Earlier this year the AICPA Accounting Standards Board (ASB) issued a standard creating a new type of engagement, known as a Direct Examination Engagement.  The name of the standard creating this type of engagement is the Statement on Standards for Attestation Engagements (SSAE) No. 21, Direct Examination Engagements. 

SSAE No. 21 adds AT-C Section 206, Direct Examination Engagements; it supersedes AT-C Section 205, Examination Engagements and changes the section name to Assertion-Based Examination Engagements.  Additionally, it amends SSAE No. 18, Attestation Standards: Clarification and Recodification, and AT-C Section 105, Concepts Common to All Attestation Engagements.  SSAE No. 21 takes effect for practitioner’s reports dated on or after June 15, 2022, and early implementation is permitted.  

What is a Direct Examination Engagement? (AT-C Section 206)

In a direct examination engagement, the practitioner uses criteria to measure or evaluate an underlying subject matter and then provide an examination opinion that conveys the result of the measurement or evaluation.  The client is not responsible for first measuring or evaluating the subject matter prior to the practitioner.  Clients will be able to get an opinion on nonfinancial subject matters that they are unable to measure or evaluate in-house, due to lack of expertise or the complexity of the subject matter.

What are the practitioner’s objectives in a Direct Examination Engagement?

There are three main objectives when completing a direct examination engagement:

1. Obtaining reasonable assurance by measuring or evaluating the underlying subject matter against the criteria and performing other procedures to obtain sufficient evidence;

2. Expressing an opinion in a written report that conveys the results of the measurement or evaluation;

3. Communicating in accordance with the results of the practitioner’s procedures as required.

What are the practitioner’s objectives in Assertion-Based Examination Engagements?

1. Obtain reasonable assurance about whether the subject matter as measured or evaluated against the criteria is free from material misstatement;

2. Express an opinion in a written report about whether the subject matter is based on or in accordance with the criteria; or the responsible party’s - usually the client - assertion is fairly stated in all material requests;

3. Communicating further as required.

What is the difference between Direct Examination Engagements and Assertion-Based Examination Engagements?

While both types of examinations are considered reasonable assurance examinations, the responsible party is not required to measure or evaluate the underlying subject matter against set criteria and the responsible party does not have to provide a written assertion to the practitioner in a direct examination engagement.  In an assertion-based examination engagement, the client must measure or evaluate the underlying subject matter and must provide a written assertion.  For both types of engagements, the responsible party must accept responsibility for the underlying subject matter.  Direct examination engagements are considered a lower level of service in comparison to the assertion-based examination engagement.

What should a Practitioner Consider if the Responsible Party Chooses a Direction Examination Engagement?

1. The intended purpose of engagement.

2. How the report will be used.

3. Why the responsible party wants to obtain a direct examination report.

4. Why the responsible party has not measured or evaluated the underlying subject matter.

5. If the responsible party has measured or evaluated the underlying subject matter, then why does the responsible party want to provide an assertion.