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Financial Statement Reporting Updates

By MarksNelson on August 11, 2015 in Articles, Assurance Services

The Accounting and Review Services Committee (ARSC) has issued Statement on Standards for Accounting and Review Services No. 21 which provides clarity for CPAs regarding accounting and financial statement preparation services and reporting services including compilation or review reports.  These revised standards are timely considering the current electronic and cloud-based accounting environment as CPAs and internal bookkeepers share the accounting functions.  Prior to the new standards, a CPA who prepared financial statements was required to include a compilation, review or audit report with the financial statements prepared and presented to management or to third parties.  The new standards provide an additional option which allows the accountant to prepare financial statements and present them without a report.

CPAs can simply prepare financial statements outside of an accounting software package without a requirement to perform a compilation, review or audit of the financial statements.  As a result, no accountants’ report is issued and the CPA does not have to consider their independence in regards to the financial statements.

Compilation reports are issued when CPAs are engaged to compile and present financial statements in the form of a financial reporting framework, such as generally accepted accounting principles (GAAP) or the income tax basis of accounting.  An accountants’ report is required to be included with the presented financial statements and if the CPA is not independent this must be indicated in the report.

Compilation engagements continue to provide banks and other third party users with an accountants’ report and the familiarity of knowing the CPA has complied with the required considerations outlined in standards. Prepared financial statements may be a better fit for the internal use of business owners and members of management when compilation procedures are not necessary.

The following are some key significant changes:

  • Reports will be different. The standard compilation report will be shortened from three paragraphs to one paragraph.  This change was implemented to better differentiate between nonattest (compilation) and attest (review and audit) reporting.
  • No more “Management use only” compilations. Compilation engagements will include financial statements issued with an accountants’ report.  Engagements to prepare financial statements will require the accountant to include a legend on each page of the financial statements indicating that no assurance is being provided.
  • Engagement letters are a must. Signed engagement letters will be required for compilation and preparation of financial statement engagements.
  • Effective date. These changes are effective for periods ending on or after December 15, 2015; early adoption is permitted.

Please contact your MarksNelson advisor at (816) 743-7700 if you have any questions or would like more information.

About the Author

MarksNelsonView all posts by MarksNelson
MarksNelson LLC works with clients to help safeguard and grow their businesses. Our ultimate goal is to help our clients to Move Forward. The firm provides Assurance, Accounting Services and Business Advisory, Business Valuation, Consulting, Cost Segregation, Employee Benefit Plan Audits, Litigation Support, Forensic Accounting, International Tax, State and Local Tax and Tax planning, advisory and compliance services. MarksNelson is a member of The Leading Edge Alliance, the second-largest international professional association of independently owned accounting and consulting firms, serving clients who need additional resources on a national or international level. MarksNelson has significant accounting and business advisory experience in the auto dealership, construction, insurance, manufacturing, distribution and real estate sectors. The firm was named among the 2014 Best Accounting Firms for Leadership Equity by the 2014 Accounting MOVE Project for its dedication to gender equity.