| Prospective Financial Information (Pro Forma), defined
**A Requirement to Perform a Compilation of Pro Forma Financial Information—The historical financial statements on which the pro forma information is based must have been compiled, reviewed, or audited.**
**The accountant is not required to be independent since no assurance is provided. If the accountant is not independent, the compilation report should indicate that fact.**
**The accountant may “assist” with the preparation of pro forma financial information without issuing a compilation report (when the accountant has not been engaged to “compile” such information).** | Any financial information about the future. The information may be presented as complete financial statements or limited to one or more elements, items, or accounts. |
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Pro Forma
The accountant may perform either a preparation engagement or a compilation of prospective financial information (a review of such prospective financial information is not permitted). | When engaged to prepare prospective financial information or issue a compilation report on prospective financial information:
1. Significant assumptions—The accountant should not prepare (or issue a compilation report on) prospective financial information that omits disclosure of the summary of significant assumptions; the entity's financial statements should also include a summary of significant accounting policies.
2. Financial projections—The accountant should not prepare or issue a compilation report on a financial projection that (a) fails to identify the hypothetical assumptions or that (b) omits a description of the limitations of the usefulness of the projection; any report on a projection should be restricted to specified users, consisting of third parties in direct negotiation with the responsible party (which allows them to ask questions about the presentation).
**When issuing a compilation report on prospective financial information—The report should include statements that (a) the forecasted/projected results may not be achieved; and (b) the accountant assumes no responsibility to update the report for matters occurring after the date of the report. (Any report on a “projection” must have restricted distribution; only a report on a “forecast” is permitted to have general distribution.)** |
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SSAEs - Statement on Standards and Attestation Engagements
Under the Clarified Statements on Standards for Attestation Engagements (SSAEs) —
The accountant may be engaged to perform an “examination” or an “agreed-upon procedures engagement” on prospective financial information (Pro Forma) (again, a review of prospective financial information is not permitted under the SSAEs). | 1. Examination engagements—An examination results in a positive expression of opinion (similar to an audit report) focusing on the preparation of the prospective information and management's underlying assumptions; an examination report on a forecast is allowed to be issued for general distribution (but any report on a projection should have restricted distribution).
2. Agreed-upon procedures engagements—Any agreed-upon procedures report must be restricted to the specified users who take responsibility for the sufficiency of the procedures for their purposes; assurance is provided in the form of “procedures” and “findings”. |
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Subsequently discovered facts before the report release date:
a. The accountant should discuss the matter with management (and those charged with governance, as applicable) and determine how management intends to deal with the matter when the financial statements require revision.
b. If management revises the financial statements, the accountant should perform review procedures on the revision and either change the date on the review report or “dual-date” the report.
c. If management does not revise the financial statements, the accountant should modify the review report appropriately. | Subsequently discovered facts after the report release date:
a. If management revises the financial statements, the accountant should perform review procedures on the revision, and either change the date on the review report or “dual-date” the report. The accountant also should determine whether third parties possess those released financial statements and evaluate whether management is taking appropriate steps to inform them that the financial statements should not be used.
b. If management is not taking the appropriate steps, including revision, the accountant should notify management and take action to prevent the use of the accountant's review report. The accountant may wish to seek legal guidance in that event. |
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Comparative Financial Statements
1. The report should refer to each applicable period for which financial statements are presented. (The type of engagement need not be the same for each period presented. For example, one period might be a compilation and another period might be a review; or one period might be a review and another period might be an audit.)
2. A continuing accountant should update the report on any prior periods' financial statements that are presented along with the current period. | Reporting when the prior period was audited—If the audit report on the prior period's financial statements is not presented, the review report should include an “other-matter” paragraph to indicate that the prior period's financials were audited; to identify the date of that audit report and the type of opinion expressed (and the reasons for any modifications); and to state that no audit procedures were performed after the date of the audit report. |
