SSAEs - Financial Forecasts and Projections

Question 1

Define Forcasts and Projection

Answer 1

A.
Forecasts – Represents the predicted financial statement outcome (i.e., the “best guess”).
B.
Projections – Represents the expected financial statement outcome based on certain specified hypothetical assumptions (more of a “what if …?” scenario).

Question 2

Examination Reporting Structure

Answer 2

1. 1st paragraph (describe the engagement) – Identify the prospective financial statements presented; identify management’s responsibility and the practitioner’s responsibility.
2. 2nd paragraph (AICPA standards) – State that examination complied with AICPA standards and express belief about reasonable basis for opinion.
3. 3rd paragraph (express opinion) – State that presentation conforms with AICPA guidelines and that underlying assumptions provide a reasonable basis for the prospective financial statement information (caution that the results may not be achieved).
4. (restrict if projection)

Question 3

Examinations can only be available for general distribution if

Answer 3

Forecasts

Projection - must be restricted

Question 4

If prospective information is presented as a RANGE

Answer 4

add EoM paragraph

Question 5

Modification of opinion - Examination

Answer 5

a. Issue a qualified or adverse opinion—when the presentation departs from AICPA guidelines.
b. Issue an adverse opinion if the presentation is not in conformity with AICPA guidelines or if the underlying assumptions are not reasonable.
c. Disclaim an opinion if the scope of the examination is insufficient.

Question 6

Compilation of Prospective FS information: Assurance given

Answer 6

No assurance

Question 7

Compilation of Prospective FS information: Responsibility

Answer 7

Disclose all significant assumptions; read the information and consider whether it is consistent with AICPA guidelines; even though no assurance is given for a compilation, consider whether the compiled information is obviously inappropriate.

Question 8

Compilation of Prospective FS information: Reporting

Answer 8

1. 1st paragraph – Identify the prospective financial statement information compiled and state that the compilation was made in accordance with AICPA standards.
2. 2nd paragraph – Point out that a compilation is limited in scope (and disclaim an opinion); caution that the results may not be achieved; and state that the accountant takes no responsibility for any events after the report date.
3. (restrict if projection)

Question 9

Compilation of Prospective FS information: Additional paragraphs

Answer 9

May add an explanatory paragraph to emphasize a matter as desired.
F. Any identified deficiencies and omissions must be noted.
G. Do not have to be independent to compile prospective financial statements (since not conveying any assurance)—if lacking independence, add a sentence at the end of the compilation report pointing out that fact.

Question 10

AUP: Reporting

Answer 10

B.
Reporting – Usually consists of five paragraphs:
1. Identify the prospective financial statement information, the specified users, the type of engagement, and refer to AICPA standards.
2. Refer to AICPA’s attestation standards.
3. Enumerate the procedures performed and the resulting findings.
4. State that the scope was less than an examination under AICPA guidelines and caution that the results may not be achieved; state that the accountant takes no responsibility for events occurring after the report date and disclaim an opinion.
5. Restrict the distribution of the report to the specified users for all “agreed-upon procedures” engagements!

Question 11

Restricted Reports: types

Answer 11

• any report on projections
• AUPs
• report on ‘partial presentation’ (omission of AICPA minimum presentation guidelines)

Question 12

Minimum Presentation guidelines

Answer 12

1. Sales or gross revenues;
2. Gross profit or cost of sales;
3. Unusual or infrequently occurring items;
4. Provision for income taxes;
5. Discontinued operations or extraordinary items;
6. Income from continuing operations;
7. Net income;
8. Basic and diluted earnings per share;
9. Significant changes in financial position;
10. Description of what the responsible party intends the prospective financial statements to represent;
11. Summary of significant assumptions;
12. Summary of significant accounting policies.