Question

An accountant is considering an engagement to compile the pro forma financial information (PFFI) of a nonissuer. The accountant may accept the engagement if

A) The underlying transaction or event was a change in capitalization.

B) A summary of significant assumptions is not presented with the PFFI.

C) Assurances are to be provided about the PFFI.

D) The PFFI is not contained in the same document as the complete financial statements.

Answer 1

A) The underlying transaction or event was a change in capitalization.

The accountant may agree to compile pro forma financial information only if it is contained in a document that includes (or incorporates by reference) the historical statements of the entity on which it is based.

A compilation of pro forma financial information is limited to assisting management (owners) in presenting financial information without undertaking to obtain or provide any assurance that there are no material modifications that should be made to that information. The objective of pro forma financial information is to show what the significant effects on historical financial information might have been had a consummated or proposed transaction (or event) occurred at an earlier date. Pro forma financial information is commonly used to show the effects of transactions such as the following: • Business combination • Change in capitalization • Disposition of a significant portion of the business • Change in the form of business organization or status as an autonomous entity • Proposed sale of securities and the application of the proceeds.