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Annual Compilation Update 2014 A RealisticApproach Seminars Conference Presentation.

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1 Annual Compilation Update 2014 A RealisticApproach Seminars Conference Presentation

2 Topics to be Covered by Today’s Session 1.S tatement on S tandards for A ccounting and R eview S ervices (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 Presentation2

3 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 Presentation3

4 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 non- attest bookkeeping/accounting services engagements. 5.Applies to financial statements with or without disclosures. A RealisticApproach Seminar Presentation4

5 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 Presentation5

6 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 Presentation6

7 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 Presentation7

8 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 Presentation8

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. 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 Presentation9

10 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 Presentation10

11 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 Presentation11

12 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 Presentation12

13 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 Presentation13

14 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 Presentation14

15 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 Presentation15

16 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 Presentation16

17 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 Presentation17

18 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 Presentation18

19 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 Presentation19

20 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 Presentation20

21 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 Presentation21

22 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 Presentation22

23 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 Presentation23

24 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)Compilation and Review Alert (AICPA) 2)Professional articles 3)Continuing Professional Education programs 4)Textbooks. A RealisticApproach Seminar Presentation24

25 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 Presentation25

26 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 Presentation26

27 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 Presentation27

28 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 Presentation28

29 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 Presentation29

30 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 Presentation30

31 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 Presentation31

32 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 Presentation32

33 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)Prior experience, 2)AICPA Guides, 3)Industry publications, 4)Financial statements of others in the same industry, or 5)Continuing Professional Education A RealisticApproach Seminar Presentation33

34 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 Presentation34

35 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)Measurement, 2)Recognition, 3)Recording of transactions, 4)Identification of matters to be disclosed, 5)Departures from industry conventional practices A RealisticApproach Seminar Presentation35

36 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 Presentation36

37 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 Presentation37

38 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 Presentation38

39 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 Presentation39

40 Compilation – Reporting Considerations Example Components of the Standard Accountants’ Compilation Report A RealisticApproach Seminar Presentation40

41 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 Presentation41

42 Compilation – Reporting Considerations 3.The report should include an introductory (Scope- type) 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 Presentation42

43 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 Presentation43

44 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 Presentation44

45 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 Presentation45

46 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 Presentation46

47 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 Presentation47

48 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 Presentation48

49 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 Presentation49

50 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 Presentation50

51 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 Presentation51

52 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 Presentation52

53 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 Presentation53

54 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 Presentation54

55 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 Presentation55

56 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 Presentation56

57 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 Presentation57

58 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 Presentation58

59 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 Presentation59

60 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 Presentation60

61 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 Presentation61

62 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 Presentation62

63 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 Presentation63

64 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 Presentation64

65 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 Presentation65

66 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 Presentation66

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 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 Presentation67

68 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 Presentation68

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 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.Any regulatory agencies that are users b.Other users (financial statements and accountant’s report) A RealisticApproach Seminar Presentation69

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 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 Presentation70

71 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 Presentation71

72 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 Presentation72

73 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 Presentation73

74 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 papers A RealisticApproach Seminar Presentation74

75 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 Presentation75

76 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 Presentation76

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