Category Archives for "Preparation, Compilation & Review"

efficient way to issue financial statements
Mar 20

Issue Financial Statements in the Most Efficient Way

By Charles Hall | Preparation, Compilation & Review

What is the most efficient way to issue financial statements?

Tax basis financial statements without disclosure, using the Preparation of Financial Statements option (AR-C 70).

efficient way to issue financial statements

This answer assumes you are preparing financial statements in conjunction with a tax return and that those financial statements are issued separately—apart from the tax return—to your client.

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Special purpose reporting framework
Mar 19

Special Purpose Reporting Frameworks

By Charles Hall | Accounting and Auditing , Preparation, Compilation & Review

In this article, I provide information about various special purpose reporting frameworks (e.g., cash basis, modified-cash basis, and income tax basis) and how you can use them to create financial statements for your clients. 

Suppose you’ve been contacted by your client to prepare their financial statements and issue a compilation report. At first, you think, I’ll create the financials in accordance with GAAP, but then you remember there are special purpose reporting frameworks. Maybe the cash basis or income tax basis is a better option.

Special purpose reporting framework

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Compilation Engagements
Jan 08

AR-C 80: Definitive Guide to Compilations

By Charles Hall | Preparation, Compilation & Review

Knowing how to perform compilation engagements is important for CPAs. Below I provide an overview of the salient points of AR-C 80Compilation Engagements. I also provide a sample accountant’s compilation report.

AR-C 80

Compilation Guidance

The guidance for compilations is located in AR-C 80, Compilation Engagements.

Applicability of AR-C 80

The accountant should perform a compilation engagement when he is engaged to do so.

A compilation engagement letter should be prepared and signed by the accountant or the accountant’s firm and management or those charged with governance. An engagement letter to only prepare financial statements is not a trigger for the performance of a compilation engagement.

Previously (in the SSARS 19 days), the preparation and submission of financial statements to a client triggered the performance of a compilation engagement. Now, compilation engagement guidance is applicable only when the accountant is engaged to (requested to) perform a compilation. 

Objectives

The objectives of the accountant in a compilation engagement are to:

  • Assist management in the presentation of financial statements 
  • Report on the financial statements in accordance with the compilation engagement section of the SSARSs
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selected disclosures
May 08

Selected Disclosures in SSARS Engagements

By Charles Hall | Preparation, Compilation & Review

Do you ever want to include just one disclosure in your financial statements without providing all the notes? Selected disclosures can be included in certain situations, including when you omit substantially all disclosures. 

Do professional standards allow this? Yes. But only if you use AR-C 70 (the preparation guidance) or AR-C 80 (the compilation guidance).

selected disclosures

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Selected Disclosures in Compilations

As you probably already know, a CPA can issue compiled financial statements without disclosures as long as the compilation report discloses the omission. An example follows.

Management has elected to omit substantially all of the disclosures required by accounting principles generally accepted in the United States of America. If the omitted disclosures were included in the financial statements, they might influence the user’s conclusions about the Company’s financial position, results of operations and cash flows. Accordingly, the financial statements are not designed for those who are not informed about such matters.

If the financial statements include one or two notes, then the financial statements still omit substantially all of the disclosures, so the accountant (still) uses the wording in the preceding paragraph.

Sample Selected Disclosure

An example of a selected disclosure follows:

ABC Company

Selected Information –

Substantially All Disclosures Required by Accounting Principles

Generally Accepted in the United States of America are Not Included

December 31, 2020

Note 1. Long-Term Debt.

ABC Company borrowed $450,000 on July 15, 2020, from XYZ Bank. The rate of interest is 5%, and the loan is collateralized by equipment of the Company. Payments are $10,000 per month plus interest for two years with a balloon payment for the balance of the amount owed.

Additionally, you can omit substantially all disclosures in a preparation engagement.

Preparation Engagements

AR-C 70 says:

The accountant may prepare financial statements that include disclosures about only a few matters in the notes to the financial statements. Such disclosures may be labeled “Selected Information—Substantially All Disclosures Required by [the applicable financial reporting framework] Are Not Included.”

So, the selected-disclosure option is available in a Preparation of Financial Statements engagement. Include the required disclaimer at the bottom of the page such as “No assurance is provided on these financial statements.” 

Other Considerations

The accountant should consider whether management’s election to include only selected disclosures causes the financial statements to be misleading (for example, by omitting the disclosures that contain negative information). If so, the accountant should request that the financial statements be revised to include the omitted disclosures.

The selected-disclosure option is not available for financial statements subject to a review engagement. Such financial statements must be full disclosure.

What About You?

Do you ever use this selected-disclosure option? Any reservations about doing so?

financial statement references
Nov 03

Financial Statement References

By Charles Hall | Accounting , Preparation, Compilation & Review

What financial statement references are required at the bottom of financial statement pages? Is there a difference in the references in audited statements and those in compilations or reviews? What wording should be placed at the bottom of supplementary pages? Below I answer these questions.

financial statement references

Audited Financial Statements and Supplementary Information

First, let’s look at financial statement references in audit reports.

While generally accepted accounting principles do not require financial page references to the notes, it is a common practice to do so. Here are examples:

  • See notes to the financial statements.
  • The accompanying notes are an integral part of these financial statements.
  • See accompanying notes.

Accountants can also–though not required–reference specific disclosures on a financial statement page. For example, See Note 6 (next to the Inventory line on a balance sheet). It is my preference to use general references such as See accompanying notes.

Audit standards do not require financial statement page references to the audit opinion.

Supplementary pages should not include a reference to the notes or the opinion.

Preparation, Compilation, and Review Engagements

Now, let’s discuss references in preparation, compilation, and review engagements. 

Compilation and Review Engagements

The Statements on Standards for Accounting and Review Services (SSARS) do not require a reference (on financial statement pages) to the compilation or review report; however, it is permissible to do so. What do I do? I do not refer to the accountant’s report. I include See accompanying notes at the bottom of each financial statement page (when notes are included). This reference to notes, however, is not required, even when notes are included. (Notes can be omitted in compilation engagements.)

You are not required to include a reference to the accountant’s report on the supplementary information pages. Examples include:

  • See Accountant’s Compilation Report.
  • See Independent Accountant’s Review Report.

What do I do? I include a reference to the accountant’s report on each supplementary page. But, again, it’s fine to not include a reference to the report.

Preparation of Financial Statement Engagements

Additionally, SSARS provides a nonattest option called the preparation of financial statements (AR-C 70). This option is used by the CPA to issue financial statements that are not subject to the compilation standards. No compilation report is issued. AR-C 70 requires that the accountant either state on each page that “no assurance is provided” or provide a disclaimer that precedes the financial statements. AR-C 70 does not require that the financial statement pages refer to the disclaimer (if provided), but it is permissible to do so. Such a reference might read See Accountant’s Disclaimer.

If your AR-C 70 work product has supplementary information, consider including this same reference (See Accountant’s Disclaimer) on the supplementary pages.

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