Annual Compilation Update
2014
A RealisticApproach Seminars Conference Presentation
Topics to be Covered by Today’s Session
1. Statement on Standards for Accounting and
Review Services (SSARS) No. 19, Compilation
and Review Engagements
A. Chapter 1 – Framework for Performing and
Reporting on Compilation and Review Engagements
B. Chapter 2 – Compilation of Financial Statements
A RealisticApproach Seminar Presentation
2
Topics to be Covered by Today’s Session
2. SSARS 19 “Survivors” and Successors
A. SSARS No. 2 -- Reporting on Comparative Financial Statements
B. SSARS No. 3 -- Compilation Reports on Financial Statements
Included in Certain Prescribed Forms
C. SSARS No. 4 -- Communications Between Predecessor and
Successor Accountants
D. SSARS No. 6 -- Reporting on Personal Financial Statements
Included in Written Personal Financial Plans
E. SSARS No. 13 -- Compilation of Specified Elements, Accounts, or
Items of a Financial Statement
F. SSARS No. 14 -- Compilation of Pro Forma Financial Information
G. SSARS No. 20 -- Revised Applicability of Statements on Standards
for Accounting and Review Services
A RealisticApproach Seminar Presentation
3
Major Provisions of “Preparation-Level” of Service
1. Applies when the accountant is engaged to prepare
financial statements and not engaged to audit, review
or a compile those financial statements.
2. Requires an accountant include a legend on each page
of the financial statements stating that no assurance is
being provided.
3. Requires an engagement letter signed by both the
accountant and the client’s management.
4. Does not require independence, like any other nonattest bookkeeping/accounting services engagements.
5. Applies to financial statements with or without
disclosures.
A RealisticApproach Seminar Presentation
4
Possible Wording of Footer Appearing on Prepared
Financial Statements
The accompanying financial statements of
GAH Company as of and for the year (month,
quarter) ended December 31, 2014, were not
(compiled) reviewed or audited by me (us)
and, accordingly, I (we) do not express an
opinion, a conclusion, nor provide any
assurance on them.
A RealisticApproach Seminar Presentation
5
The Safety in SSARS
The Safety in SSARS is found in the
1. Effective Communication of the level of
responsibility the
2. Accountant intends to take to the
3. User(s) of the financial statement.
And
1. The Vehicle of Communication has been
2. Deemed to be the Accountant’s Report.
A RealisticApproach Seminar Presentation
6
SSARS Mantras
1.If it's not prohibited, it is
permitted and circumstantially
required.
A.Reactive vs.. Proactive service.
B. No requirement to look for
something, but if you find it (or it
finds you) it must be dealt with.
A RealisticApproach Seminar Presentation
7
SSARS Mantras
1. If it's not prohibited, it is permitted and circumstantially
required.
2. No dangling ends.
A. Formally known as a scope limitation.
B. Disclosure is usually good enough for
compiled financial information, but
C. Disclosure is never sufficient at the
review level of service.
A RealisticApproach Seminar Presentation
8
SSARS Mantras
1. If it's not prohibited, it is permitted and circumstantially
required.
2. No dangling ends.
3. There is no safety in the level of
service.
A. Reactive responsibility for matters in a
compilation or review
B. No matter can be dismissed based on
the level of service (it’s only a
compilation)
A RealisticApproach Seminar Presentation
9
SSARS Mantras
1. If it's not prohibited, it is permitted
and circumstantially required.
2. No dangling ends.
3. There is no safety in the level of
service.
4. When in doubt – issue a report.
A RealisticApproach Seminar Presentation
10
SSARS 19 Chapter 1 – Framework – Chapter
Composition
1. Definitions
2. Objectives and Limitations of Compilation
and Review engagements
3. Professional requirement – terminology
4. Compilation and Review Hierarchy
5. Elements of a Compilation or Review
engagement
6. Materiality – and the SSARS level of service
A RealisticApproach Seminar Presentation
11
SSARS 19 Chapter 1 – Framework – Definitions
3. Assurance Engagement
A. Third-party accountant issues a report
that is designed to
1) Enhance the confidence of
a. Management and/or
b. Third Parties
B. Regarding financial statement
1) Evaluation or
2) Measurement outcomes
C. With respect to an AFRF
A RealisticApproach Seminar Presentation
12
SSARS 19 Chapter 1 – Framework – Definitions
4.Attest Engagement
A.Requires independence
B. Examples of attest engagements
1)Audit
2)Review
3)Compilation
A RealisticApproach Seminar Presentation
13
SSARS 19 Chapter 1 – Framework – Definitions
5. Financial Statement – A structured representation of
A. Historical financial information (including notes)
B. Intended to communicate – at the entity level
1) Resources and obligations
2) At a point in time (position statement), or
3) Over a period of time (flow statement)
C. In accordance with a FRF
A RealisticApproach Seminar Presentation
14
SSARS 19 Chapter 1 – Framework – Definitions
6. Management, those
A. With Executive responsibility for operations and,
B. A given individual may also be a member of
“those charged with governance”
7. Non-Issuer
A. Generally, Non-Public entities
B. Any entity other than one that
1) Files under section 12 or 15d of the Securities
Exchange Act of 1934, or
2) Has a pending registration statement (Securities Act
of 1933) A RealisticApproach Seminar Presentation
15
SSARS 19 Chapter 1 – Framework – Definitions
10.Submission (of financial statements)
A. To management -- Rules out directly to other
than management,
B. Does not address manner of submission, and
C. Continues the concept of presentations that are
other than “financial statements”
1) Formerly referred to as “pre-ssars” presentations
2) Consider two SSARS “survivors”
a. SSARS No. 13, Compilation of Specified Elements,
Accounts, or Items of a financial statement, and
b. SSARS No. 14, Compilation of Pro Forma Financial
Information
A RealisticApproach Seminar Presentation
16
SSARS 19 Chapter 1 – Framework – Definitions
11.Third Party – Defined in the negative, as being
anyone, or entity, other than members of
management.
12.Those Charged with Governance
A. Person, or Persons
B. With oversight responsibility, at the strategic level
C. For matters relating to
1) Obligations of the entity, as well as
2) The financial reporting process.
D. Not management, unless he or she has management
responsibilities (see third-party, above)
A RealisticApproach Seminar Presentation
17
Terminology, as used in
Compilation and Review Services
1. Parties to a compilation or review engagement
A. Management (Responsible party) Responsible for.
1) Preparation, and
2) Presentation
B. (Third-party) Accountant
1) In public practice
2) Accountants, not in public practice, should not issue a SSARS
report.
C. Intended user(s).
1) Comprised of management, and others
2) Accountant has no (proactive) responsibility to identify other
users (but it is a good idea to know who will be using the
financial statements)
A RealisticApproach Seminar Presentation
18
Interpretation No. 8
The accompanying balance sheet of Company
GAH as of December 31, 2011, and the related
statements of income and cash flows for the
year then ended have been prepared by [name
of accountant], CPA. I have prepared such
financial statements in my capacity [describe
capacity, for example, as a director] of Company
GAH.
A RealisticApproach Seminar Presentation
19
Terminology, as used in
Compilation Services
1. Parties to a compilation or review engagement
A. Management (Responsible party) Responsible for.
1) Preparation, and
2) Presentation
B. (Third-party) Accountant
1) In public practice
2) Accountants, not in public practice, should not issue a SSARS
report.
C. Intended user(s).
1) Comprised of management, and others
2) Accountant has no (proactive) responsibility to identify other
users (but it is a good idea to know who will be using the
financial statements)
A RealisticApproach Seminar Presentation
20
Terminology, as used in
Compilation and Review Services
2. Identification of the Applicable Financial Reporting
Framework -- A Primary responsibility of
management and/or those charged with
governance.
3. Meaning of Financial Statement or Financial
Information
A. Includes
A. Complete set of financial statements, or
B. Subset of a complete set of financial statements
B. Individual FRF determines components of a complete
set of financial statements
C. Estimation in financial statements is made in the
context of the AFRF.
A RealisticApproach Seminar Presentation
21
Terminology, as used in
Compilation and Review Services
4. Evidence and SSARS services
A. Compilation – no responsibility to obtain or
accumulate evidence regarding
1) Accuracy, and/or
2) Completeness of financial statements
B. Review – The reviewing accountant should (must)
1) Perform procedures,
2) Accumulate evidence
A RealisticApproach Seminar Presentation
22
SSARS Hierarchy
1. Standards promulgated by the Accounting and
Review Services Committee (ARSC) of the
American Institute of Certified Public
Accountants (AICPA). – Authoritative.
2. Interpretative – recommendations on the
application of (authoritative) SSARS standards.
A. Appendixes to SSARS,
B. Relevant matters addressed in AICPA Audit and
Accounting Guides, and
C. AICPA Statements of Position
A RealisticApproach Seminar Presentation
23
SSARS Hierarchy
3. Other Compilation and/or Review Publications
A. No authoritative status (non-authoritative)
B. Accountant need not address other publications
to perform in accordance with professional
standards
C. Examples of other publications
1)
2)
3)
4)
Compilation and Review Alert (AICPA)
Professional articles
Continuing Professional Education programs
Textbooks.
A RealisticApproach Seminar Presentation
24
SSARS No. 19 – Chapter 2 – Compilation – Chapter
Composition
1. Establishment of an Understanding
2. Performance (Planning and Fieldwork)
Requirements
3. Documentation Requirements
4. Reporting on Compiled Financial
Statements
5. Going Concern and Compiled Financial
Statements
A RealisticApproach Seminar Presentation
25
SSARS No. 19 – Chapter 2 – Compilation – Chapter
Composition
6. Subsequent Events
7. Subsequent Discovery of Facts Existing
at the Date of the (Compilation) Report
8. Supplementary Information
9. Communications with Management,
and Others
10.Change in level of service
A RealisticApproach Seminar Presentation
26
Compilation – Establishment of an Understanding
1. The engagement understanding (letter) should be
A. With management (sometimes, those charged with
governance), and
B. In writing.
2. The content of the understanding should include
A. Engagement objectives,
B. A recitation of
1) Management responsibilities, and
2) Accountant responsibilities
C. Engagement limitations
A RealisticApproach Seminar Presentation
27
Compilation – Establishment of an Understanding
3. Minimum, specific, elements of the
understanding
A. The objective of a compilation is to assist
management in its presentation of financial
statements,
B. Information incorporated in the compiled financial
statements
1) Is the representation of management, and
2) No effort will be made by the compiling accountant to
obtain assurance with respect to the AFRF.
A RealisticApproach Seminar Presentation
28
Compilation – Establishment of an Understanding
3. Minimum, specific, elements of the
understanding (continued)
C. Management is responsible for
1) Preparation and presentation of financial statements in
accordance with an AFRF,
2) Internal control matters relating to design,
implementation, and maintenance of the system
3) Prevention and detection of fraud
4) Identification and compliance with applicable laws
and/or regulations
5) Provision of all accounting records, and other
information, to the compiling accountant
A RealisticApproach Seminar Presentation
29
Compilation – Establishment of an Understanding
3. Minimum, specific, elements of the
understanding (continued)
D. The compiling accountant is responsible for seeing
to it that the engagement is conducted in
accordance with SSARS standards.
E. A statement that a compilation differs significantly
from a review or audit of financial statements.
1) Performance of procedures,
2) Understanding – risk assessment procedures
3) Testing of accounting records
A RealisticApproach Seminar Presentation
30
Compilation – Establishment of an
Understanding
3. Minimum, specific, elements of the understanding
(continued)
F. A compilation engagement cannot be relied upon to
disclose
1) Fraud, and/or
2) Illegal acts.
G. The accountant will inform an appropriate level of
management (or those charged with governance) of
identified
1) Material errors,
2) Evidence of fraud, or
3) Matters that may constitute an illegal act
H. Matters related to (anticipated/identified)
independence impairment
A RealisticApproach Seminar Presentation
31
Compilation – Establishment of an Understanding
3. Minimum, specific, elements of the
understanding (continued)
I. Other matters, as applicable, to a particular
compilation engagement
1) When financial statements are for management use only
(old SSARS 8) -- Management’s representation of its
understanding, and agreement that the financial
statements will not be used by any third party
2) Material departures from the AFRF may be identified, but
the effect(s) not quantified
3) OSAD option, and/or
4) Supplementary information will accompany the basic
financial statements
A RealisticApproach Seminar Presentation
32
Compilation – Performance
(Planning & Fieldwork) Requirements
1. Compiling accountants should understand the
industry in which their client operates
A. Sufficient to be aware of the proper form of
financial statements in that industry
B. Such knowledge may be obtained from sources
such as
1)
2)
3)
4)
5)
Prior experience,
AICPA Guides,
Industry publications,
Financial statements of others in the same industry, or
Continuing Professional Education
A RealisticApproach Seminar Presentation
33
Compilation – Performance
(Planning & Fieldwork) Requirements
2. Compiling accountants should possess
knowledge regarding their client in the
following areas:
A. Client business practices and/or policies
(normally obtained through inquiry and
experience), and
1) Organization
2) Operating characteristics,
3) Assets, Liabilities, revenues, and expenses
A RealisticApproach Seminar Presentation
34
Compilation – Performance
(Planning & Fieldwork) Requirements
2. Compiling accountants should possess
knowledge regarding their client in the
following areas (continued):
B. Accounting principles and practices used by the
client organization in the following areas:
1)
2)
3)
4)
5)
Measurement,
Recognition,
Recording of transactions,
Identification of matters to be disclosed,
Departures from industry conventional practices
A RealisticApproach Seminar Presentation
35
Compilation – Performance
(Planning & Fieldwork) Requirements
3. Compiling accountants are required to read
the financial statements prior to submitting
the financial statements to their client
A. Form
B. Content, in the following areas
1) Arithmetic,
2) Obvious
a. Clerical errors,
b. Departures (un-disclosed) from the AFRF
c. Omission of, or inappropriate, disclosure
A RealisticApproach Seminar Presentation
36
Compilation – Performance
(Planning & Fieldwork) Requirements
4. Other (performance) procedures
A. There are no other performance requirements set
forth in SSARS, however
B. SAARS is (remains) a reactive-type of service -- If the
accountant becomes aware of financial a financial
statement or disclosure matter, such matters may
not be left unresolved
1) Any such matters should be provided to client
management for their consideration of any effect on the
financial statements
2) If the client refuses to revise what may be material
misstatement, the accountant should withdraw from the
engagement A RealisticApproach Seminar Presentation
37
Compilation – Documentation Requirements
1. Sufficient, in detail, to provide a “clear
understanding” of the work performed during the
engagement
2. In some cases, oral explanations may constitute
documentation
3. Specifically identified (rules-based -- required)
documentation
A. Engagement letter,
B. Significant findings and/or issues identified during the
engagement, as well as their resolution
C. Communications with management regarding
(potential) fraud and/or illegal acts
A RealisticApproach Seminar Presentation
38
Compilation – Reporting Considerations
1. A written compilation report is required by
SSARS 19 in the following circumstances
A. A third-party accountant is engaged to
compile financial statements, and
B. It is reasonably expected that the financial
statements will be
1) Submitted by the compiling accountant, and
2) Used by third parties (any person other than
management of the client entity)
A RealisticApproach Seminar Presentation
39
Compilation – Reporting Considerations
Example Components of the
Standard Accountants’
Compilation Report
A RealisticApproach Seminar Presentation
40
Compilation – Reporting Considerations – Elements
1. Each compilation report should be titled
A. Clear indication that the report is the
“accountant’s compilation” report
B. The term “independent” (if that is the case) may
be included in the title
2. The accountant’s report should be addressed
to whomever engaged the accountant to
compile the financial statements
(management or those charged with
governance).
A RealisticApproach Seminar Presentation
41
Compilation – Reporting
Considerations
3. The report should include an introductory (Scopetype) paragraph that discloses the following
A. The (legal) name of the entity for which compiled
financial statements were prepared,
B. A statement that the financial statements were
compiled,
C. Identification of the
1) Financial statements covered by the report, and
2) Date(s) and/or period(s) covered by the report
D. Disclaimer of audit or review responsibility
1) No assurance
2) In accordance with an AFRF
A RealisticApproach Seminar Presentation
42
SSARS 19 Compilation Report
Paragraph 1 – Introductory (Scope) GAAP
We (I) have compiled the accompanying balance
sheet of RAS Company as of December 31, 2012,
and the related statements of income and
retained earnings, and cash flows for the year
then ended. We (I) have not audited or reviewed
the accompanying financial statements and,
accordingly, do not express an opinion or
provide any assurance about whether the
financial statements are in accordance with
accounting principles generally accepted in the
United States of America.
A RealisticApproach Seminar Presentation
43
SSARS 19 Compilation Report
Paragraph 1 – Introductory (Scope) OCBOA
We (I) have compiled the accompanying balance
sheet – (basis of accounting) of RAS Company as of
December 31, 2012, and the related statements of
income and retained earnings – (basis of
accounting) , and cash flows – (basis of accounting)
for the year then ended. We (I) have not audited or
reviewed the accompanying financial statements
and, accordingly, do not express an opinion or
provide any assurance about whether the financial
statements are in accordance with the (income
tax/cash) basis of accounting.
A RealisticApproach Seminar Presentation
44
SSARS 19 Compilation Report
Paragraph 1 – Introductory (Scope) IFRS
We (I) have compiled the accompanying balance
sheets of GAH Company as of December 31, 2011
and 2012, and the related statements of income,
retained earnings, and cash flows for the years then
ended. We (I) have not audited or reviewed the
accompanying
financial
statements
and,
accordingly, do not express an opinion or provide
any assurance about whether the financial
statements are in accordance with International
Financial Reporting Standards as issued by the
International Accounting Standards Board.
A RealisticApproach Seminar Presentation
45
Compilation – Reporting Considerations
4. Recitation of management’s
responsibility in a compilation
engagement -- Management is responsible
for the following
A. Preparation of financial statements,
B. Fair presentation of the financial statements
C. In accordance with an AFRF, and
D. For the system of internal control, which
includes the financial reporting objective
A RealisticApproach Seminar Presentation
46
SSARS 19 Compilation Report
Paragraph 2 – Management Responsibility
Management is responsible for the
preparation and fair presentation of the
financial statements in accordance with
(accounting principles generally accepted in
the United States of America/the cash basis
of accounting) and for designing,
implementing, and maintaining internal
control relevant to the preparation and fair
presentation of financial statements.
A RealisticApproach Seminar Presentation
47
Compilation – Reporting Considerations
5. Recitation of accountant’s responsibility in a
compilation
A. Conduct the compilation engagement in
accordance with SSARS,
B. Compiling accountant assists management in
management’s presentation of financial
information
C. No undertaking, on the part of the compiling
accountant to
1) Provide assurance (negative) as to
2) Need for material modifications
A RealisticApproach Seminar Presentation
48
SSARS 19 Compilation Report
Paragraph 3 – Accountant Responsibility
Our (my) responsibility is to conduct the
compilation in accordance with Statements on
Standards for Accounting and Review Services
issued by the American Institute of Certified
Public Accountants. The objective of a compilation
is to assist management in presenting financial
information in the form of financial statements
without undertaking to obtain or provide any
assurance that there are no material modifications
that should be made to the financial statements.
A RealisticApproach Seminar Presentation
49
Compilation – Reporting Considerations
6. The compilation report should be
signed by the accountant/firm
A. Manual or
B. Printed signatures are acceptable forms
7. The accountant’s report should be
dated, as of the date the compilation
was completed.
A RealisticApproach Seminar Presentation
50
Possible Wording for a Standard
SSARS 21 Compilation Report
Management is responsible for the accompanying financial statements of GAH
Company, which comprise the balance sheet as of December 31, 20X5 and the
related statements of income, changes in stockholders’ equity, and cash flows for
the year then ended, and the related notes to the financial statements in
accordance with accounting principles generally accepted in the United States of
America. I 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 American Institute of Certified
Public Accountants. I did not audit or review the financial statements nor was I
required to perform any procedures to verify the accuracy or completeness of the
information provided by management. Accordingly, I do not express an opinion, a
conclusion, nor provide any form of assurance on these financial statements.
A RealisticApproach Seminar Presentation
51
Additional Paragraphs to Standard Compilation
Report
 Management has elected to omit substantially
all the disclosures ordinarily included in financial
statements prepared in accordance with the tax
basis of accounting. If the omitted disclosures
were included in the financial statements, they
might influence the user’s conclusions about the
company’s assets, liabilities, equity, revenue, and
expenses. Accordingly, the financial statements
are not designed for those who are not informed
about such matters.
A RealisticApproach Seminar Presentation
52
Additional Paragraphs to Standard
Compilation Report
 The financial statements are prepared in
accordance with the tax (cash) framework of
accounting, which is a framework of
accounting other than accounting principles
generally accepted in the United States of
America.
 I am (we are) not independent with respect
to XYZ Company.
A RealisticApproach Seminar Presentation
53
Compilation – Reporting Considerations
8. Other matters
A. Compilation procedures should not be
described, in the report
B. Each page of the financial statements should
have an appropriate footer referencing
1) The accountant’s compilation report (required)
2) Independence (optional, when independent)
C. OCBOA presentations must include
1) A description of the OCBOA (cash/income tax),
2) Primary differences from GAAP, and
3) Disclosures, similar to GAAP, for common elements
A RealisticApproach Seminar Presentation
54
Compilation – Reporting Considerations
9. Omission of Substantially All Disclosures (OSAD)
A. A client request (as opposed to a client-directive)
B. That may be acceded to by the compiling
accountant if the request is
1) Related to expediency, and the intended users are
already familiar with such matters, and
2) Not an attempt to mislead through omission
C. Requires an additional paragraph, stating
1) Management has elected to omit the disclosures,
2) If the disclosures were included, they might influence,
and
3) Are not designed for users who are not already informed
A RealisticApproach Seminar Presentation
55
Compilation – Reporting Considerations
9. Omission of Substantially All Disclosures
(OSAD)
D. There are times when certain disclosures, but
not all disclosures, are included in financial
statements.
1) The decision to include “selected Information” is
made by management, but the need may come from
a. Management,
b. Client, or
c. Compiling accountant inputs
2) Requires the standard (appropriate) OSAD paragraph
in the accountant’s report, plus
3) Notation on pages where disclosure(s) are made –
“Selected Information – Substantially All Disclosures
Required by (insert AFRF) Are Not Included”
A RealisticApproach Seminar Presentation
56
Compilation – Reporting Considerations
10. Independence reporting considerations
A. If a compiling accountant is not independent,
the accountant’s report must be modified to
disclose the lack of independence (This is the
“final paragraph” of the report.)
B. The disclosure of a lack of independence should
be styled – “ I am (We are) not independent
with respect to (name the client entity).
C. Compiling accountant may disclose reason(s)
for the lack of independence
1) Optional – not required, and
2) In for a penny, in for a pound -- All reasons for the
lack of independence must be disclosed
A RealisticApproach Seminar Presentation
57
Compilation – Other Matters
2. Known AFRF deficiencies – If the compiling
accountant becomes aware of a deficiency, the
accountant has two choices
A. Add an additional paragraph to the compilation
report that discloses the following
1) Nature of the departure, and
2) If already determined by management, the effect, or
3) A statement that the effect has not been determined
B. Request/require that management “cure” the
deficiency in the financial statements
1) Approach taken when disclosure, alone, is not sufficient
2) Accountant should withdraw from the engagement if
management will not cure the deficiency
A RealisticApproach Seminar Presentation
58
Compilation – Other Matters
3. Additional information in the accountant’s
compilation report
A. The compiling accountant may, but is not
required to, add additional information in the
report to emphasize matters already disclosed in
the body of the financial statements
B. Examples of matters that an accountant may
wish to emphasize include
1) Uncertainties
2) Related party dealings
3) Other matters of significance – already within the
body of the financial statements.
A RealisticApproach Seminar Presentation
59
Compilation and Going Concern
1. Compiling accountants have no pro-active
responsibility to consider possibility of going
concern (reactive responsibility, only)
2. If going concern, within a one-year period (the
definitional “reasonable period of time”) from
the financial statement date, appears to be an
(a potential) issue, the compiling accountant
should
A. Refer the matter to management for its
consideration and conclusion regarding the
matter
B. Consider the reasonableness of
management’s response.
A RealisticApproach Seminar Presentation
60
Compilation and Going Concern
3. If, in the compiling accountant’s opinion,
management’s conclusions are not reasonable,
or accurate, the accountant should handle the
matter as a departure from an AFRF
4. While there is no requirement to do so in
SSARS, a compiling accountant may wish to add
an emphasis paragraph to his or her report.
A. This option supposes that going concern is a
disclosure made within the financial statements
B. It is not appropriate to use the wording provided
in auditing standards guidance
A RealisticApproach Seminar Presentation
61
Compilation and Going Concern
4. Interpretation No. 12, Reporting on an
Uncertainty, Including an Uncertainty About
an Entity’s Ability to Continue as a Going
Concern, provides suggested wording:
As discussed in Note X, certain conditions
indicate that the Company may be unable to
continue as a going concern. The accompanying
financial statements do not include any
adjustments that might be necessary should the
Company be unable to continue as a going
concern.
A RealisticApproach Seminar Presentation
62
Compilation – Subsequent Events
1. A compiling accountant has a reactive
responsibility with respect to each type of
subsequent event
A. Alpha (estimation refinement) event, and
B. Beta (event occurs post-financial-statement-date)
2. Accountant may become aware of a subsequent
event either
A. In the course of performing the engagement, or
B. After the completion of the engagement, but before
the financial statements are issued
A RealisticApproach Seminar Presentation
63
Compilation – Subsequent Events
3. The compiling accountant should refer identified
subsequent events to management, for
management’s consideration
A. Of potential adjustment of the financial statements
and/or
B. Adequacy of disclosure regarding the event
4. If the compiling accountant believes that the
subsequent event is not adequately reflected
and/or disclosed, the matter should be treated as a
departure from the AFRF
5. Subsequent events may be the subject of an
emphasis paragraph in the accountant’s report,
provided the matter is (already) disclosed in the
body of the financial statements
A RealisticApproach Seminar Presentation
64
Compilation – Subsequent Discovery of Facts
Existing at the Date of the Report
1. A compiling accountant has no responsibility,
subsequent to the date of the accountant’s report,
to perform additional compilation procedures.
However, if an accountant does become aware of
additional matters he or she must follow up on
those matters.
2. The accountant has a duty to investigate the matter
for the purpose of
A. Ascertaining the credibility of the information, and
B. Determining whether that information would have
significantly changed the
1) Content of the financial statements, and/or
2) The accountant’s report.
A RealisticApproach Seminar Presentation
65
Compilation – Subsequent Discovery of Facts
Existing at the Date of the Report
3. The matter(s) should be discussed with an
appropriate level of client management and/or
those charged with governance to enlist their
assistance with the investigation of the matter(s).
4. The accountant should take additional steps if
A. His or her report would have been different if the
information had been known at the report date, and
B. It is likely that users
1) Are (still) using the financial statements, and
2) The new information would be significant to those users
A RealisticApproach Seminar Presentation
66
Compilation – Subsequent Discovery of Facts
Existing at the Date of the Report
5. When the accountant determines that disclosure
of the matter should be made, it should be done
in a manner such as
A. When issuance of subsequent financial statements is
imminent, the disclosure of the matter can be made
in those financial statements,
B. When revised financial statements are appropriate
the financial statements should include
1) Footnote disclosure of the reason for the revision,
2) The accountant may, but is not required to, add an
emphasis paragraph to the (revised) compilation report
A RealisticApproach Seminar Presentation
67
Compilation – Subsequent Discovery of Facts
Existing at the Date of the Report
5. When the accountant determines that
disclosure of the matter should be made, it
should be done in a manner such as
C. When the effect on the financial statements
cannot be determined without additional effort,
and issuance of revised financial statements is
not imminent
1) Users should be notified, by the client, that revised
financial statements will be issued as soon as open
items can be resolved, and
2) When applicable, a revised compilation report will be
issued, as well.
A RealisticApproach Seminar Presentation
68
Compilation – Subsequent Discovery of Facts Existing at the Date
of the Report
6. If a client refuses to disclose matters considered
significant by the compiling accountant by means of
one of the methods described above
A. The accountant should communicate the refusal to those
charged with governance, and
B. If the client does not make appropriate disclosure, the
accountant should (subject to advice from counsel)
notify
1) The client that the report must not be associated with the
financial statements,
2) Each of the following parties that the accountants report
should no longer be used
a.
b.
Any regulatory agencies that are users
Other users (financial statements and accountant’s report)
A RealisticApproach Seminar Presentation
69
Compilation – Subsequent Discovery of Facts Existing at the Date
of the Report
6. If a client refuses to disclose matters considered
significant by the compiling accountant by means
of one of the methods described above
C. Disclosure of such matters should be as precise and
objective as necessary to communicate the matter to
the parties and, at a minimum, include
1) A description of the subsequently identified information
2) The effect on the financial statements
3) An Indication that the client has not assisted in validation
of the disclosure (if that is the case), and
4) If the matter is valid, the accountant’s report should no
longer be associated with the financial statements
A RealisticApproach Seminar Presentation
70
Compilation – Subsequent Discovery of Facts Existing at the Date
of the Report
6. If a client refuses to disclose matters
considered significant by the compiling
accountant by means of one of the methods
described above
D. No disclosure is necessary regarding
subsequently identified matters unless the
accountant believes that the
1) Financial statements may be misleading, and
2) Accountants report should no longer be associated
with the financial statements because of a lack of
disclosure of the identified matter
A RealisticApproach Seminar Presentation
71
Compilation – Supplementary Information
1. When supplementary information is included
with compiled financial statements, the
compiling accountant has a reporting
obligation.
2. When a combined report is used, a statement
such as “The (identify the accompanying
information) is presented for purposes of
additional analysis and is not a required part
of the basic financial statements.” should be
added to the first paragraph of the
compilation report.
A RealisticApproach Seminar Presentation
72
Compilation – Supplementary Information
3. If the compiling accountant elects to use the
two-report approach for reporting on
supplementary information, that report should
include the following elements
A. A statement that the supplementary information is
presented for purposes of additional analysis
B. Supplementary information has been compiled
from information represented by management, and
C. The accountant has/does not
1) Audited or Reviewed the supplementary information and
2) Express an opinion or any assurance on the
supplementary information
A RealisticApproach Seminar Presentation
73
Compilation – Matters to be Communicated to
Management and Others
1. Compiling accountants have a communication
obligation when, and if, they become aware of
matters that indicate the potential that fraud or
illegal acts may have occurred.
2. The communication should be made to an
appropriate level of management and/or those
charged with governance.
3. The communication may be made
A. Orally, and documented in the working papers, or
B. In writing to the client and memorialized in the
working papersA RealisticApproach Seminar Presentation
74
Compilation – Matters to be Communicated to Management and
Others
4. Reporting line when senior officials of the
client may be involved -- If the fraud or illegal
act involves
A. Senior management, the accountant should
communicate with management at least one
level higher than the (potential) perpetrator, or
a member of those charged with governance
B. The/an owner of the client entity, the
accountant should consider resigning the
engagement.
A RealisticApproach Seminar Presentation
75
Compilation – Matters to be Communicated to
Management and Others
1. Disclosure of any client information, without
client permission to do so, is generally,
prohibited. However, there may be times when
matters related to fraud or illegal acts may be
required to be disclosed to certain third parties
without client permission to do so.
A. In response to legal and/or regulatory
requirements,
B. To a successor accountant, in response to a
predecessor accountant’s request, and
C. In response to a (valid) subpoena.
A RealisticApproach Seminar Presentation
76
If you have questions and/or
comments
A RealisticApproach Seminar Presentation
77