As per Clause (3) of part 1 of second schedule of ICAI Act 1949
-A chartered accountant in practice shall be deemed to be guilty of professional misconduct,
-If he permits his name or the name of his firm to be used in connection with an estimate of earnings contingent upon future transactions in a manner which may lead to belief that he vouches for the accuracy of the forecast.
In respect of the Provisional Financial statements a CA can sign the provisional Financials subject to compliance the provisions of SRS 4410 (REVISED) a standard on related Services, COMPILATION ENGAGEMENTS effective from March 31, 2016.
This Standard on Related Services (SRS) deals with the practitioner’s responsibilities when engaged to assist the management with the preparation and presentation of historical financial information without obtaining any assurance on that information, and to report on the engagement in accordance with this SRS.
This can be downloaded from here:
The practitioner’s objectives in a compilation engagement under this
SRS are to:
1. Apply accounting and financial reporting expertise to assist management in the preparation and presentation of financial information in accordance with an applicable financial reporting framework based on information provided by management; and
2. Report in accordance with the requirements of this SRS.
Here it is to be mention that, Provisional financial statements- are prepared on the basis of the past data i.e. for the period which is already completed and also based on the historical data, however the same is unaudited.
In case of Provisional Financial statements- Members on the basis of the facts produced before him, may sign those unaudited provisional financials but request must come from the client in this regards.
Management retains responsibility for the financial information and the basis on which it is prepared and presented.
The member has to comply with the standard on related services SRS 4410 while preparing provisional financial statements/ compilation of information and has to obtain UDIN for the same
Important points to be taken care-
1. Obtain the written engagement letter from the Management
2. Receive the final signed trial balance and balance sheet
3. A statement, that practitioner has compiled the financial information provided by management
4. A description of the responsibilities of the Management, or those charged with governance as appropriate , in relation to the compilation engagement , and in relation to the financial information
5. Identification of the applicable financial reporting framework and if a special purpose financial reporting framework is used, a description or reference to the description of that special purpose financial reporting framework in the financial information
6. Statutory auditor cannot undertake this type of services because he is not meant for compilation. His independency compromises
7. Since a compilation engagement is not an assurance engagement, hence the practitioner does not require to verify the accuracy or completeness of the information provided by management for the compilation, or otherwise to gather evidence to express an audit opinion or a review conclusion on the preparation of the financial information.
8. Accordingly, the practitioner does not express an audit opinion or a review conclusion on whether the financial information is prepared in accordance with the applicable financial reporting framework.
9. The engagement team is subject to relevant ethical requirements when undertaking compilation engagements, as per the Code of Ethics issued by ICAI together with other relevant pronouncements issued by ICAI
10. If the practitioner is unable to complete the engagement because management has failed to provide records, documents, explanations or other information, including significant judgments, as requested, the practitioner shall withdraw from the engagement.
11. Follow SQC-1 – Standard on Quality Control (SQC) 1 – Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements
12. While reporting, the practitioner should use the sample formats given in the standard as:
Appendix 1- Illustrative Engagement Letter for a Compilation Engagement
Appendix 2- Illustrative Compilation Engagement for General Purpose Financial Statements
Illustration 1: Practitioner’s report for an engagement to compile financial statements using a general purpose financial reporting framework
Illustration 2: Practitioner’s report for an engagement to compile financial statements using a modified general purpose financial reporting framework.
Illustration 3: Practitioner’s report for an engagement to compile financial statements using the basis of accounting specified in a contract
Illustration 4: Practitioner’s report for an engagement to compile financial statements using a basis of accounting selected by management of an entity for financial information required for management’s own purposes
Illustration 5: Practitioner’s report for an engagement to compile financial information that is an element, account or item, being [insert appropriate reference to information required for a regulatory compliance purpose].