Two Statements on Standards for Accounting and Review Services changed the working rules for reviews, compilations and preparations in the last few years. SSARS No. 25 reworked the review standard, AR-C section 90, around materiality. SSARS No. 26 pushed the AICPA's quality management framework down to the engagement level for all three SSARS services. Both come from the AICPA Accounting and Review Services Committee. This page explains what each does, when each applies, and what it changes in a small firm's review and compilation files.
This page paraphrases the standards. Read AR-C 60, 70, 80 and 90 in AICPA Professional Standards for the full text.
What does SSARS 25 change?
SSARS No. 25 is titled Materiality in a Review of Financial Statements and Adverse Conclusions. It revised AR-C section 90, Review of Financial Statements. Reporting on the AICPA's announcement, Accounting Today described the revision as converging AR-C 90 with the International Standard on Review Engagements 2400 (Revised) and aligning some of its concepts with generally accepted auditing standards. The committee's stated goal was to reduce confusion about the level of assurance a review provides.
The two ideas in the title are the ones to build into the file:
- Materiality is a review concept. The standard brings the audit idea of materiality, what could influence the decisions users make on the basis of the financial statements, into the review. The accountant applies it when designing inquiry and analytical procedures and when evaluating misstatements found. Recording the level the accountant used and what drove it is the practical way to show that. For the mechanics of choosing a benchmark and percentage, see materiality in auditing; the concept carries over even though the assurance is lower.
- Adverse conclusions are addressed. The title signals that the review standard now deals with an adverse conclusion when financial statements are materially misstated and the matter is pervasive. See review report.
SSARS 25 applies to engagements on financial statements for periods ending on or after December 15, 2021, with early implementation permitted. It is already in force for every current review.
The AICPA's chief auditor said at the time that it might not result in significant change in practice for firms already performing reviews appropriately, but that it would decrease diversity in practice. That is a fair reading of the effect: firms with a documented materiality judgment saw little change, and firms that never recorded one had to start.
What does SSARS 26 change?
SSARS No. 26 is the engagement-level quality management standard for the SSARS services. It amends the standards for review, compilation and preparation engagements to align them with quality management concepts, emphasizing the role of the engagement partner in managing and achieving engagement quality. It also contains several updates and clarifications outside quality management. It is the SSARS counterpart of SAS 146 for audits and SSAE No. 23 for attestation engagements.
The engagement-level themes are the same across the three:
- The engagement partner's responsibility for direction, supervision and review of the team's work is clarified
- Documentation requirements are enhanced, including review of documentation at appropriate times during the engagement
- Where an engagement quality review applies under the firm's policies, the engagement has to be coordinated with it
SSARS 26 is effective for engagements with periods beginning on or after December 15, 2025, the same date as SAS 146 and SSAE 23. It works with SQMS No. 1, the firm's system of quality management, so the firm's system has to be in place for the engagement standard to operate. See the SQMS 1 guide.
Which engagements and which dates?
| Engagement | First period under SSARS 25 | First period under SSARS 26 |
|---|---|---|
| Review of December 31 financial statements | Periods ending on or after December 15, 2021 | Year beginning January 1, 2026 (December 31, 2026 year-end) |
| Review of June 30 financial statements | Year ended June 30, 2022 | Year beginning July 1, 2026 (June 30, 2027 year-end) |
| Compilation or preparation | Not applicable, SSARS 25 revised AR-C 90 | Same SSARS 26 dates as above |
A December 31, 2025 review is therefore the last one performed without the SSARS 26 engagement-level requirements, because that period began January 1, 2025.
How should the firm adapt?
Practice observations built from the standards' stated aims, not a list the standards prescribe:
- Record a materiality judgment in every review. A short memo is enough: benchmark, percentage, amount, and why. The review engagement analytical procedures workpaper is a natural place for the figure.
- Show partner involvement in the file. Reviews and compilations are often staffed by one manager with a partner sign-off at the end. SSARS 26 puts the weight on the partner's timely involvement and review of documentation. Dated touchpoints matter.
- Tie engagement terms to the firm's system. Update the review engagement letter and compilation engagement letter only where firm policy requires it; the SSARS 26 changes are mainly internal.
- Align the checklists. The compilation engagement checklist should carry the same partner-involvement and documentation points as the audit programs.
- Confirm who counts as the reviewer. Where firm policy calls for an engagement quality review on a review engagement, name the reviewer before fieldwork. See engagement quality review.
Illustration
Illustrative numbers only. A review client reports revenue of $4,000,000 and pretax income of $180,000. The accountant judges that users, a bank and two owners, focus on pretax income and sets materiality at 5% of pretax income: $180,000 x 5% = $9,000. Unadjusted differences found by analytics and inquiry are then compared to $9,000 individually and in total. A $12,000 unrecorded accrual exceeds that level and goes to management for correction. The file holds the memo, the calculation and the evaluation, which is the kind of record that shows materiality was applied.
Frequently asked questions
Does SSARS 25 apply to compilations?
No. SSARS 25 revised AR-C 90, the review standard. Compilations are covered by AR-C 80. SSARS 26 reaches compilations and preparations through quality management.
Is a review required to have a materiality figure?
AR-C 90 as revised by SSARS 25 has the accountant apply the materiality concept in designing procedures and evaluating misstatements. Writing down the level used, with the benchmark and reasoning, is the practical way to show it.
What is the difference between SSARS 26 and SQMS 1?
SQMS No. 1 is the firm's system of quality management. SSARS 26 sets the engagement-level responsibilities within review, compilation and preparation engagements. They work together.
Can a firm adopt SSARS 26 early?
The engagement standard depends on the firm's quality management system being in place, so it cannot be applied ahead of the firm's system. Read the effective date provisions in AR-C 60 for the precise terms.
Sources
- AICPA Accounting and Review Services Committee, SSARS No. 25, Materiality in a Review of Financial Statements and Adverse Conclusions; reported in Accounting Today, "AICPA harmonizes review standard with international and GAAS rules"
- AICPA Accounting and Review Services Committee, SSARS No. 26, Quality Management for an Engagement Conducted in Accordance With SSARS; Thomson Reuters Tax and Accounting, "Why SAS 146, SSARS No. 26 and SSAE No. 23 matter"
- AICPA Professional Standards, AR-C 60, 70, 80 and 90; SQMS No. 1
Related
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AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error