Things to Know When Working with Prepared Reports

Things to Know When Working with Prepared Reports

By Suvro C.K. Banerjee, Quality Assurance Manager, Ethics

Most members of the New York State Society of CPAs know that they must follow GAAS (Generally Accepted Auditing Standards) when performing an audit. It is also well known that the Statements on Standards for Accounting and Review Services (SSARSs) govern reviewed and compiled financial statements of nonpublic entities. Less well known, however, are the rules that govern other types of assurance a licensee gives on financial statement elements.

An investigation recently completed by the Society’s Professional Ethics Committee (PEC) concerned a member who had noted several income statement and balance sheet items on his firm’s letterhead. He sent this report to a client to be used to obtain a loan. In his reply to the PEC, the member asserted that such a report was permissible because neither Statements on Auditing Standards (SASs) nor SSARSs governed this type of engagement. Although this conclusion was wrong, the member was correct about the fact that these standards do not govern this type of report.

These engagements typically belong to the category of “agreed-upon procedures,” and the rules governing them can be found in Statements on Standards for Attestation Engagements (SSAEs) 10 and 11. Often, the need for such engagements arises from requirements imposed on clients by external entities.

Clients in government, nonprofits and healthcare, for instance, may have to file reports for funding authorities and regulatory agencies. These prescribed reports may require information on a client’s financial state, type of services provided, and employee training. Frequently, the external agency requires a CPA to evaluate the financial information contained therein and to sign the report as verification that the information provided is correct.

For example, a New York City agency asks a CPA to sign a report evaluating the accuracy of a list of the gross receipts of a small business seeking aid from the agency. The agency’s report is not generated in conformity with professional standards, even though it contains the notation “We have reviewed the information in accordance with standards established by the American Institute of CPAs.”

In performing an agreed-upon-procedures engagement, CPAs may satisfy the engagement and performance requirements of SSAE 10 but they would fail to satisfy its reporting requirements by signing such a prescribed report because it is not generated in conformity with professional standards and, therefore, they would violate professional standards by doing so. As a result, an NYSSCPA member also could be subject to disciplinary actions by the PEC and the New York State Board of Regents.

Under this type of engagement, however, CPAs are allowed to issue a report, which could contain the same information that appears in a prepared report. These reports should follow the prescribed form as noted in AT Section 201 of the AICPA’s professional standards. Among its items, such a report could include: confirmation that the report is issued in accordance with attestation standards; the procedures undertaken to substantiate the opinion (clearly indicating that an audit was not conducted); and the intended users of the report.

If a member is asked by a client to sign a prescribed report that is not in accordance with professional standards, the member should strike the prescribed report and add the words “see attached” to the document. The accountant should then attach the appropriate agreed-upon-procedures report to the document after performing an appropriate engagement.

In the case where a member meets with resistance from a client or an external agency when complying with professional standards, he or she should contact the Society.