Prospective financial information : April 1, 2017

237 Pages·2017·5.53 MB·English

G U I D E
Prospective
Financial
Information
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AAG-PRO-Title.indd 1 4/4/17 1:14 PM
Copyright © 2017 by
American Institute of Certified Public Accountants, Inc.
New York, NY 10036-8775
All rights reserved. For information about the procedure for requesting permission to
make copies of any part of this work, please e-mail [email protected] with your
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ISBN 978-1-94354-686-2
AAG-PRO-Copyright.indd 1 3/23/17 1:49 PM
iii
Preface
(UpdatedasofApril1,2017)
About AICPA Guides
This AICPA Guide has been developed under the supervision of the AICPA
Auditing Standards Board (ASB) and Accounting and Review Services Com-
mittee(ARSC)toassistmanagementinthepreparationoffinancialforecasts
andprojectionsandtoassistpractitionersinperformingandreportingontheir
examination and agreed-upon procedures engagements in accordance with
Statements on Standards for Attestation Engagements (SSAEs) and their
preparation and compilation engagements in accordance with Statements on
StandardsforAccountingandReviewServices(SSARSs).
Thisguideisaninterpretivepublicationpursuanttoparagraph.A30ofAT-C
section105,CommonConceptstoAllAttestationEngagements(AICPA,Profes-
sional Standards),and paragraph .06 of AR-C section 60,General Principles
for Engagements Performed in Accordance With Statements on Standards for
AccountingandReviewServices(AICPA,ProfessionalStandards).Interpretive
publicationsarerecommendationsontheapplicationofSSAEsandSSARSsin
specificcircumstances,includingengagementsforentitiesinspecializedindus-
tries.InterpretivepublicationsareissuedundertheauthorityoftheASBand
ARSConlyafterallmembersoftherespectivecommitteehavebeenprovidedan
opportunitytoconsiderandcommentonwhethertheproposedinterpretative
publicationisconsistentwithSSAEsorSSARSs,respectively.Themembersof
theASBandtheARSChavefoundtheguidanceinthisguidetobeconsistent
withtheexistingSSAEsandSSARSs.
In accordance with paragraph .21 of AT-C section 105 and paragraph .17 of
AR-C section 60,an accountant should consider interpretive publications ap-
plicabletohisorherengagementinaccordancewithSSAEsorSSARS,respec-
tively.Iftheaccountantdoesnotapplytheinterpretiveguidanceinanapplica-
bleAICPAGuide,theaccountantshouldbepreparedtoexplainhowheorshe
compliedwiththeSSAEorSSARSprovisionsaddressedbysuchguidance.
AICPA Guides may include certain content presented as "Supplement," "Ap-
pendix," or "Exhibit." A supplement is a reproduction,in whole or in part,of
authoritative guidance originally issued by a standard setting body (includ-
ing regulatory bodies) and applicable to entities or engagements within the
purviewofthatstandardsetter,independentoftheauthoritativestatusofthe
applicableAICPAGuide.
Bothappendixesandexhibitsareincludedforinformationalpurposesandhave
noauthoritativestatus.
Other Attestation Publications
Anyexaminationoragreed-uponproceduresguidanceinaguideappendixor
chapter appendix in a guide, or in an exhibit, although not authoritative, is
considered an other attestation publication.In applying such guidance,in ac-
cordancewithparagraph.22ofAT-Csection105,theaccountantshould,exer-
cisingprofessionaljudgment,assesstherelevanceandappropriatenessofsuch
guidancetothecircumstancesoftheengagement.Althoughtheaccountantde-
terminestherelevanceofsuchguidance,suchguidanceinaguideappendixor
©2017, AICPA AAG-PRO
iv
exhibithasbeenreviewedbytheAICPAAuditandAttestStandardsstaffand
theaccountantmaypresumethatitisappropriate.
TheASBisthedesignatedseniorcommitteeoftheAICPAauthorizedtospeak
fortheAICPAonallmattersrelatedtoauditing,attestation,andqualitycontrol
fornonissuers1 (thatis,thoseentitiesnotsubjecttotheoversightauthorityof
thePCAOB).Conformingchangesmadetotheattestationguidancecontained
inthisguideareapprovedbytheASBChair(orhisorherdesignee)andthe
DirectoroftheAICPAAuditandAttestStandardsStaff.Updatesmadetothe
attestation guidance in this guide exceeding that of conforming changes are
issuedafterallASBmembershavebeenprovidedanopportunitytoconsider
andcommentonwhethertheguideisconsistentwiththeSSAEs.
Other Preparation, Compilation and Review Publications
Any preparation or compilation guidance in a guide appendix or chapter ap-
pendix in a guide, or in an exhibit, although not authoritative,is considered
an other preparation, compilation, and review publication. In applying such
guidance,inaccordancewithparagraph.18ofAR-Csection60,theaccountant
should,exercising professional judgment,assess the relevance and appropri-
ateness of such guidance to the circumstances of the engagement. Although
theaccountantdeterminestherelevanceofsuchguidance,suchguidanceina
guide appendix or exhibit has been reviewed by the AICPA Audit and Attest
Standardsstaffandtheaccountantmaypresumethatitisappropriate.
TheARSCisthedesignatedseniorcommitteeoftheAICPAauthorizedtospeak
fortheAICPAonallmattersrelatedtopreparation,compilation,andreviewen-
gagements.Conformingchangesmadetotheguidancecontainedinthisguide
areapprovedbytheARSCchair(orhisorherdesignee)andtheDirectorofthe
AICPAAuditandAttestStandardsstaff.Updatesmadetotheguidanceinthis
guide exceeding that of conforming changes are issued after all ARSC mem-
bershavebeenprovidedanopportunitytoconsiderandcommentonwhether
theguideisconsistentwithSSARSs.
Purpose and Applicability
This guide applies to prospective financial information. This guide does not
discusstheapplicationofGAAPorGAAS.Thisguideisdirectedtoentitiesthat
issueprospectivefinancialinformationandpractitionerswhoprovideservices
onprospectivefinancialinformation.
Recognition
2017GuideEdition
(Updatestothiseditionexceededthatofconformingchanges.)
AICPASeniorCommittees
AuditingStandardsBoard
(memberswhenthiseditionwascompleted)
MikeSantay,Chair
GerryBoaz
1 SeethedefinitionofthetermnonissuerintheAU-CGlossary(AICPA,ProfessionalStandards).
AAG-PRO ©2017, AICPA
v
JayBrodish,Jr.
DoraBurzenski
JosephCascio
LawrenceGill
SteveGlover
GalyenHansen
TracyHarding
DanielHevia
IleneKassman
AlanLong
RichMiller
DanMontgomery
StevenMorrison
RickReisig
CatherineScweigel
JereG.Shawver
M.ChadSingletary
(pastmemberswhocontributedtothisedition)
SallyAnnBailey
DoraBurzenski
ElizabethGantnier
RyanKaye
MarcPanucci
AccountingandReviewServicesCommittee
(memberswhenthiseditionwascompleted)
MichaelA.Fleming,Chair
DennyArd
SheliaBalzer
JimmyBurkes
JeremyDillard
DavidA.Johnson
DustinT.Verity
TheAICPAalsothanksDonPallaisforhisinvaluableassistanceinupdating
the2017editionoftheguide.
AICPAStaff
LieseFaircloth
Manager,ProductManagement&Development
JudithSherinsky
SeniorManager,AuditandAttestStandards
MichaelGlynn
SeniorManager,AuditandAttestStandards
andStaffLiaisontotheAccountingandReviewServicesCommittee
Guidance Considered in This Edition
ThiseditionoftheguidehasbeenmodifiedbytheAICPAstafftoincludecertain
changesnecessaryduetotheissuanceofauthoritativeguidancesincetheguide
wasoriginallyissued,andotherrevisionsasdeemedappropriate.Relevantau-
thoritative guidance issued through November 1, 2016, has been considered
©2017, AICPA AAG-PRO
vi
in the development of this edition of the guide.However,this guide does not
includeallreportingandotherrequirementsapplicabletoanentityorapar-
ticularengagement.Thisguideisintendedtobeusedinconjunctionwithall
applicablesourcesofrelevantauthoritativeguidance.
In updating this guide,all guidance issued up to and including the following
wasconsidered,butnotnecessarilyincorporated,asdeterminedbasedonap-
plicability:
(cid:2)
SSAENo.18,AttestationStandards:ClarificationandRecodifica-
(cid:2) tion(AICPA,ProfessionalStandards)
SSARSNo.23,OmnibusStatementonStandardsforAccounting
andReviewServices—2016(AICPA,ProfessionalStandards)
Usersofthisguideshouldconsiderauthoritativeguidanceissuedsubsequent
tothoseitemslistedpreviouslytodeterminetheeffect,ifany,ofsuchguidance
onentitiesandengagementscoveredbythisguide.Indeterminingtheapplica-
bilityofrecentlyissuedguidance,considertheeffectivedateofsuchguidance.
The changes made to this edition of the guide are identified in appendix
B, "Schedule of Changes Made to the Text From the Previous Edition." The
changesdonotincludeallthosethatmightbeconsiderednecessaryiftheguide
weresubjectedtoacomprehensivereviewandrevision.
References to AICPA Professional Standards
IncitingSSAEsandSSARSsandtheirrelatedinterpretations,referencesuse
AT-C and AR-C section numbers, as appropriate, within AICPA Professional
Standardsandnottheoriginalstatementnumber.
Terms Used to Define Professional Requirements in This
AICPA Guide
Any requirements described in this guide are normally referenced to the ap-
plicable standards or regulations from which they are derived.Generally the
termsusedinthisguidedescribingtheprofessionalrequirementsoftherefer-
encedstandardsetter(forexample,theASB)arethesameasthoseusedinthe
applicablestandardsorregulations(forexample,mustorshould).
Readersshouldrefertotheapplicablestandardsandregulationsformorein-
formation on the requirements imposed by the use of the various terms used
todefineprofessionalrequirementsinthecontextofthestandardsandregula-
tionsinwhichtheyappear.
Certainexceptionsapplytothesegeneralrules,particularlyinthosecircum-
stanceswheretheguidedescribesprevailingorpreferredindustrypracticesfor
theapplicationofastandardorregulation.Inthesecircumstances,theappli-
cable senior committee responsible for reviewing the guide's content believes
theguidancecontainedhereinisappropriateforthecircumstances.
Applicability of Quality Control Standards
QCsection10,AFirm'sSystemofQualityControl(AICPA,ProfessionalStan-
dards),addressesaCPAfirm'sresponsibilitiesforitssystemofqualitycontrol
for its accounting and auditing practice.A system of quality control consists
AAG-PRO ©2017, AICPA
vii
ofpoliciesthatafirmestablishesandmaintainstoprovideitwithreasonable
assurancethatthefirmanditspersonnelcomplywithprofessionalstandards,
aswellasapplicablelegalandregulatoryrequirements.Thepoliciesalsopro-
vide the firm with reasonable assurance that reports issued by the firm are
appropriateinthecircumstances.
QC section 10 applies to all CPA firms with respect to engagements in their
accounting and auditing practice. In paragraph .06 of QC section 10, an ac-
countingandauditingpracticeisdefinedas"apracticethatperformsengage-
mentscoveredbythissection,whichareaudit,attestation,compilation,review,
andanyotherservicesforwhichstandardshavebeenpromulgatedbytheASB
ortheARSCunderthe"GeneralStandardsRule"(AICPA,ProfessionalStan-
dards,ET sec.1.300.001) or the "Compliance With Standards Rule" (AICPA,
ProfessionalStandards,ETsec.1.310.001)oftheAICPACodeofProfessional
Conduct.Although standards for other engagements may be promulgated by
otherAICPAtechnicalcommittees,engagementsperformedinaccordancewith
thosestandardsarenotencompassedinthedefinitionofanaccountingandau-
ditingpractice.
InadditiontotheprovisionsofQCsection10,readersshouldbeawareofother
sectionswithinAICPAProfessionalStandardsthataddressqualitycontrolcon-
siderations,includingthefollowingprovisionsthataddressengagementlevel
quality control matters for various types of engagements that an accounting
andauditingpracticemightperform:
(cid:2)
AU-C section 220, Quality Control for an Engagement Con-
ducted in Accordance With Generally Accepted Auditing Stan-
(cid:2) dards(AICPA,ProfessionalStandards)
AT-C section 105, Concepts Common to All Attestation Engage-
(cid:2) ments(AICPA,ProfessionalStandards)
AR-C section 60,General Principles for Engagements Performed
inAccordanceWithStatementsonStandardsforAccountingand
ReviewServices(AICPA,ProfessionalStandards)
Because of the importance of engagement quality,this guide includes an ap-
pendix,OverviewofStatementsonQualityControlStandards.Thisappendix
summarizes key aspects of the quality control standard.This summarization
should be read in conjunction with QC section 10, AU-C section 220, AT-C
section105,AR-Csection60,andthequalitycontrolstandardsissuedbythe
PCAOB,asapplicable.
AICPA.org Website
The AICPA encourages you to visit the website at www.aicpa.org, and the
Financial Reporting Center (FRC) at www.aicpa.org/FRC.The FRC supports
membersintheexecutionofhigh-qualityfinancialreporting.Whetheryouare
afinancialstatementprepareroramemberinpublicpractice,thiscenterpro-
vides exclusive member-only resources for the entire financial reporting pro-
cess,andprovidestimelyandrelevantnews,guidanceandexamplessupport-
ing the financial reporting process.Another important focus of the Financial
ReportingCenteriskeepingthoseinpublicpracticeuptodateonissuesper-
taining to preparation,compilation,review,audit,attestation,assurance and
advisoryengagements.CertaincontentontheAICPA'swebsitesreferencedin
thisguidemayberestrictedtoAICPAmembersonly.
©2017, AICPA AAG-PRO
viii
Select Recent Developments Significant to This Guide
AICPA’s Ethics Codification Project
The AICPA's Professional Ethics Executive Committee (PEEC) restructured
andcodifiedtheAICPACodeofProfessionalConduct(code)sothatmembers
and other users of the code can apply the rules and reach appropriate con-
clusions more easily and intuitively. This is referred to as the AICPA Ethics
CodificationProject.
AlthoughPEECbelievesitwasabletomaintainthesubstanceoftheexisting
AICPAethicsstandardsthroughthisprocessandlimitedsubstantivechanges
to certain specific areas that were in need of revision, the numeric citations
and titles of interpretations have all changed.In addition,the ethics rulings
are no longer in a question and answer format but rather,have been drafted
as interpretations, incorporated into interpretations as examples, or deleted
wheredeemedappropriate.Forexample,
(cid:2)
Rule101,Independence(ETsec.101.01)isreferredtoasthe"In-
(cid:2) dependenceRule"(ETsec.1.200.001)intherevisedcode.
the content from the ethics ruling entitled "Financial Services
Company Client has Custody of a Member's Assets" (ET sec.
191.081-.082) is incorporated into the "Brokerage and Other
Accounts" interpretation (ET sec. 1.255.020) found under the
subtopic "Depository, Brokerage, and Other Accounts" (ET sec.
1.255)ofthe"Independence"topic(ETsec.1.200).
The revised code was effective December 15, 2014, and is available at
http://pub.aicpa.org/codeofconduct.References to the code have been updated
in this guide.To assist users in locating in the revised code content from the
priorcode,PEECcreatedamappingdocument.Themappingdocumentisavail-
ableinExcelformatinappendixDintherevisedcode.
Attestation Clarity Project
Toaddressconcernsovertheclarity,length,andcomplexityofitsstandards,the
ASBestablishedclaritydraftingconventionsandundertookaprojecttoredraft
all the standards it issues in clarity format.The redrafting of Statements on
Standards for Attestation Engagements (SSAEs or attestation standards) in
SSAENo.18representstheculminationofthatprocess.
TheattestationstandardsaredevelopedandissuedintheformofSSAEsand
arecodifiedintosections.SSAENo.18recodifiesthe"AT"sectionnumbersdes-
ignatedbySSAENos.10–17usingtheidentifier"AT-C"todifferentiatethesec-
tionsoftheclarifiedattestationstandards(AT-Csections)fromtheattestation
standardsthataresupersededbySSAENo.18(ATsections).
The AT sections in AICPA Professional Standards remain effective through
April2017,bywhichtimesubstantiallyallengagementsforwhichtheATsec-
tionswerestilleffectiveareexpectedtobecompleted.Theclarifiedattestations
foundinAT-Csectionsareeffectiveforpractitioners'reportsdatedonorafter
May1,2017.
AAG-PRO ©2017, AICPA
TableofContents ix
TABLE OF CONTENTS
Chapter Paragraph
1 Introduction .01-.12
StructureoftheGuide ........................................ .06
RelationshiptoOtherLiterature ............................... .07-.12
2 Scope .01-.10
Presentations ................................................. .01-.03
Practitioners’Services ........................................ .04-.10
3 Definitions .01-.14
4 TypesofProspectiveFinancialInformationandTheirUses .01-.09
5 ResponsibilityforProspectiveFinancialInformation .01-.04
6 PreparationGuidelines .01-.51
7 ReasonablyObjectiveBasis .01-.42
8 PresentationGuidelines .01-.72
ProspectiveFinancialStatements .............................. .02-.56
UsesofProspectiveFinancialStatements ................... .02-.03
ResponsibilityforProspectiveFinancialStatements .......... .04-.05
Title ....................................................... .06-.07
Format .................................................... .08-.12
Date ...................................................... .13
AccountingPrinciplesandPolicies ......................... .14-.19
Materiality ................................................ .20
PresentationofAmounts ................................... .21-.24
Assumptions ............................................... .25-.36
PeriodtoBeCovered ...................................... .37-.48
DistinguishingFromHistoricalFinancialStatements ......... .49-.50
CorrectionandUpdatingofaFinancialForecast ........... .51-.56
PartialPresentations .......................................... .57-.72
UsesofPartialPresentations ............................... .59-.60
PreparationandPresentationofPartialPresentations ....... .61-.72
9 IllustrativeProspectiveFinancialInformation .01-.08
10 TypesofPractitioners’Services .01-.39
TypesofServices ............................................. .03-.16
ResponsibilityforProspectiveFinancialInformation ............ .17
©2017, AICPA Contents
x TableofContents
Chapter Paragraph
10 TypesofPractitioners’Services—continued
ReasonablyObjectiveBasisforPresentation .................. .18-.20
QualityControl .............................................. .21-.26
Independence ................................................ .27-.32
ChangeinEngagementtoaLowerLevelofService ........... .33-.37
APractitioner’sResponsibilityforProspectiveFinancial
InformationThatContainsDisclosuresAboutPeriods
BeyondtheProspectivePeriod ............................. .38
Materiality ................................................... .39
11 PreparationofProspectiveFinancialInformation .01-.52
Introduction .................................................. .01-.02
Applicability ................................................. .03-.09
Independence ................................................ .10-.11
Requirements ................................................ .12-.51
GeneralPrinciplesforPerformingEngagementsto
PrepareProspectiveFinancialInformation ............... .12-.13
PreconditionsforAcceptinganEngagementto
PrepareProspectiveFinancialInformation ............... .14-.21
AgreementonEngagementTerms .......................... .22-.27
KnowledgeandUnderstandingoftheEntity’sFinancial
ReportingFramework ................................... .28-.32
KnowledgeofOtherMatters ............................... .33
PreparingtheProspectiveFinancialInformation ............. .34-.40
PreparationofProspectiveFinancialInformationThat
ContainsaKnownDepartureorDeparturesfromthe
AICPAPresentationGuidelines .......................... .41-.44
PreparationofProspectiveFinancialInformationThat
OmitsSubstantiallyAllDisclosuresRequiredbythe
AICPAPresentationGuidelines .......................... .45-.46
CommunicationWiththeResponsibleParty ................. .47-.48
DocumentationRequirements ............................... .49-.51
AppendixA—IllustrativeEngagementLettersfora
PreparationEngagement .................................. .52
12 CompilationProcedures .01-.37
Introduction .................................................. .01-.03
Applicability ................................................. .04-.05
Requirements ................................................ .06-.32
GeneralPrinciplesforPerformingandReportingon
CompilationsofProspectiveFinancialInformation ....... .06-.07
PreconditionsforAcceptingaCompilation
Engagement ............................................ .08-.14
AgreementonEngagementTerms .......................... .15-.20
Contents ©2017, AICPA