookkeeper. There is no examination, no review, no opinion, and no assurance (even negative assurance) of any kind.
Common mistakes
- Confusing preparation with compilation. Both are nonattest. The difference is the report. AR-C 80 produces a compilation report, AR-C 70 does not. An answer choice describing a "compilation report on a preparation engagement" is internally contradictory and always wrong.
- Assuming independence is required. Independence is required for audits and reviews because they provide assurance. It is not required for preparation or compilation. Preparation does not disclose lack of independence; compilation must.
- Forgetting the no-assurance legend. The per-page legend "No assurance is provided on these financial statements" is the substitute for a report under AR-C 70. Silence on the pages would mislead a user. Either the legend appears on every page or the practitioner issues a disclaimer.
Bottom line
- AR-C 70 (SSARS 21) governs preparation engagements: the practitioner prepares financial statements for the client without providing any assurance.
- A preparation engagement is a nonattest service. It is not a compilation, review, or audit. No assurance is provided and no report is issued.
- A signed engagement letter is required, addressing management's responsibility, the framework, the no-assurance legend or disclaimer route, and the absence of an independence requirement.
- Independence is not required, and unlike a compilation, the lack of independence is not disclosed.
Exam shortcut
When a fact pattern says the practitioner is engaged to "prepare" financial statements with no report, you are in AR-C 70. When it says "compile" with a report, you are in AR-C 80. Both are nonattest, but only AR-C 80 produces a report.
The full lesson (about 1,866 words, 12 min read) adds 1 worked example, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- IV.C1
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