As it goes with any new standard, here we are just over a month into the effective date and now we get down into the details of application. My most asked questions this week is “Can we refer to the statements as financial statements or is it a standards requirement to use the terminology financial information?” The answer is, you are welcome to use these terms interchangeably, as is appropriate.
The standard itself refers to financial information, as it is expected practitioners will be reporting on historical financial information other than a balance sheet and income statement, under the new standard. Common examples are likely to be an individual statement of operations or cash flows, schedule of rental operations by property or a schedule of costs. When conducting compilation engagements on this type of historical financial information, it would not be appropriate to use a reference to financial statements in the engagement letter, the compilation engagement report, or any other communications.
For our firm, @Clearline CPA, we have established our base template to default to the term financial statements as we expect that over 95% of all compilation engagements will be conducted on historical financial statements. What is included in those historical financial statements, in addition to a balance sheet and income statement, (perhaps a cash flow statement or a cost of sales schedule) will be set out in our engagement letter.
I hope this resolves some of the confusion. Please share this blog with your colleagues as we all work through the start of what is going to be a very busy year in public practice.