Tag Archives for " Preparation of Financial Statements "

selected disclosures
May 08

Selected Disclosures in Preparation and Compilation 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.

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, 2017

Note 1. Long-Term Debt.

ABC Company borrowed $450,000 on July 15, 2017, 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.

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?

efficient way to issue financial statements
Feb 16

The Most Efficient Way to Issue Financial Statements

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 (Section 70 of SSARS 21).

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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Bookkeeping or Preparation of Financial Statements
Jan 09

Bookkeeping or Preparation of Financial Statements: Being Clear About the Intended Service

By Charles Hall | Preparation, Compilation & Review

Many accountants have asked, “When am I subject to SSARS 21?” This question often arises when a CPA provides bookkeeping services using a cloud-based accounting package such as Quickbooks. Bookkeeping or preparation of financial statements–which is it? Why the confusion? Well, once the bookkeeping is complete, the CPA or the client can print the financial statements–and we know that SSARS 21 is triggered when we are engaged to prepare financial statements.

Bookkeeping or Preparation of Financial Statements

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Bookkeeping or Preparation of Financial Statements

Suppose you enter the client’s monthly transactions in QuickBooks, and you reconcile the bank statements. Now you or the client can print the financial statements. Have you unintentionally wandered into a requirement to follow SSARS 21? Let me answer this question with another question.

Has your client engaged you to prepare financial statements? If yes, then SSARS 21 is in play. If not, then compliance is not required. The AICPA says, “the accountant has only been engaged to prepare financial statements when the client has ‘hired’ the accountant to do so.”

Using QuickBooks to provide bookkeeping services does not–necessarily–mean you have been engaged to prepare financial statements. But how can you be clear? When in doubt spell it out–in an engagement letter. Use an engagement letter for all client services–even nonattest work such as bookkeeping. When you provide bookkeeping services, and the customer has not “hired” you to prepare financial statements, make it clear that you are not engaged to provide financial statements. The AICPA’s 2016/17 Audit Risk Alert–regarding Preparation services–advises that you might include this sentence when you are not engaged to prepare financial statements: This engagement does not contemplate us preparing financial statements.

More Information About Preparation Services

For more a fuller explanation regarding whether the use of QuickBooks triggers SSARS 21, click here.

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