Compilation Reports for Valuation Engagements? AICPA Offers Q&A on SSARSs and SSVS Confusion. Reviewed by Momizat on . Business valuation (BV) reports frequently include information presented in the form of financial statements. The reporting requirements for such financial stat Business valuation (BV) reports frequently include information presented in the form of financial statements. The reporting requirements for such financial stat Rating:
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Compilation Reports for Valuation Engagements? AICPA Offers Q&A on SSARSs and SSVS Confusion.

Business valuation (BV) reports frequently include information presented in the form of financial statements. The reporting requirements for such financial statements have drawn increased attention as a result of the issuance of Statement on Standards for Accounting and Review Services No. 19 (SSARS 19), Compilation and Review Engagements.  

The Journal of Accountancy reports: “When conforming the existing SSARSs Interpretations to SSARS 19, the Accounting and Review Services Committee decided to withdraw an interpretation related to financial information in BV reports. It has become evident, based on questions the AICPA has received, that the move sparked some confusion.”

To resolve the issue, the AICPA’s Forensic and Valuation Services (FVS) Executive Committee put together a Q&A. Excerpts:

Q: If the valuation analyst uses a subject company’s general ledger and prepares financial statements that will be presented as part of the BV report, does the valuation analyst or his or her firm have to comply with Statements on Standards for Accounting and Review Services (SSARSs), including the performance and reporting requirements for a compilation engagement with respect to those financial statements?

 

A: Yes. If the valuation analyst uses the subject company’s general ledger to prepare financial statements and presents such financial statements in the BV report, there is a requirement to compile those financial statements in accordance with SSARSs, including providing a compilation report.

Paragraph .01 of AR Section 80, Compilation of Financial Statements, states that the accountant is required to comply with the provisions of AR Section 80 whenever he or she submits financial statements to a client or to third parties. Paragraph .04 of AR Section 60, Framework for Performing and Reporting on Compilation and Review Engagements, defines submission of financial statements as “presenting to management financial statements that an accountant has prepared.”

Q: In the course of developing a business valuation in accordance with SSVS1, a valuation analyst may make certain normalization or control adjustments to the financial statements (audited, reviewed, compiled, or internally prepared) provided by the subject entity. Is the valuation analyst required to compile this adjusted financial information in accordance with SSARSs?

A: No. Normalization and control adjustments are considered pro forma adjustments. Paragraphs .03–.04 of AR Section 120, Compilation of Pro Forma Financial Information, state: [more detailed info found at the article link; not included here for brevity]

Q: If the information provided to the valuation analyst by the subject entity is tax return information and the valuation analyst makes adjustments to the tax return information, is the valuation analyst or his or her firm required to prepare a compilation report?

A: No. Tax return information, by definition, is not a financial statement. Therefore, adjustments to tax return information do not change its nature into that of a financial statement.

Changing Interpretations = Confusion

Read the whole thing here

The National Association of Certified Valuators and Analysts (NACVA) supports the users of business and intangible asset valuation services and financial forensic services, including damages determinations of all kinds and fraud detection and prevention, by training and certifying financial professionals in these disciplines.

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