Due to computer technology, it is often unclear whether existing financial statements have been “prepared” by an accountant or by management.
In considering whether an accountant is deemed to have prepared financial statements, an accountant needs to apply professional judgment to all the facts and circumstances.
What factors may accountants consider? AICPA, TIS Section 9150 paragraph 25 [“Determining Whether Financial Statements Have Been Prepared by the Accountant”, Dec 2008] simply answer this question. Read on…
AR section 100, Compilation and Review of Financial Statements (AICPA, Professional Standards, vol. 2), paragraph 1 states that; “the accountant should not submit un-audited financial statements of a non-issuer to his or her client or third parties unless, as a minimum, he or she complies with the provisions of AR section 100 applicable to a compilation engagement“. Submission of financial statements is defined in AR section 100 paragraph .04 as presenting to a client or third parties financial statements that the accountant has prepared either manually or through the use of computer software.
The issue is: If an accountant’s work effort results in or contributes to the existence of financial statements, what should an accountant consider in determining whether he or she prepared those financial statements?
There are, at least four factors that an accountant may consider:
Factor#1. The Process Used to Create the Financial Statements
If an accountant takes a client’s trial balance and puts the accounts into a format that would represent a financial statement, then an accountant has probably prepared the financial statements. The less an accountant has to do with creating the statements, the less likely an accountant would be deemed to have prepared the statements.
Factor#2. Whether the Client Engaged the Accountant to Prepare Financial Statements
The secon factor to be considered is whether the client engaged the accountant to prepare financial statements or reasonably expected that as part of the professional services engagement the accountant would prepare financial statements. An accountant may determine that he or she prepared financial statements even when not so engaged if, as part of an accounting or bookkeeping services engagement, in the accountant’s professional judgment, the client reasonably expected that the existing financial statements were prepared as a product of that engagement.
Factor#3. The Extent of Work Effort That Accountant Contrbuted
The extent of work effort that an accountant contributed to the existence of the financial statements is the third significant factor to be considered. For example, if an accountant is intricately involved in adjusting the general ledger and other accounts that are, in turn, presented in a financial statement format, the more likely an accountant may be viewed as preparing the financial statements. On the other hand, if an accountant is not very involved in the accounting process, the less likely that an accountant would be deemed to have prepared the financial statements.
Factor#4. Where the Underlying Accounting Information Resides
If all the accounting data resides on the accountant’s computer, it is more likely that the accountant is deemed to have prepared the financial statements. However, based on the facts and circumstances of the situation, an accountant may conclude that he or she prepared financial statements through the use of accounting or bookkeeping software utilized by the client.
Notes: Considerations such as who printed the financial statements or the location at which an accountant’s services were performed (for example, at the client’s location or the accountant’s location) are generally not factors in determining whether the accountant has prepared financial statements.
The previously mentioned factors are not meant to be all-inclusive nor are they meant to be used as a program or checklist for determining whether the accountant has prepared financial statements. They address certain general areas that may be factors in the exercise of professional judgment. The accountant may consider other factors in the exercise of professional judgment.
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