By Robert Moore, Jr., CPA
Technical Reviewer, VSCPA Peer Review Committee
Preparation engagements are becoming more prevalent in the profession. Many firms have added this type of engagement to the services they provide, while other firms are performing preparations exclusively as their only accounting service. These engagements may appear to be simpler than your standard compilation or review engagement, but you should be aware of the requirements of professional standards when performing these engagements.
- The preparation engagement, like other engagements, must be covered by an engagement letter that outlines the terms of the engagement. The specifics of preparation engagement terms are addressed in AR-C 70.10.
- Each page of the financial statements should, at a minimum state that “no assurance is provided” on the financial statements.
- If the financial statements are prepared in accordance with a special purpose framework, this should be disclosed either on the face of the financial statements or in a note to the financial statements. The cash basis of accounting and income tax basis of accounting are very common in these types of engagements.
- If there are known departures from the applicable reporting framework, including inadequate disclosures, these matters should be disclosed in the financial statements. These disclosures may be on the face of the financial statements or in a note to the financial statements.
Preparation engagements, perhaps designed to be a “lower level” of service, are not services without certain responsibilities. Firms should be aware of their responsibilities and apply those in their practice. The guidance on preparation engagements is addressed at AR-C 70.13 through AR-C 70.18.