Financial Statement References (at the Bottom of the Page)

What financial statement page references are required?

What wording is required at the bottom of financial statement pages? Is there a difference in the references in audited statements and those in compilations or reviews? What wording should be placed at the bottom of supplementary pages? Below I’ll answer these questions.

financial statement references

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Audited Financial Statements and Supplementary Information

First, let’s look at financial statement references in audit reports.

While generally accepted accounting principles do not require financial page references to the notes, it is a common practice to do so. Here are examples:

  • See notes to the financial statements.
  • The accompanying notes are an integral part of these financial statements.
  • See accompanying notes.

Accountants can also–though not required–reference specific disclosures on a financial statement page. For example, See Note 6 (next to the Inventory line on a balance sheet). It is my preference to use general references such as See accompanying notes.

Audit standards do not require financial statement page references to the audit opinion.

Supplementary pages attached to audited financial statements should not include a reference to the notes or the opinion.

Preparation, Compilation, and Review Engagements

Now, let’s discuss references in preparation, compilation, and review engagements. 

Compilation and Review Engagements

SSARS 21 does not require a reference (on financial statement pages) to the compilation or review report; however, it is permissible to do so. What do I do? I do not refer to the accountant’s report. I just put See accompanying notes at the bottom of each financial statement page.

You are not required to include a reference to the accountant’s report on the supplementary information pages. SSARS 21 does suggest that such references be included in case the financial statements or supplementary information are separated from the compilation or review report. Examples include:

  • See Accountant’s Compilation Report.
  • See Independent Accountant’s Review Report.

What do I do? I include a reference to the accountant’s report on each supplementary page.

Preparation of Financial Statement Engagements

SSARS 21 provides an option (to compilations) called the preparation of financial statements (AR-C 70), a nonattest service. AR-C 70 requires that the accountant either state on each page that “no assurance is provided” or provide a disclaimer which precedes the financial statements. AR-C 70 does not require that the financial statement pages refer to the disclaimer (if provided), but it is permissible to do so. Such a reference can read See Accountant’s Disclaimer.

If your AR-C 70 work product has supplementary information, consider including this same reference (See Accountant’s Disclaimer) on the supplementary pages.

How to Present Supplementary Information in Compilation and Preparation Engagements

Supplementary information can be added to basic financial statements

Are you wondering how to present supplementary information in compilation and preparation engagements? What supplementary information (SI) should be included? How does the accountant define his or her responsibility for SI?

Often accountants, at the request of their clients, add supplementary information to the financial statements. Such information is never required (to be in compliance with a reporting framework) but may be useful.

supplementary information: compilation and preparation engagements

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You can think of financials with supplementary information in this manner:

Financial statements – Required – The jeep in the picture above

Supplementary Information – Not required – The camper

You’re not going anywhere without a vehicle (it’s required). And your camper (not required) is no good without an automobile to pull it. Kind of a silly analogy, I know, but maybe it will help you remember.

I normally add a divider page between the financial statements and supplementary information (though such as page is not required); the divider page simply says “Supplementary Information” and nothing else.

SSARS 21 defines supplementary information as follows:

Information presented outside the basic financial statements, excluding required supplementary information, that is not considered necessary for the financial statements to be fairly presented in accordance with the applicable financial reporting framework.

Bookkeeping, Preparations, Compilations, and Review Engagements: Questions and Answers

This Q&A covers common questions about bookkeeping and SSARS 21 engagements

Today, we’ll answer various questions regarding bookkeeping, preparations, compilations, and review engagement.

Bookkeeping, preparations, compilations

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Q: Should I issue management letters for preparation, compilation, or review engagements?

A: While not required, it is advisable to provide management letters when performing SSARS 21 services. Why? Two reasons: (1) It’s a way to add value to the engagement, and (2) it’s a way to protect yourself from potential litigation. Clients do–sometimes–sue CPAs in these so-called “lower risk” engagements. If we see control weaknesses (while performing a compilation for example), we should communicate those–even though standards don’t require it. Then, if theft occurs in that area and you are later sued regarding the fraud, you have a defense. If you don’t issue a management letter, at least send an email regarding the issues noted and retain a copy.

Q: Why obtain an engagement letter for nonattest services such as bookkeeping and tax (standards don’t require it)?

A: In all engagements, we want to state exactly what we are doing. Why? So, it is obvious what the client has hired us to do–and what they have not hired us to do. If a client says, “I told you to do my monthly bookkeeping and to file my property tax returns,” but you have no recollection of being asked to perform the latter, you need an engagement letter that specifies monthly bookkeeping (and nothing else).

Q: Should I say–in a bookkeeping engagement letter–the service is not designed to prevent fraud?

A: We should obtain a signed engagement letter for bookkeeping services, even though not required by standards. And yes, by all means, include a statement that the bookkeeping service is not designed to detect or prevent fraud.

Q: If I note fraud while performing a bookkeeping, preparation, compilation, or review engagement, should I report it to the appropriate levels of management?

A: Standards require this communication for review engagements. I would do likewise for the other services (though not required in SSARS 21).

Q: Am I required to be independent if I perform bookkeeping and preparation services?

A: No, since both are nonattest services.

Q: If I create financial statements as a byproduct of an 1120 tax return, am I subject to AR-C 70 Preparation of Financial Statements?

A: No, you are only subject to AR-C if you are engaged to prepare financial statements.

Q: If I perform bookkeeping services in a cloud-based accounting package such as QuickBooks, am I subject to AR-C 70 (SSARS 21)?

A: It depends. Yes, if you are engaged to prepare financial statements. No, if you were not engaged to prepare financial statements. Who “pushes the button” to print the financial statements has no bearing on the applicability of AR-C 70.

Q: Am I required to have a signed engagement letter for all preparation, compilation and review engagements?

A: Yes.

Q: Can I act as a controller-for-hire and perform a compilation engagement?

A: Yes, but you need to state that you are not independent in the compilation report.

Q: Can I act as the controller-for-hire and perform a review engagement?

A: No. Independence is required for review engagements.

Q: If I prepare financial statements and perform a compilation, am I performing one service (as I did under SSARS 19) or are these considered two separate services?

A: They are two separate services. The preparation is a nonattest service, and the compilation is an attest engagement. Both can be specified in one engagement letter.

Are You Up to Speed on the New Pro Forma Information Standard?

Providing "What if?" information to clients can be helpful

The Accounting and Review Services Committee (ARSC) issued SSARS 22 Compilation of Pro Forma Financial Information. You may remember that ARSC did not address pro forma information in SSARS 21. SSARS 22 clarifies AR 120 Compilation of Pro Forma Information and codifies it as AR-C 120.

Pro Forma Information

So what is pro forma information? It is a presentation that shows what the significant effects on historical financial information might have been had a consummated or proposed transaction (or event) occurred at an earlier date.

Pro Forma Information

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To understand SSARS 22, let’s answer a few questions.

Examples of Pro Forma Information

Examples of pro forma information include presenting financial statements for the following:

  • Business combinations
  • The selling of a significant part of a business
  • A change in the capitalization of an entity

Again we are providing financial information as though the transaction or event has–already–occurred.

Required Disclosures

In pro forma financial information, what should be disclosed?

  • A description of the transaction (or event) that is reflected in the presentation
  • The date on which the transaction (or event) is assumed to occur
  • The financial reporting framework
  • The source of the financial information
  • The significant assumptions used
  • Any significant uncertainties about those assumptions
  • A statement that the pro forma information should be read in conjunction with the related historical information and that the pro forma information is not necessarily indicative of the results that would have been attained had the transaction (or event) actually taken place

Independence

Must the accountant consider his or her independence? Yes, since this is a compilation engagement. (Note: The preparation of the pro forma information is considered a nonattest service.)

Acceptance and Continuance

Should the accountant perform acceptance and continuance procedures? Yes.

Engagement Letter

Is an engagement letter required? Yes, and it must be signed by the accountant’s firm and management or those charged with governance.

Compilation Procedures

What compilation procedures should be performed?

  • Read the pro forma financial information to determine if it is appropriate in form and free from obvious material misstatement
  • Obtain an understanding of the underlying transaction or event (that the pro forma information is based upon)
  • Determine that management includes:
    • Complete financial statements for the most recent year (or from the preceding year if financial statements for the most recent year are not yet available) or make such financial statements readily available (e.g., post on a public website)
    • If pro forma financial information is presented for an interim period, either historical interim financial information for that period (which may be in condensed form) or make such interim information readily available
    • For business combinations, the relevant financial information for the significant parts of the combined entity
  • Determine that the information in the preceding bullet has been subjected to a compilation, review or an audit
  • Determine that the compilation, review or audit report on the historical information is included in any document containing the  pro forma financial information (or made readily available such as on a public website)
  • Determine whether the significant assumptions and uncertainties are disclosed
  • Determine whether the source of the historical financial information on which the pro forma information is based is appropriately identified

Pro Forma in Conjunction with Other Services

Can the pro forma engagement be performed in conjunction with a compilation, review or an audit? Yes. Alternatively, the pro forma engagement can be performed separately.

Required Documentation

What documentation is to be retained in the file?

  • Engagement letter
  • The results of procedures performed
  • Copy of the pro forma financial information
  • Copy of the accountant’s compilation report

Compilation Report Required

Is a compilation report to be issued? Yes. (See sample report below.)

Is the accountant offering any assurance regarding the pro forma information? No.

Can the pro forma compilation report be added to the accountant’s report on historical financial statements? Yes. Alternatively, the pro forma compilation report can be presented separately.

Effective Date of SSARS 22

What’s the effective date of SSARS 22? The standard is effective for compilation reports on pro forma financial information dated on or after May 1, 2017.

Potential New Service for Your Clients

If you are not already providing pro forma information to clients, consider suggesting this service when appropriate. Clients may find pro forma information helpful in evaluating the potential sale of stock, the borrowing of funds for a project, or the sale of a part of the business.

Sample SSARS 22 Compilation Report

Exhibit B of SSARS 22 provides the following sample compilation report on pro forma financial information:

Management is responsible for the accompanying pro forma condensed balance sheet of XYZ Company as of December 31, 20X1, and the related pro forma condensed statement of income for the year then ended (pro forma financial information), based on the criteria in Note 1. The historical condensed financial statements are derived from the financial statements of XYZ Company, on which I (we) performed a compilation engagement, and of ABC Company, on which other accountants performed a compilation engagement. The pro forma adjustments are based on management’s assumptions described in Note 1. (We) have performed a compilation engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. I (we) did not examine or review the pro forma financial information nor was (were) I (we) required to perform any procedures to verify the accuracy or completeness of the information provided by management. Accordingly, I (we) do not express an opinion, a conclusion, nor provide any form of assurance on the pro forma financial information.

The objective of this pro forma financial information is to show what the significant effects on the historical financial information might have been had the underlying transaction (or event) occurred at an earlier date. However, the pro forma condensed financial statements are not necessarily indicative of the results of operations or related effects on financial position that would have been attained had the above mentioned transaction (or event) actually occurred at such earlier date.

[Additional paragraph(s) may be added to emphasize certain matters relating to the compilation engagement or the subject matter.]

[Signature of accounting firm or accountant, as appropriate] [Accountant’s city and state]
[Date of the accountant’s report]

How to Apply SSARS 21 to Prescribed Forms

CPAs have two options in applying SSARS 21 to prescribed forms

My new SSARS 21 book, Preparation of Financial Statements and Compilation Engagements, will soon be available on Amazon.com.

If you prefer to watch video, click the Vimeo presentation below.

If you prefer to view slides (without watching the video), see below.