SSARS No. 14--compilation of pro forma financial information.(AICPA AICPA
See American Institute of Certified Public Accountants (AICPA). , Professional Standards, vol. 2, AR sec. 120)
1. Statements on Standards for Accounting and Review Services (SSARS SSARS Statements on Standards for Accounting and Review Services ) currently provide guidance concerning the standards and procedures applicable when an accountant submits unaudited financial statements to his or her client or third parties. By definition, presentations of pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts.
The phrase pro forma financial information are not financial statements. This Statement expands SSARS to apply when an accountant is engaged to compile To translate a program written in a high-level programming language into machine language. See compiler. or issues a compilation Compiling a program. See compiler. report on pro forma financial information.
2. A compilation of pro forma financial information is limited to presenting financial information that is the representation of management (owners) without undertaking to express any assurance on that information. (The accountant might consider it necessary to perform other accounting services to compile the financial information.)
3. The objective of pro forma financial information is to show what the significant effects on historical financial information might have been had a consummated con·sum·mate
tr.v. con·sum·mat·ed, con·sum·mat·ing, con·sum·mates
a. To bring to completion or fruition; conclude: consummate a business transaction.
b. or proposed transaction (or event) occurred at an earlier date. Pro forma financial information is commonly used to show the effects of transactions such as the following:
* Business combination
* Change in capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets.
* Disposition of a significant portion of the business
* Change in the form of business organization or status as an autonomous entity
* Proposed sale of securities and the application of the proceeds
4. This objective is achieved primarily by applying pro forma adjustments to historical financial information. Pro forma adjustments should be based on management's assumptions and give effect to all significant effects directly attributable to the transaction (or event).
5. Pro forma financial information should be labeled as such to distinguish it from historical financial information. This presentation should describe the transaction (or event) that is reflected in the pro forma financial information, the source of the historical financial information on which it is based, the significant assumptions used in developing the pro forma adjustments, and any significant uncertainties about those assumptions. The presentation should also indicate that the pro forma financial information should be read in conjunction with the related historical financial information and that the pro forma financial information is not necessarily indicative of the results (such as financial position and results of operations, as applicable) that would have been attained at·tain
v. at·tained, at·tain·ing, at·tains
1. To gain as an objective; achieve: attain a diploma by hard work.
2. had the transaction (or event) actually taken place earlier.
CONDITIONS FOR COMPILING com·pile
tr.v. com·piled, com·pil·ing, com·piles
1. To gather into a single book.
2. To put together or compose from materials gathered from several sources: PRO FORMA FINANCIAL INFORMATION
6. Nothing in this Statement is intended to preclude pre·clude
tr.v. pre·clud·ed, pre·clud·ing, pre·cludes
1. To make impossible, as by action taken in advance; prevent. See Synonyms at prevent.
2. an accountant from preparing or assisting in the preparation of pro forma financial information and submitting such pro forma financial information to the client without the issuance of a compilation report, unless the accountant has been engaged to compile such pro forma financial information. If an accountant prepares or assists a client in preparing pro forma financial information, (1) the accountant should consider how such a presentation of pro forma financial information will be used. The accountant should consider the potential of being associated with pro forma financial information and the likelihood that the user may inappropriately infer, through that association, an unintended level of assurance. If the accountant believes that he or she will be associated with the information, the accountant should consider issuing a compilation report so a user will not infer a level of assurance that does not exist.
7. An engagement to compile pro forma financial information may be undertaken as a separate engagement or in conjunction with a compilation of financial statements. The accountant may agree to compile pro forma financial information if the document that contains the pro forma financial information includes (or incorporates by reference) complete historical financial statements of the entity for the most recent year (or for the preceding year if financial statements for the most recent year are not yet available) and, if pro forma financial information is presented for an interim period, the document also includes (or incorporates by reference) historical interim financial information for that period (which may be presented in condensed con·dense
v. con·densed, con·dens·ing, con·dens·es
1. To reduce the volume or compass of.
2. To make more concise; abridge or shorten.
a. form). In the case of a business combination, the document should include (or incorporate by reference) the appropriate historical financial information for the significant constituent CONSTITUENT. He who gives authority to another to act for him. 1 Bouv. Inst. n. 893.
2. The constituent is bound with whatever his attorney does by virtue of his authority. parts of the combined entity.
8. Additionally, the historical financial statements of the entity (or, in the case of a business combination, of each significant constituent part of the combined entity) on which the pro forma financial information is based must have been compiled, reviewed, or audited. The accountant's compilation or review report or the auditor's report Auditor's Report
Recorded in the annual report, the auditor's report tests to see that a corporation's financial statements comply with GAAP. This is sometimes referred to as the clean opinion.
Most auditor's reports consist of three paragraphs. on the historical financial statements should be included (or incorporated by reference) in the document containing the pro forma financial information.
UNDERSTANDING WITH THE ENTITY
9. When an accountant is engaged to compile pro forma financial information, the accountant should establish an understanding with the entity, preferably pref·er·a·ble
More desirable or worthy than another; preferred: Coffee is preferable to tea, I think.
pref in writing, regarding the services to be performed. The understanding should include a description of the nature and limitations of the services to be performed and a description of the report. The understanding should also provide:
a. That the engagement cannot be relied upon to disclose errors, fraud, (2) or illegal acts (3) and
b. That the accountant will inform the appropriate level of management of any material errors and of any evidence or information that comes to the accountant's attention during the engagement to compile pro forma financial information (4) that fraud or an illegal act may have occurred. (5) The accountant need not report any matters regarding illegal acts that may have occurred that are clearly inconsequential in·con·se·quen·tial
1. Lacking importance.
2. Not following from premises or evidence; illogical.
A triviality. and may reach agreement in advance with the entity on the nature of any such matters to be communicated.
10. When the accountant is engaged to compile pro forma financial information and evidence or information conies to his or her attention during the engagement that fraud or an illegal act may have occurred, the accountant must adhere to adhere to
verb 1. follow, keep, maintain, respect, observe, be true, fulfil, obey, heed, keep to, abide by, be loyal, mind, be constant, be faithful
2. the communication requirements contained in SSARS No. 1, Compilation and Review of Financial Statements (AICPA, Professional Standards, vol. 2, AR sec. 100.61-.62), as amended a·mend
v. a·mend·ed, a·mend·ing, a·mends
1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive.
11. When the accountant is engaged to compile or issues a compilation report on pro forma financial information, he or she must adhere to the compilation performance requirements contained in SSARS No. 1 (Al% sec. 100.07-.10), as amended.
12. Before issuance of a compilation report on pro forma financial information, the accountant should read such compiled pro forma financial information, including the summary of significant assumptions, (6) and consider whether the information appears to be appropriate in form and free of obvious material errors. In this context, the term error refers to mistakes in the compilation of the pro forma financial information, including arithmetical or clerical mistakes, and mistakes in the application of accounting principles, including disclosures, if presented.
13. When the accountant is engaged to compile or issues a compilation report on pro forma financial information, the basic elements of the report are as follows:
a. An identification of the pro forma financial information.
b. A statement that the compilation was performed in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.
As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants With over 330,525 CPA members (in August 2006), the American Institute of Certified Public Accountants (AICPA) is the largest professional organization of Certified Public Accountants (CPAs) in the United States of America. .
c. A reference to the financial statements from which the historical financial information is derived and a statement on whether such financial statements were compiled, reviewed, or audited. (The report on pro forma financial information should refer to any modifications in the accountant's or auditor's report on historical financial statements.)
d. A statement that the pro forma financial information was compiled. If the compilation was performed in conjunction with a compilation of the company's financial statements, the paragraph should so state and indicate the date of the accountant's compilation report on those financial statements. Furthermore, any departure from the standard report on those statements should also be disclosed if considered relevant to the presentation of the pro forma financial information.
e. A description of the basis on which the pro forma financial information is presented if that basis is not generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records.
Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting and a statement that that basis of presentation is a comprehensive basis of accounting other than generally accepted accounting principles.
f. A statement that a compilation is limited to presenting pro forma financial information that is the representation of management (owners).
g. A statement that the pro forma financial information has not been audited or reviewed and, accordingly, the accountant does not express an opinion or any other form of assurance on it.
h. A separate paragraph explaining the objective of pro forma financial information and its limitations.
i. A signature of the accounting firm or the accountant as appropriate. (The signature could be manual, stamped, electronic, or typed.)
j. The date of the compilation report. (The date of completion of the compilation should be used as the date of the accountant's report.)
Any other procedures that the accountant might have performed before or during the compilation engagement should not be described in the report.
14. Each page of the compiled pro forma financial information should include a reference, such as "See Accountant's Compilation Report."
15. The following is an illustration of an accountant's compilation report on pro forma financial information.
I (we) have compiled the accompanying pro forma financial information as of and for the year ended December 31, 20XX, reflecting the business combination of the Company and ABC Company in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. The historical condensed financial statements are derived from the historical unaudited financial statements of XYZ Company, which were compiled by me (us), and of ABC Company, which were compiled by another (other) accountant(s). (7) A compilation is limited to presenting pro forma financial information that is the representation of management (owners). I (we) have not audited or reviewed the accompanying pro forma financial information and, accordingly, do not express an opinion or any other form of assurance on it. 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 transaction (or event) occurred at an earlier date. However, the pro forma financial information is 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 earlier. [If the presentation does not include all applicable disclosures, the following paragraph should be added.] (8) Management has elected to omit all of the disclosures ordinarily included in pro forma financial information. The omitted disclosures might have added significant information regarding the company's pro forma financial position and results of operations. Accordingly, this pro forma financial information is not designed for those who are not informed about such matters.
16. An accountant is not precluded from issuing a compilation report on pro forma financial information for an entity with respect to which the accountant is not independent. (9) If the accountant is not independent, he or she should specifically disclose the lack of independence. However, the reason for the lack of independence should not be described. When the accountant is not independent, the following should be included as the last paragraph of the report:
I am (we are) not independent with respect to XYZ Company.
17. This Statement is effective for engagements entered into after December December: see month. 15, 2005. Early application is permitted.
This Statement titled Compilation of Pro Forma Financial Information was adopted unanimously by the assenting as·sent
intr.v. as·sent·ed, as·sent·ing, as·sents
To agree, as to a proposal; concur.
1. Agreement; concurrence: reached assent on a course of action.
2. votes of the seven members of the Accounting and Review Services Committee.
Accounting and Review Services Committee (2004-2005)
Andrew M. Cohen cohen
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Audit and Attest To solemnly declare verbally or in writing that a particular document or testimony about an event is a true and accurate representation of the facts; to bear witness to. To formally certify by a signature that the signer has been present at the execution of a particular writing so as Standards
Note: Statements on Standards for Accounting and Review Services (SSARS) are issued by the AICPA Accounting and Review Services Committee (ARSC ARSC Arctic Region Supercomputing Center
ARSC Association for Recorded Sound Collections
ARSC Accounting and Review Services Committee
ARSC Aircraft Repair and Supply Center (USCG)
ARSC Arizona Remote Sensing Center ), the senior technical body of the Institute designated to issue pronouncements in connection with the unaudited financial statements or other unaudited financial information of a nonpublic entity. Rule 202, Compliance With Standards, of the Institute's Code of Professional Conduct requires an AICPA member who performs either a compilation or a review (the accountant) to comply with standards promulgated prom·ul·gate
tr.v. prom·ul·gat·ed, prom·ul·gat·ing, prom·ul·gates
1. To make known (a decree, for example) by public declaration; announce officially. See Synonyms at announce.
2. by the ARSC. The accountant should have sufficient knowledge of the SSARS to identify those that are applicable to his or her compilation or review and should be prepared to justify departures from the SSARS.
(1) If the pro forma financial information is included as accompanying information to the basic financial statements, the accountant should refer to Statement on Standards for Accounting and Review Services (SSARS) No. 1, Compilation and Review of Financial Statements (AICPA, Professional Standards, vol. 2, AR sec. 100.60), as amended.
(2) For purposes of this Statement, fraud is an intentional in·ten·tion·al
1. Done deliberately; intended: an intentional slight. See Synonyms at voluntary.
2. Having to do with intention. act that results in a misstatement mis·state
tr.v. mis·stat·ed, mis·stat·ing, mis·states
To state wrongly or falsely.
mis·statement n. in compiled pro forma financial information.
(3) For purposes of this Statement, illegal acts are violations of laws or government regulations, excluding fraud.
(4) Performance requirements with respect to an engagement to compile pro forma financial information are contained in paragraphs 11 and 12.
(5) Whether the act is, in fact, fraudulent The description of a willful act commenced with the Specific Intent to deceive or cheat, in order to cause some financial detriment to another and to engender personal financial gain. or illegal is a determination that is normally beyond the accountant's professional competence. An accountant, in reporting on pro forma financial information, presents himself or herself as one who is proficient pro·fi·cient
Having or marked by an advanced degree of competence, as in an art, vocation, profession, or branch of learning.
An expert; an adept. in accounting and compilation services. The accountant's training, experience, and understanding of the client and its industry may provide a basis for recognition that some client acts coming to his or her attention may be fraudulent or illegal. However, the determination as to whether a particular act is fraudulent or illegal would generally be based on the advice of an informed expert qualified to practice law or may have to await AWAIT, crim. law. Seems to signify what is now understood by lying in wait, or way-laying. final determination by a court of law.
(6) The accountant may not report on compiled pro forma financial information if the summary of significant assumptions is not presented. Nothing in this Statement should be interpreted to preclude the accountant from reporting on compiled pro forma financial information when management elects to omit o·mit
tr.v. o·mit·ted, o·mit·ting, o·mits
1. To fail to include or mention; leave out: omit a word.
a. To pass over; neglect.
b. substantially all disclosures. In that situation, the accountant should follow the guidance in SSARS No. 1 (AR sec. 100.16-.18), as amended.
(7) Where one set of historical financial statements is audit ed or reviewed and the other is audited, reviewed, or compiled, wording similar to the following would be appropriate:
The historical condensed financial statements are derived from the historical financial statements of XYZ Company, which were compiled by me (us), and of ABC Company, which were reviewed by another (other) accountant(s), appearing elsewhere herein (or incorporated by reference).
If either accountant's review report or auditor's report includes an explanatory ex·plan·a·to·ry
Serving or intended to explain: an explanatory paragraph.
ex·plan paragraph or is modified, that fact should be referred to within this report.
(8) The accountant may not report on compiled pro forma financial information if the summary of significant assumptions is not presented.
(9) In making a judgment about whether he or she is independent, the accountant should be guided by the AICPA Code of Professional Conduct.