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New Guidance Provided for Preparing Financial Statement Engagement Letters

By: T. Steel Rose, CPA | Early implementation is permitted for the proposed SSARS covering Preparation of Financial Statements. If accepted they would be effective for the preparation of financial statements for periods ending on or after December 15, 2015. This illus­trative engagement letter (Ref: par. A11) for an engagement to prepare financial statements in accordance with accounting principles generally accepted in the US is not authoritative. It is intended as an illustration that may be used in conjunction with the considerations outlined in Statements on Standards for Accounting and Review Services.

An example of such a letter:

 

To the appropriate representative of management of ABC Company:

You have requested that we prepare the financial statements of ABC Com­pany, which comprise the balance sheet as of December 31, 2014, and the re­lated statements of income, and changes in stockholders’ equity, and cash flows for the year then ended and the related notes to the financial statements. We are pleased to confirm our acceptance and our understanding of this engagement to prepare the financial statements of ABC Company by means of this letter.

Our Responsibilities:

The objective of our engagement is to prepare financial statements in accor­dance with accounting principles gener­ally accepted in the United States based on information provided by you.

We will conduct our engagement in accordance with Statements on Stan­dards for Accounting and Review Ser­vices (SSARSs) promulgated by the Accounting and Review Services Com­mittee of the AICPA and comply with the AICPA’s Code of Professional Con­duct, including the ethical principles of integrity, objectivity, professional com­petence, and due care.

We are not required to, and will not, verify the accuracy or completeness of the information you will provide to us for the engagement or otherwise gather evidence for the purpose of expressing an opinion or a conclusion. Accordingly, we will not express an opinion or a conclu­sion or provide any assurance on the fi­nancial statements.

Our engagement cannot be relied upon to identify or disclose any financial statement misstatements, including those caused by fraud or error, or to identify or disclose any wrongdoing within the entity or noncompliance with laws and regulations.

Your Responsibilities:

The engagement to be performed is con­ducted on the basis that you acknowl­edge and understand that our role is the preparation of the financial statements in accordance with accounting principles generally accepted in the United States.

You have the following overall re­sponsibilities that are fundamental to our undertaking, in accordance with SSARSs, the engagement to prepare your financial statements:

a. The prevention and detection of fraud

b. To ensure that the entity complies with the laws and regulations appli­cable to its activities

c. To make all financial records and re­lated information available to us

d. The accuracy and completeness of the records, documents, explanations, and other information, including significant judgments, you provide to us for the en­gagement to prepare financial statements

You agree that the financial state­ments will clearly indicate that no CPA provides any assurance on them.

Our fees for these services are…

You agree to hold us harmless and to release, indemnify, and defend us from any liability or costs, including attorney’s fees, resulting from management’s know­ing misrepresentations to us.

Please sign and return the attached copy of this letter to indicate your ac­knowledgement of, and agreement with, the arrangements for our engagement to prepare the financial statements de­scribed herein, and our respective re­sponsibilities.

Sincerely yours,

_______________________

[Signature of accountant or accountant’s firm]

Acknowledged and agreed on behalf of ABC Company by:

_______________________

Signed

[Name and title]

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