SSAE No. 21 – Direct Examination Engagements

If a CFO were asked to recount the assurance services that a CPA firm typically provides, he or she would likely recall audits performed under the statements on auditing standards (SAS) as well as reviews, compilations, and preparation engagements performed under the statements on standards for accounting and review services (SSARS). Many of these same CFOs may not be as familiar with examinations, reviews, and agreed-upon procedures engagements performed under the statements on standards for attestation engagement (SSAE). Either the American Institute of Certified Public Accountants (AICPA) Auditing Standards Board (ASB) or the AICPA’s Accounting and Review Services Committee (ARSC) have issued all of these standards. So, what’s the difference? The primary difference is that SASs and SSARSs apply to historical financial statements, and SSAEs do not.

In September 2020, the ASB issued SSAE No. 21, which adds a new section to the attestation standards—AT-C 206, Direct Examinations. This new section provides a pathway for CPAs to offer their clients additional services that were previously prohibited. Many individuals often need a CPA to provide a level of reasonable assurance on information that does not constitute a set of historical financial statements.

In addition to this, organizations often need assistance in measuring or evaluating the information by applying criteria because they do not possess the necessary expertise to do the measurement or evaluation themselves. The measurement and evaluation are often referred to by CPAs as management “going first.” Before SSAE No. 21, in an examination, management must go first or provide the CPA with a written assertion concerning the measurement and evaluation of the information against criteria. The new standard offers a pathway for CPAs to provide a reasonable level of assurance when management has not gone first.

SSAE No. 21 introduces new terms which are essential to grasp when management has not “gone first.”

• Underlying Subject Matter (USM) – the phenomenon that is being measured or evaluated
• Subject Matter Information (SMI) – the outcome of the measurement or evaluation against criteria

Two characteristics must be present for a direct engagement to be performed.

1. A party other than the CPA has to be responsible for the USM, and
2. the CPA is required to be independent of the USM.

SSAE No. 21 provides illustrative reports that offer examples of when a direct engagement would work.

• The CPA may evaluate a daycare’s safety practices and implementation of those practices based on criteria established by an educational organization in order to express an opinion on whether or not the daycare’s practices were following the criteria.
• The CPA may measure the return rates on a company’s investment transactions based on specified criteria and present the rates of return in a schedule of investment returns.

Direct engagements do not apply to examination engagements related to specific subject matter (e.g., prospective financial information, pro forma financial information, compliance attestation, controls at a service organization, and management’s discussion and analysis).

SSAE No. 21 is effective for reports date on or after June 15, 2022.

For more information and guidance regarding the implementation of SSAE No. 21 and the impact it may have on your organization, please reach out to your CRI professional.