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Annual Compilation Update 2014

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1 Annual Compilation Update 2014
A RealisticApproach Seminars Conference Presentation

2 Topics to be Covered by Today’s Session
Statement on Standards for Accounting and Review Services (SSARS) No. 19, Compilation and Review Engagements Chapter 1 – Framework for Performing and Reporting on Compilation and Review Engagements Chapter 2 – Compilation of Financial Statements When I started in public accounting – write-up work, etc. SSARS 1 – association SSARS 7 – submission Gone from 18 SSARS Stmts to 7 today A RealisticApproach Seminar Presentation

3 Topics to be Covered by Today’s Session
SSARS 19 “Survivors” and Successors SSARS No Reporting on Comparative Financial Statements SSARS No Compilation Reports on Financial Statements Included in Certain Prescribed Forms SSARS No Communications Between Predecessor and Successor Accountants SSARS No Reporting on Personal Financial Statements Included in Written Personal Financial Plans SSARS No Compilation of Specified Elements, Accounts, or Items of a Financial Statement SSARS No Compilation of Pro Forma Financial Information SSARS No Revised Applicability of Statements on Standards for Accounting and Review Services Stress that SSARS No. 19 does not replace all of the rules for SSARS Talk about the status of interpretations – especially the ones that address SSARS 1 #3 – Highest level of service #7 – Reporting when there are significant departures from GAAP “Because the significance and pervasiveness of the matters previously discussed makes it difficult to assess their impact on the financial statements taken as a whole, users of these financial statements should recognize that they might reach different conclusions about the company's financial position, results of operations, and cash flows if they had access to revised financial statements prepared in conformity with GAAP.” #13 – Performance of Additional Procedures #22 – Selected Information – clarification #29 – Going Concern #30 – IFRS “As disclosed in note X, the accompanying financial statements were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.” Talk about SSARS 13 & 14 being an option, as opposed to a requirement. A RealisticApproach Seminar Presentation

4 Major Provisions of “Preparation-Level” of Service
Applies when the accountant is engaged to prepare financial statements and not engaged to audit, review or a compile those financial statements. Requires an accountant include a legend on each page of the financial statements stating that no assurance is being provided. Requires an engagement letter signed by both the accountant and the client’s management. Does not require independence, like any other non-attest bookkeeping/accounting services engagements. Applies to financial statements with or without disclosures. A RealisticApproach Seminar Presentation

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 Presentation

6 A RealisticApproach Seminar Presentation
The Safety in SSARS The Safety in SSARS is found in the Effective Communication of the level of responsibility the Accountant intends to take to the User(s) of the financial statement. And The Vehicle of Communication has been Deemed to be the Accountant’s Report. A RealisticApproach Seminar Presentation

7 A RealisticApproach Seminar Presentation
SSARS Mantras If it's not prohibited, it is permitted and circumstantially required. Reactive vs.. Proactive service. No requirement to look for something, but if you find it (or it finds you) it must be dealt with. Discuss Re-Active vs. Pro-Active approach to engagements Re = SSARS Pro = SAS Doing too much, without a reason to do so, can make you aware of defects that you ordinarily wouldn’t be responsible for. Discuss 1136 Tenants – Start out with short form to establish the following points: Engagement letter Safety in SSARS Effective communication of The level of responsibility the accountant intends to be held to To financial statement users The communication vehicle is the report Introduce the idea of “plain-paper” level of service A RealisticApproach Seminar Presentation

8 A RealisticApproach Seminar Presentation
SSARS Mantras If it's not prohibited, it is permitted and circumstantially required. No dangling ends. Formally known as a scope limitation. Disclosure is usually good enough for compiled financial information, but Disclosure is never sufficient at the review level of service. A RealisticApproach Seminar Presentation

9 A RealisticApproach Seminar Presentation
SSARS Mantras If it's not prohibited, it is permitted and circumstantially required. No dangling ends. There is no safety in the level of service. Reactive responsibility for matters in a compilation or review No matter can be dismissed based on the level of service (it’s only a compilation) A RealisticApproach Seminar Presentation

10 A RealisticApproach Seminar Presentation
SSARS Mantras If it's not prohibited, it is permitted and circumstantially required. No dangling ends. There is no safety in the level of service. When in doubt – issue a report. This is the “chicken-soup” mantra A RealisticApproach Seminar Presentation

11 SSARS 19 Chapter 1 – Framework – Chapter Composition
Definitions Objectives and Limitations of Compilation and Review engagements Professional requirement – terminology Compilation and Review Hierarchy Elements of a Compilation or Review engagement Materiality – and the SSARS level of service Framework chapter is essentially addressing those matters that are common to both compilation and review levels of service. A RealisticApproach Seminar Presentation

12 SSARS 19 Chapter 1 – Framework – Definitions
Assurance Engagement Third-party accountant issues a report that is designed to Enhance the confidence of Management and/or Third Parties Regarding financial statement Evaluation or Measurement outcomes With respect to an AFRF A RealisticApproach Seminar Presentation

13 SSARS 19 Chapter 1 – Framework – Definitions
Attest Engagement Requires independence Examples of attest engagements Audit Review Compilation A RealisticApproach Seminar Presentation

14 SSARS 19 Chapter 1 – Framework – Definitions
Financial Statement – A structured representation of Historical financial information (including notes) Intended to communicate – at the entity level Resources and obligations At a point in time (position statement), or Over a period of time (flow statement) In accordance with a FRF Clarified that a SSARS covered financial statement is “historic” – Prospective is not covered by SSARS Talk – principally financial in nature Dropped the “derived from accounting records” element in SSARS 1 A RealisticApproach Seminar Presentation

15 SSARS 19 Chapter 1 – Framework – Definitions
Management, those With Executive responsibility for operations and, A given individual may also be a member of “those charged with governance” Non-Issuer Generally, Non-Public entities Any entity other than one that Files under section 12 or 15d of the Securities Exchange Act of 1934, or Has a pending registration statement (Securities Act of 1933) A RealisticApproach Seminar Presentation

16 SSARS 19 Chapter 1 – Framework – Definitions
Submission (of financial statements) To management -- Rules out directly to other than management, Does not address manner of submission, and Continues the concept of presentations that are other than “financial statements” Formerly referred to as “pre-ssars” presentations Consider two SSARS “survivors” SSARS No. 13, Compilation of Specified Elements, Accounts, or Items of a financial statement, and SSARS No. 14, Compilation of Pro Forma Financial Information Contrast association and submission Note that submission is now formally limited to those defined as management A RealisticApproach Seminar Presentation

17 SSARS 19 Chapter 1 – Framework – Definitions
Third Party – Defined in the negative, as being anyone, or entity, other than members of management. Those Charged with Governance Person, or Persons With oversight responsibility, at the strategic level For matters relating to Obligations of the entity, as well as The financial reporting process. Not management, unless he or she has management responsibilities (see third-party, above) A RealisticApproach Seminar Presentation

18 Terminology, as used in Compilation and Review Services
Parties to a compilation or review engagement Management (Responsible party) Responsible for. Preparation, and Presentation (Third-party) Accountant In public practice Accountants, not in public practice, should not issue a SSARS report. Intended user(s). Comprised of management, and others 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 basic premise underlying the performance of a compilation or review engagement is that the accountant is performing an attest service on subject matter that is the responsibility of the client’s management. Therefore, an accountant is precluded from issuing an unmodified compilation report or a review report on financial statements when management is unwilling to accept responsibility for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework or to take responsibility for the design, implementation, and maintenance of internal control. A RealisticApproach Seminar Presentation

19 A RealisticApproach Seminar Presentation
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

20 Terminology, as used in Compilation Services
Parties to a compilation or review engagement Management (Responsible party) Responsible for. Preparation, and Presentation (Third-party) Accountant In public practice Accountants, not in public practice, should not issue a SSARS report. Intended user(s). Comprised of management, and others 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 basic premise underlying the performance of a compilation or review engagement is that the accountant is performing an attest service on subject matter that is the responsibility of the client’s management. Therefore, an accountant is precluded from issuing an unmodified compilation report or a review report on financial statements when management is unwilling to accept responsibility for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework or to take responsibility for the design, implementation, and maintenance of internal control. A RealisticApproach Seminar Presentation

21 Terminology, as used in Compilation and Review Services
Identification of the Applicable Financial Reporting Framework -- A Primary responsibility of management and/or those charged with governance. Meaning of Financial Statement or Financial Information Includes Complete set of financial statements, or Subset of a complete set of financial statements Individual FRF determines components of a complete set of financial statements Estimation in financial statements is made in the context of the AFRF. A complete set of financial statements might include a balance sheet, an income statement, a statement of retained earnings, a cash flow statement, and related notes. For some other financial reporting frameworks, a single financial statement and the related notes might constitute a complete set of financial statements. A RealisticApproach Seminar Presentation

22 Terminology, as used in Compilation and Review Services
Evidence and SSARS services Compilation – no responsibility to obtain or accumulate evidence regarding Accuracy, and/or Completeness of financial statements Review – The reviewing accountant should (must) Perform procedures, Accumulate evidence Accumulate = Document A RealisticApproach Seminar Presentation

23 A RealisticApproach Seminar Presentation
SSARS Hierarchy Standards promulgated by the Accounting and Review Services Committee (ARSC) of the American Institute of Certified Public Accountants (AICPA). – Authoritative. Interpretative – recommendations on the application of (authoritative) SSARS standards. Appendixes to SSARS, Relevant matters addressed in AICPA Audit and Accounting Guides, and AICPA Statements of Position Interpretative is unique to SSARS A RealisticApproach Seminar Presentation

24 A RealisticApproach Seminar Presentation
SSARS Hierarchy Other Compilation and/or Review Publications No authoritative status (non-authoritative) Accountant need not address other publications to perform in accordance with professional standards Examples of other publications Compilation and Review Alert (AICPA) Professional articles Continuing Professional Education programs Textbooks. Does not use the term “non-authoritative” but this is what it is. Discuss significance of materials in this level, especially the Alert A RealisticApproach Seminar Presentation

25 SSARS No. 19 – Chapter 2 – Compilation – Chapter Composition
Establishment of an Understanding Performance (Planning and Fieldwork) Requirements Documentation Requirements Reporting on Compiled Financial Statements Going Concern and Compiled Financial Statements A RealisticApproach Seminar Presentation

26 SSARS No. 19 – Chapter 2 – Compilation – Chapter Composition
Subsequent Events Subsequent Discovery of Facts Existing at the Date of the (Compilation) Report Supplementary Information Communications with Management, and Others Change in level of service A RealisticApproach Seminar Presentation

27 Compilation – Establishment of an Understanding
The engagement understanding (letter) should be With management (sometimes, those charged with governance), and In writing. The content of the understanding should include Engagement objectives, A recitation of Management responsibilities, and Accountant responsibilities Engagement limitations A RealisticApproach Seminar Presentation

28 Compilation – Establishment of an Understanding
Minimum, specific, elements of the understanding The objective of a compilation is to assist management in its presentation of financial statements, Information incorporated in the compiled financial statements Is the representation of management, and No effort will be made by the compiling accountant to obtain assurance with respect to the AFRF. A RealisticApproach Seminar Presentation

29 Compilation – Establishment of an Understanding
Minimum, specific, elements of the understanding (continued) Management is responsible for Preparation and presentation of financial statements in accordance with an AFRF, Internal control matters relating to design, implementation, and maintenance of the system Prevention and detection of fraud Identification and compliance with applicable laws and/or regulations Provision of all accounting records, and other information, to the compiling accountant A RealisticApproach Seminar Presentation

30 Compilation – Establishment of an Understanding
Minimum, specific, elements of the understanding (continued) The compiling accountant is responsible for seeing to it that the engagement is conducted in accordance with SSARS standards. A statement that a compilation differs significantly from a review or audit of financial statements. Performance of procedures, Understanding – risk assessment procedures Testing of accounting records A RealisticApproach Seminar Presentation

31 Compilation – Establishment of an Understanding
Minimum, specific, elements of the understanding (continued) A compilation engagement cannot be relied upon to disclose Fraud, and/or Illegal acts. The accountant will inform an appropriate level of management (or those charged with governance) of identified Material errors, Evidence of fraud, or Matters that may constitute an illegal act Matters related to (anticipated/identified) independence impairment Warn about the “inconsequential” exception for communication. A RealisticApproach Seminar Presentation

32 Compilation – Establishment of an Understanding
Minimum, specific, elements of the understanding (continued) Other matters, as applicable, to a particular compilation engagement 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 Material departures from the AFRF may be identified, but the effect(s) not quantified OSAD option, and/or Supplementary information will accompany the basic financial statements A RealisticApproach Seminar Presentation

33 Compilation – Performance (Planning & Fieldwork) Requirements
Compiling accountants should understand the industry in which their client operates Sufficient to be aware of the proper form of financial statements in that industry Such knowledge may be obtained from sources such as Prior experience, AICPA Guides, Industry publications, Financial statements of others in the same industry, or Continuing Professional Education Mention that there are 15 AICPA Guides this year, AND 34 specialized industries identified by the FASB in the Accounting Standards Codification Area/Topic 900 Mention SEC EDGAR (Electronic Data Gathering And Retrieval) database A RealisticApproach Seminar Presentation

34 Compilation – Performance (Planning & Fieldwork) Requirements
Compiling accountants should possess knowledge regarding their client in the following areas: Client business practices and/or policies (normally obtained through inquiry and experience), and Organization Operating characteristics, Assets, Liabilities, revenues, and expenses A RealisticApproach Seminar Presentation

35 Compilation – Performance (Planning & Fieldwork) Requirements
Compiling accountants should possess knowledge regarding their client in the following areas (continued): Accounting principles and practices used by the client organization in the following areas: Measurement, Recognition, Recording of transactions, Identification of matters to be disclosed, Departures from industry conventional practices A RealisticApproach Seminar Presentation

36 Compilation – Performance (Planning & Fieldwork) Requirements
Compiling accountants are required to read the financial statements prior to submitting the financial statements to their client Form Content, in the following areas Arithmetic, Obvious Clerical errors, Departures (un-disclosed) from the AFRF Omission of, or inappropriate, disclosure A RealisticApproach Seminar Presentation

37 Compilation – Performance (Planning & Fieldwork) Requirements
Other (performance) procedures There are no other performance requirements set forth in SSARS, however 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 Any such matters should be provided to client management for their consideration of any effect on the financial statements If the client refuses to revise what may be material misstatement, the accountant should withdraw from the engagement A RealisticApproach Seminar Presentation

38 Compilation – Documentation Requirements
Sufficient, in detail, to provide a “clear understanding” of the work performed during the engagement In some cases, oral explanations may constitute documentation Specifically identified (rules-based -- required) documentation Engagement letter, Significant findings and/or issues identified during the engagement, as well as their resolution Communications with management regarding (potential) fraud and/or illegal acts A RealisticApproach Seminar Presentation

39 Compilation – Reporting Considerations
A written compilation report is required by SSARS 19 in the following circumstances A third-party accountant is engaged to compile financial statements, and It is reasonably expected that the financial statements will be Submitted by the compiling accountant, and Used by third parties (any person other than management of the client entity) A RealisticApproach Seminar Presentation

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

41 Compilation – Reporting Considerations – Elements
Each compilation report should be titled Clear indication that the report is the “accountant’s compilation” report The term “independent” (if that is the case) may be included in the title 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

42 Compilation – Reporting Considerations
The report should include an introductory (Scope-type) paragraph that discloses the following The (legal) name of the entity for which compiled financial statements were prepared, A statement that the financial statements were compiled, Identification of the Financial statements covered by the report, and Date(s) and/or period(s) covered by the report Disclaimer of audit or review responsibility No assurance In accordance with an AFRF A RealisticApproach Seminar Presentation

43 SSARS 19 Compilation Report Paragraph 1 – Introductory (Scope) GAAP
COMPILATION AND REVIEW ANNUAL UPDATE 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

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 Presentation

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. Note that the source for this example is Interpretation No. 13 to SSARS 19, paragraph 80. A RealisticApproach Seminar Presentation

46 Compilation – Reporting Considerations
Recitation of management’s responsibility in a compilation engagement -- Management is responsible for the following Preparation of financial statements, Fair presentation of the financial statements In accordance with an AFRF, and For the system of internal control, which includes the financial reporting objective A RealisticApproach Seminar Presentation

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 Presentation

48 Compilation – Reporting Considerations
Recitation of accountant’s responsibility in a compilation Conduct the compilation engagement in accordance with SSARS, Compiling accountant assists management in management’s presentation of financial information No undertaking, on the part of the compiling accountant to Provide assurance (negative) as to Need for material modifications A RealisticApproach Seminar Presentation

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. Paragraph is identical, regardless of the AFRF. A RealisticApproach Seminar Presentation

50 Compilation – Reporting Considerations
The compilation report should be signed by the accountant/firm Manual or Printed signatures are acceptable forms The accountant’s report should be dated, as of the date the compilation was completed. A RealisticApproach Seminar Presentation

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 Presentation

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 Presentation

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 Presentation

54 Compilation – Reporting Considerations
Other matters Compilation procedures should not be described, in the report Each page of the financial statements should have an appropriate footer referencing The accountant’s compilation report (required) Independence (optional, when independent) OCBOA presentations must include A description of the OCBOA (cash/income tax), Primary differences from GAAP, and Disclosures, similar to GAAP, for common elements Example reports (Exhibit B) do not show description of the OCBOA in the body of the report – however It is required, by paragraph .19 that disclosure of C 1 and 2 be made in order for the financial statements to be in “appropriate form” and presumes the presence of a summary of significant accounting policies. It is logical to presume that if a summary of significant accounting policies does not appear (OSAD), the disclosure can (continue to) be made in the accountants’ compilation report (scope paragraph). A RealisticApproach Seminar Presentation

55 Compilation – Reporting Considerations
Omission of Substantially All Disclosures (OSAD) A client request (as opposed to a client-directive) That may be acceded to by the compiling accountant if the request is Related to expediency, and the intended users are already familiar with such matters, and Not an attempt to mislead through omission Requires an additional paragraph, stating Management has elected to omit the disclosures, If the disclosures were included, they might influence, and Are not designed for users who are not already informed Talk about methods of misleading – omission, and commission A RealisticApproach Seminar Presentation

56 Compilation – Reporting Considerations
Omission of Substantially All Disclosures (OSAD) There are times when certain disclosures, but not all disclosures, are included in financial statements. The decision to include “selected Information” is made by management, but the need may come from Management, Client, or Compiling accountant inputs Requires the standard (appropriate) OSAD paragraph in the accountant’s report, plus Notation on pages where disclosure(s) are made – “Selected Information – Substantially All Disclosures Required by (insert AFRF) Are Not Included” Discussed in Paragraph 20 of chapter 2, and Interpretation # 9 as to what number of disclosures (3, or “few”) constitute selected information A RealisticApproach Seminar Presentation

57 Compilation – Reporting Considerations
Independence reporting considerations 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.) The disclosure of a lack of independence should be styled – “ I am (We are) not independent with respect to (name the client entity). Compiling accountant may disclose reason(s) for the lack of independence Optional – not required, and In for a penny, in for a pound -- All reasons for the lack of independence must be disclosed Paragraph .21 A RealisticApproach Seminar Presentation

58 Compilation – Other Matters
Known AFRF deficiencies – If the compiling accountant becomes aware of a deficiency, the accountant has two choices Add an additional paragraph to the compilation report that discloses the following Nature of the departure, and If already determined by management, the effect, or A statement that the effect has not been determined Request/require that management “cure” the deficiency in the financial statements Approach taken when disclosure, alone, is not sufficient Accountant should withdraw from the engagement if management will not cure the deficiency Withdrawal is a major move – Unilateral in nature – no report should be issued and accountant should not be associated (or submit) with the financial statements A RealisticApproach Seminar Presentation

59 Compilation – Other Matters
Additional information in the accountant’s compilation report 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 Examples of matters that an accountant may wish to emphasize include Uncertainties Related party dealings Other matters of significance – already within the body of the financial statements. See paragraphs .25 and .26 Note: an emphasis paragraph is not appropriate in an OSAD engagement, unless the matter is disclosed as a “selected information” item. If a matter that should appear within the body of the basic financial statements is not there (with the exception of the description of an OCBOA in an OSAD engagement) It is a deficiency in the content of the financial statements, and Cannot be cured by an “emphasis of a matter” paragraph. Contrast with an “other matters” paragraph in the accountants’ report (not addressed in SSARS literature) Does not relate to required content of financial statements, Addresses compliance with professional standards A RealisticApproach Seminar Presentation

60 Compilation and Going Concern
Compiling accountants have no pro-active responsibility to consider possibility of going concern (reactive responsibility, only) 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 Refer the matter to management for its consideration and conclusion regarding the matter Consider the reasonableness of management’s response. Paragraphs A RealisticApproach Seminar Presentation

61 Compilation and Going Concern
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 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. This option supposes that going concern is a disclosure made within the financial statements It is not appropriate to use the wording provided in auditing standards guidance A RealisticApproach Seminar Presentation

62 Compilation and Going Concern
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. Discuss the authority of Interpretations to SSARS 1 A RealisticApproach Seminar Presentation

63 Compilation – Subsequent Events
A compiling accountant has a reactive responsibility with respect to each type of subsequent event Alpha (estimation refinement) event, and Beta (event occurs post-financial-statement-date) Accountant may become aware of a subsequent event either In the course of performing the engagement, or After the completion of the engagement, but before the financial statements are issued Paragraphs A RealisticApproach Seminar Presentation

64 Compilation – Subsequent Events
The compiling accountant should refer identified subsequent events to management, for management’s consideration Of potential adjustment of the financial statements and/or Adequacy of disclosure regarding the event 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 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

65 A RealisticApproach Seminar Presentation
Compilation – Subsequent Discovery of Facts Existing at the Date of the Report 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. The accountant has a duty to investigate the matter for the purpose of Ascertaining the credibility of the information, and Determining whether that information would have significantly changed the Content of the financial statements, and/or The accountant’s report. A RealisticApproach Seminar Presentation

66 A RealisticApproach Seminar Presentation
Compilation – Subsequent Discovery of Facts Existing at the Date of the Report 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). The accountant should take additional steps if His or her report would have been different if the information had been known at the report date, and It is likely that users Are (still) using the financial statements, and The new information would be significant to those users Paragraphs A RealisticApproach Seminar Presentation

67 A RealisticApproach Seminar Presentation
Compilation – Subsequent Discovery of Facts Existing at the Date of the Report When the accountant determines that disclosure of the matter should be made, it should be done in a manner such as When issuance of subsequent financial statements is imminent, the disclosure of the matter can be made in those financial statements, When revised financial statements are appropriate the financial statements should include Footnote disclosure of the reason for the revision, The accountant may, but is not required to, add an emphasis paragraph to the (revised) compilation report When revised financial statements are issued – generally only the most current period is revised – even if the revision effects prior years A RealisticApproach Seminar Presentation

68 A RealisticApproach Seminar Presentation
Compilation – Subsequent Discovery of Facts Existing at the Date of the Report When the accountant determines that disclosure of the matter should be made, it should be done in a manner such as When the effect on the financial statements cannot be determined without additional effort, and issuance of revised financial statements is not imminent Users should be notified, by the client, that revised financial statements will be issued as soon as open items can be resolved, and When applicable, a revised compilation report will be issued, as well. A RealisticApproach Seminar Presentation

69 A RealisticApproach Seminar Presentation
Compilation – Subsequent Discovery of Facts Existing at the Date of the Report If a client refuses to disclose matters considered significant by the compiling accountant by means of one of the methods described above The accountant should communicate the refusal to those charged with governance, and If the client does not make appropriate disclosure, the accountant should (subject to advice from counsel) notify The client that the report must not be associated with the financial statements, Each of the following parties that the accountants report should no longer be used Any regulatory agencies that are users Other users (financial statements and accountant’s report) A RealisticApproach Seminar Presentation

70 A RealisticApproach Seminar Presentation
Compilation – Subsequent Discovery of Facts Existing at the Date of the Report If a client refuses to disclose matters considered significant by the compiling accountant by means of one of the methods described above Disclosure of such matters should be as precise and objective as necessary to communicate the matter to the parties and, at a minimum, include A description of the subsequently identified information The effect on the financial statements An Indication that the client has not assisted in validation of the disclosure (if that is the case), and If the matter is valid, the accountant’s report should no longer be associated with the financial statements A RealisticApproach Seminar Presentation

71 A RealisticApproach Seminar Presentation
Compilation – Subsequent Discovery of Facts Existing at the Date of the Report If a client refuses to disclose matters considered significant by the compiling accountant by means of one of the methods described above No disclosure is necessary regarding subsequently identified matters unless the accountant believes that the Financial statements may be misleading, and Accountants report should no longer be associated with the financial statements because of a lack of disclosure of the identified matter Discuss the effect of materiality on compiled financial statements in a case such as this A RealisticApproach Seminar Presentation

72 Compilation – Supplementary Information
When supplementary information is included with compiled financial statements, the compiling accountant has a reporting obligation. 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. Paragraph .53. A RealisticApproach Seminar Presentation

73 Compilation – Supplementary Information
If the compiling accountant elects to use the two-report approach for reporting on supplementary information, that report should include the following elements A statement that the supplementary information is presented for purposes of additional analysis Supplementary information has been compiled from information represented by management, and The accountant has/does not Audited or Reviewed the supplementary information and Express an opinion or any assurance on the supplementary information Paragraph .53 infers that, so long as the supplementary information is “referred to” in the combined report (comp/comp), the additional matters referred to in the above slide may not be required. A RealisticApproach Seminar Presentation

74 Compilation – Matters to be Communicated to Management and Others
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. The communication should be made to an appropriate level of management and/or those charged with governance. The communication may be made Orally, and documented in the working papers, or In writing to the client and memorialized in the working papers Paragraphs .54 and .55. A RealisticApproach Seminar Presentation

75 Compilation – Matters to be Communicated to Management and Others
Reporting line when senior officials of the client may be involved -- If the fraud or illegal act involves 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 The/an owner of the client entity, the accountant should consider resigning the engagement. A RealisticApproach Seminar Presentation

76 Compilation – Matters to be Communicated to Management and Others
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. In response to legal and/or regulatory requirements, To a successor accountant, in response to a predecessor accountant’s request, and In response to a (valid) subpoena. A RealisticApproach Seminar Presentation

77 Thank You For Attending Today’s Session!
Financial Statement Analysis Thank You For Attending Today’s Session! If you have questions and/or comments A RealisticApproach Seminar Presentation


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