SSARS Interpretation.

Interpretations are issued by the Accounting and Review Services Committee (ARSC) to provide guidance on the application of Statements on Standards for Accounting and Review Services (SSARSs). Interpretations are issued after all ARSC members have been provided an opportunity to consider and comment on whether the Interpretation is consistent with SSARSs. An Interpretation is not as authoritative as a SSARS, but members should be aware that they may have to justify a departure from an Interpretation if the quality of their work is questioned.

AR SECTION 9100

Interpretation of AR Section 100, "Compilation and Review of Financial Statements"

27. Applicability of Statements on Standards for Accounting and Review Services to Reviews of Nonissuers Who Are Owned by or Controlled by an Issuer

.104 Question--A subsidiary of an issuer (15) has requested that its financial statements be reviewed for the purpose of providing those subsidiary financial statements and the accountant's review report to a local bank as a condition of a new borrowing arrangement. Because the entity is a subsidiary of a public company, its auditors have applied auditing and review procedures in accordance with the professional standards of the Public Company Accounting Oversight Board (PCAOB) at the subsidiary level.

What authoritative standards should an accountant follow when engaged to review the separate financial statements of a subsidiary, which itself is not an issuer?

.105 Interpretation--SSARS No. 1 [section 100.04] defines a nonpublic entity as:

   Any entity other than (a) one whose securities
   trade in a public market either on a
   stock exchange (domestic or foreign) or in
   the over-the-counter market, including securities
   quoted only locally or regionally; (b)
   one that makes a filing with a regulatory
   agency in preparation for the sale of any
   class of its securities in a public market; or (c)
   a subsidiary, corporate joint venture, or other
   entity controlled by an entity covered by
   (a) or (b).

.106 The condition set forth in (c) above is intended to be read in the context of when the review of the subsidiary, corporate joint venture, or other entity is being performed for the purpose of the controlling entity (the issuer) meeting its reporting obligations as a result of conditions (a) or (b).

.107 For example, if a subsidiary is being reviewed at an interim period as part of an entity's filing of its consolidated interim financial statements with the Securities and Exchange Commission (SEC), then the review should be performed in accordance with PCAOB standards and SSARSs are not applicable because the review is in the context of the issuer meeting its reporting obligations as a result of conditions (a) or (b).

.108 However, in the situation where an accountant is engaged to review the financial statements of a subsidiary, corporate joint venture, or other entity that is not itself an issuer and the review report and reviewed financial statements are not being filed with the SEC, or another regulatory agency that requires the accountant to prepare the review report in accordance with PCAOB standards, the accountant should perform the review in accordance with SSARSs since the review engagement is not being performed in the context of the issuer meeting its reporting obligations as a result of conditions (a) or (b).

(15) An "issuer" as defined in section 2 of the Sarbanes-Oxley Act of 2002 means "an issuer (as defined in section 3 of the Securities and Exchange Act of 1934), the securities of which are registered under section 12 of that Act, or that is required to file reports under section 15(d), or that files or has filed a registration statement that has not yet become effective under the Securities Act of 1933, and that it has not withdrawn."