The American Institute of CPAs (AICPA) has clarified its guidance on pro forma compilations. Here is an explanation of when the new Statement on Standards for Accounting and Review Services (SSARS) applies and what your CPA now expects from you when performing these nontraditional attestation services.
SSARS 22 applies when an accountant has been engaged to perform a compilation engagement on pro forma financial information. Unlike forecasts or projections that reflect prospective financial results, pro forma financial information shows what the historical financial statements would have looked like had a transaction or event — such as a business combination, disposition of a business line or change in capitalization — occurred at an earlier date.
The new guidance explains that a compilation engagement on pro forma financial information often is undertaken as a separate engagement. However, it also can be done in conjunction with a compilation, review, or an audit of financial statements.
Expectations for clients
When compiling pro forma statements, what do we expect from you? Under SSARS 22, the company’s management must 1) provide written acknowledgment that it accepts full responsibility for the preparation and fair presentation of the pro forma financial information in accordance with the applicable financial reporting framework, and 2) include (or make readily available) the following in any document containing the pro forma financial information:
- Your company’s financial statements for the most recent year
- A summary of significant assumptions
- Interim period historical financial information, if interim period pro forma financial information is presented
- In the case of a business combination, the relevant historical financial information for the significant constituent parts of the combined entity
Financial statements and historical interim financial information are deemed to be ‘readily available’ if a third party can obtain them without any further action by the entity. For example, historical interim financial information on a company’s website may be considered readily available. However, information that is available upon request is not considered readily available.
Additionally, pro forma financial information must be based on historical financial statements that have been compiled, reviewed, or audited. Moreover, the new standard requires you to ask your CPA for permission before including the compilation report in any document containing pro forma financial information that indicates that a compilation has been performed on such information.
Up & running
SSARS 22 is effective for compilation reports on pro forma financial information dated on or after May 1, 2017. We understand these fundamental changes and have updated our practices to comply with the new guidance. Contact us for help compiling your pro formas.