The Accounting and Review Services Committee (ARSC) issued SSARS 22 Compilation of Pro Forma Financial Information. You may remember that ARSC did not address pro forma information in SSARS 21. SSARS 22 clarifies AR 120 Compilation of Pro Forma Information and codifies it as AR-C 120.
So what is pro forma information? It is a presentation that shows what the significant effects on historical financial information might have been had a consummated or proposed transaction (or event) occurred at an earlier date.
To understand SSARS 22, let’s answer a few questions.
Examples of pro forma information include presenting financial statements for the following:
Again we are providing financial information as though the transaction or event has–already–occurred.
In pro forma financial information, what should be disclosed?
Must the accountant consider his or her independence? Yes, since this is a compilation engagement. (Note: The preparation of the pro forma information is considered a nonattest service.)
Should the accountant perform acceptance and continuance procedures? Yes.
Is an engagement letter required? Yes, and it must be signed by the accountant’s firm and management or those charged with governance.
What compilation procedures should be performed?
Can the pro forma engagement be performed in conjunction with a compilation, review or an audit? Yes. Alternatively, the pro forma engagement can be performed separately.
What documentation is to be retained in the file?
Is a compilation report to be issued? Yes. (See sample report below.)
Is the accountant offering any assurance regarding the pro forma information? No.
Can the pro forma compilation report be added to the accountant’s report on historical financial statements? Yes. Alternatively, the pro forma compilation report can be presented separately.
What’s the effective date of SSARS 22? The standard is effective for compilation reports on pro forma financial information dated on or after May 1, 2017.
If you are not already providing pro forma information to clients, consider suggesting this service when appropriate. Clients may find pro forma information helpful in evaluating the potential sale of stock, the borrowing of funds for a project, or the sale of a part of the business.
Exhibit B of SSARS 22 provides the following sample compilation report on pro forma financial information:
Management is responsible for the accompanying pro forma condensed balance sheet of XYZ Company as of December 31, 20X1, and the related pro forma condensed statement of income for the year then ended (pro forma financial information), based on the criteria in Note 1. The historical condensed financial statements are derived from the financial statements of XYZ Company, on which I (we) performed a compilation engagement, and of ABC Company, on which other accountants performed a compilation engagement. The pro forma adjustments are based on management’s assumptions described in Note 1. (We) have performed a compilation engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. I (we) did not examine or review the pro forma financial information nor was (were) I (we) required to perform any procedures to verify the accuracy or completeness of the information provided by management. Accordingly, I (we) do not express an opinion, a conclusion, nor provide any form of assurance on the pro forma financial information.
The objective of this pro forma financial information is to show what the significant effects on the historical financial information might have been had the underlying transaction (or event) occurred at an earlier date. However, the pro forma condensed financial statements are not necessarily indicative of the results of operations or related effects on financial position that would have been attained had the above mentioned transaction (or event) actually occurred at such earlier date.
[Additional paragraph(s) may be added to emphasize certain matters relating to the compilation engagement or the subject matter.]
[Signature of accounting firm or accountant, as appropriate] [Accountant’s city and state]
[Date of the accountant’s report]
Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty-five years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention, The Why and How of Auditing, Audit Risk Assessment Made Easy, and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles consults with other CPA firms, assisting them with auditing and accounting issues.