What’s new?
The AASB proposes, subject to comments received following exposure, to issue a new CSRS 4250, Compilations Engagements on Future-oriented Financial Information and Pro Forma.
Proposed CSRS 4250 would replace Assurance and Related Services Guideline (AuG) 16, Compilation of a Financial Forecast or Projection.
The proposed standard covers compilation engagements on:
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Future-oriented financial information
Paragraph 17(d) of CSRS 4250
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Forecast
Paragraph 17(c) of
CSRS 4250
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Projection
Paragraphs 17(e)
& 17(l) of CSRS 4250 |
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Pro forma
Paragraphs. 17(i), 17(j) & 17(k) of CSRS 4250
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Based on management’s assumptions, Paragraph 17(b), 17(f), 17(j) & 18 of CSRS 4250
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Why is a new CSRS needed?
The AASB concluded that AuG-16 is outdated and should be replaced with a new standard. This new standard would improve consistency in performing and reporting on compilation engagements involving future-oriented financial information (FOFI) and pro forma.
To read more about this project, including committee involvement, visit the Compilations of FOFI and Pro Forma project page.
What are the key features in proposed CSRS 4250?
- Defines a clear scope under which the proposed standard would apply: It covers compilation engagements on forecasts, projections, and pro forma. The proposed CSRS addresses the confusion among practitioners about AuG-16’s applicability. Although, AuG-16 provides guidance for compiling forecasts and projections, it does not address pro forma.
- Reflects developments in professional standards: Proposed CSRS 4250 incorporates concepts from CSRS 4200, Compilation Engagements, supporting consistency between the two compilation engagement standards in performance, reporting, and quality management.
- Reflects developments in preparing and presenting FOFI and pro forma: It defines key terms and establishes clear requirements for performing the engagement and documentation, particularity concerning management’s assumptions.
- Provides a consistent communication: The proposed standard does so in the form of the compilation engagement report.
What is the value of a compilation engagement?
In a compilation engagement, the practitioner assists management in the preparation and presentation of the compiled financial information and notes, in accordance with a basis of accounting selected by management and based on management’s assumptions. The value of a compilation engagement results from:
- Professional integrity: The practitioner must follow professional standards and ethical requirements, resulting in financial information that is prepared with integrity and due care.
- Clear communication: The practitioner issues a compilation engagement report that clearly defines the nature and limitations of the engagement, along with the responsibilities of both the practitioner and management.
- Not misleading: The practitioner reads the compiled financial information in light of their knowledge gained during the engagement and considers whether the information does not appear misleading to users.
Read more
Read the linked sections below and learn more about proposed CSRS 4250:
Respond to our survey
After reviewing the information above, we invite you to share your feedback by completing our brief survey.
This education page is not comprehensive. We encourage you to read the full Exposure Draft to gain a complete understanding of the proposal’s nature and scope.
Scope
What should you know?
Proposed CSRS 4250:
- Covers compilation engagements on forecasts, projections, and pro forma, collectively referred to in the standard as “compiled financial information”. Although AuG-16 provided guidance on how to perform a compilation engagement on forecasts and projections, there was no previous guidance or standard on a compilation engagement on pro forma.
- Describes clearly when the standard does and does not apply. This approach is based on CSRS 4200.
- Describes, in paragraph 2, certain circumstances where the standard does not apply. If the standard does not apply, but the practitioner issues a communication, the communication must be a compilation engagement report under this CSRS and all the requirements of this CSRS would apply. This is consistent with CSRS 4200.
Relevant sections
The Exposure Draft of proposed CSRS 4250 includes paragraphs:
- 1, A1;
- 2, A2-A4; and
- 3, A5.
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Basis of accounting
What should you know?
The practitioner may prepare and present the compiled financial information using either:
- a basis of accounting consistent with what is expected to be used for the historical financial information for the future period, which facilitates comparison with that financial information; or
- another basis of accounting agreed upon by a third party and management, which may not be comparable with the historical financial information for the future period.
Disclosures
To help users understand how the compiled financial information was prepared and presented, the notes must disclose the basis of accounting and, if applicable, the accounting policies used.
Engagement documentation
The practitioner must prepare documentation that includes the basis of accounting applied and, where applicable, the accounting policies used in preparing and presenting the compiled financial information.
Relevant sections
The Exposure Draft of proposed CSRS 4250 includes paragraphs:
- 7, A13;
- 8, A14;
- 9;
- 33(a)-(b), A52-A54; and
- 44(d).
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Definitions
What should you know?
Proposed CSRS 4250 introduces a set of clearly defined terms to promote consistency across compilation engagements involving FOFI and pro forma. Key terms include:
- “Future-oriented financial information”: Financial information about the future, based on management’s assumptions about courses of action, or future events, planned or hypothetical. FOFI may be a forecast or a projection.
- “Forecast”: FOFI prepared using best-estimate assumptions.
- “Projection”: FOFI prepared to present one or more hypotheses, using hypothetical assumptions, or a combination of hypothetical assumptions and best-estimate assumptions.
- “Pro forma”: Financial information prepared by applying pro forma adjustments to the base financial information, to present the effects of one or more actual or contemplated events or transactions as if they had occurred at a specified date. Pro forma is presented in a format that includes:
- the base financial information;
- the pro forma adjustments; and
- the resulting pro forma.
In addition, definitions for terms such as “best-estimate assumptions”, “hypotheses”, “hypothetical assumptions”, and “pro forma adjustments” are included to clarify that FOFI and pro forma financial information are prepared and presented using management’s assumptions that are considered appropriate in the circumstances.
Throughout the proposed CSRS and this webpage, references to:
- “assumptions”, mean “best-estimate assumptions” or “hypothetical assumptions”, including “hypotheses.”
- “financial information” mean the financial information prepared as a projection, a forecast, or pro forma.
Relevant sections
The Exposure Draft of proposed CSRS 4250 includes paragraphs:
- 16;
- 17, A16-A20;
- 18;
- 19, A15; and
- 20.
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Engagement acceptance
What should you know?
Proposed CSRS 4250 requires that, before accepting a compilation engagement, the practitioner must ask about the intended use of the compiled financial information and obtain management’s acknowledgment of the basis of accounting to be applied.
If the financial information is intended for third-party use, before the practitioner can accept the engagement, the third party should:
- be in a position to obtain further information from the entity; or
- have agreed with management on the basis of accounting to be applied.
If these preconditions are not met, the practitioner can only accept the engagement if the financial information is expected to be prepared and presented as a forecast in accordance with the applicable recognition and measurement principles of a general-purpose framework for the future period.
The practitioner must agree to the engagement terms with management or those charged with governance through an engagement letter or a similar written agreement.
Engagement documentation
The practitioner must prepare documentation that includes the intended use of the compiled financial information, the results of engagement acceptance, and the engagement letter or other suitable form of written agreement with management.
Relevant sections
The Exposure Draft of proposed CSRS 4250 includes paragraphs:
- 27, A29-32;
- 28, A33-35;
- 29, A36;
- 30, A37;
- 44(a)-(b); and
- Appendix 1.
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Management’s assumptions
What should you know?
Given that management’s assumptions form the foundation of the compiled financial information, proposed CSRS 4250 includes requirements and application material regarding the practitioner’s “work-effort” on management’s assumptions at every stage of the engagement:
- Obtain knowledge: Before using management’s assumptions to compile the financial information, the practitioner must obtain knowledge of how management developed the assumptions and determined they are appropriate in the circumstances.
- Prepare and present: The practitioner prepares and presents the compiled financial information using the assumptions management considers appropriate in the circumstances.
- Notes: To help users understand how the compiled financial information was prepared and presented, the practitioner prepares and presents notes that:
- Describe the significant best-estimate assumptions, and for a projection, all hypotheses and significant hypothetical assumptions underlying the compiled financial information.
- Disclose the effective date of the underlying assumptions, which must be the same date that management or those charged with governance, as appropriate, takes responsibility for the final version of the compiled financial information.
- Disclose that the compiled financial information was prepared using management’s assumptions and their relevant attributes (e.g., supportable, consistent with planned courses of action for the period covered, plausible, consistent with the projection’s purpose).
- For projections and pro forma, describe the purpose for which the compiled financial information was prepared and presented.
- Help develop assumptions: If the practitioner assists management in developing significant assumptions, they will discuss those significant assumptions with management so that management understands their impact on the compiled financial information and accepts responsibility for them.
- Consider misleading information: Based on the practitioner’s knowledge of the entity, the basis of accounting, and the assumptions applied, the practitioner reads the compiled financial information and considers whether it does not appear misleading.
- Obtain management’s acknowledgment: The practitioner obtains an acknowledgment from management or those charged with governance, as appropriate, that they have taken responsibility for the final version of the compiled financial information, including the appropriateness of the underlying assumptions.
- The compilation engagement report: Explains that management is responsible for the appropriateness of the underlying assumptions up to their effective date and clarifies that the practitioner is not required to perform procedures to evaluate the appropriateness of those assumptions.
Engagement documentation
The practitioner must prepare documentation that includes their knowledge of:
- the entity’s business, operations, accounting system and accounting records;
- the basis of accounting applied and, where applicable, the accounting policies used in preparing and presenting the compiled financial information;
- the underlying assumptions applied in the preparation and presentation of the compiled financial information;
- how management developed the underlying assumptions and determined that they are appropriate in the circumstances; and
- for pro forma, the base financial information, and the events or transactions, and the pro forma adjustments.
In addition, the practitioner must document that management or those charged with governance has acknowledged its responsibility for the final compiled financial information, including that the underlying assumptions remain appropriate up to their effective date.
Relevant sections
The Exposure Draft of proposed CSRS 4250 includes paragraphs:
- 17(b), (e), (f), and (j);
- 18;
- 30(g)(v)(a) and 30(g)(v)(b)(ii);
- 31(d), A41-A48;
- 32(b) and 32(c)(ii);
- 33(c)-(d), A55-A57;
- 33(f)-(h), A58-A59;
- 34, A60-A61;
- 35, A62-A63;
- 38, A70-71;
- 42(g), 42(h)(iii)-(iv), and 42 (j)(i-ii); and
- 44(e)-(g), 44(i), and 44(l), A70.
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Knowledge the practitioner is required to obtain to perform the engagement
What should you know?
Proposed CSRS 4250 requires the practitioner to obtain sufficient knowledge to be able to perform the engagement, including knowledge about the entity’s:
- business and operations;
- accounting system and records;
- basis of accounting to be applied;
- assumptions used, including how management developed and deemed them appropriate; and
- engagement to compile pro forma, the base financial information, and the actual or contemplated events or transactions.
Extensive application material is included to help the practitioner obtain knowledge of how management developed the assumptions and determined they are appropriate in the circumstances.
Once the compiled financial information is prepared and presented, the knowledge gained from these requirements will also help the practitioner consider whether it does not appear misleading.
Engagement documentation
The practitioner must prepare documentation that includes their knowledge of:
- the entity’s business, operations, accounting system and accounting records;
- the underlying assumptions applied in the preparation and presentation of the compiled financial information;
- how management developed the underlying assumptions and determined that they are appropriate in the circumstances; and
- for pro forma, the base financial information and the events or transactions.
Relevant sections
The Exposure Draft of proposed CSRS 4250 includes paragraphs:
- 31, A38-A48; and
- 44(c), 44(e), 44(f), and 44(g).
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Preparing and presenting the compiled financial information and notes
What should you know?
Proposed CSRS 4250 requires that the practitioner prepare and present the compiled financial information using:
- the basis of accounting expected for the historical financial information for the future period unless management and the third party agreed to another basis of accounting; and
- assumptions considered by management to be appropriate in the circumstances.
For pro forma, the forma should include the base financial information, pro forma adjustments based on management’s assumptions, and the resulting pro forma.
Disclosures
To help users understand how the compiled financial information was prepared and presented, the proposed CSRS requires the practitioner to prepare and present notes that describe the basis of accounting and any changes and the extent to which actual results are included in the compiled financial information. The notes in the compiled financial information also:
- Describe the significant best-estimate assumptions and, for a projection, all hypotheses and the significant hypothetical assumptions, underlying the compiled financial information.
- Disclose that it has been prepared using management’s assumptions and describes their attributes (e.g., supportable, plausible, consistent with planned courses of action for the period covered, consistent with the purpose of the projection, or present the effects of events or transactions).
- Disclose the effective date of the underlying assumptions, which shall be the same date that management or those charged with governance, as appropriate, have taken responsibility for the final version of the compiled financial information.
- For projections and pro forma, disclose the purpose for which it was prepared and presented.
- For pro forma, disclose the purpose for which it was prepared and presented, the assumed date of occurrence of the events or transactions, and that it was prepared by applying pro forma adjustments to the base financial information.
- Caution readers that due to uncertainties in predicting the future, there could be significant variances between the compiled financial information and actual results for the period covered.
The required notes are essential as they embody the key principles from the non-authoritative guidance on accounting for FOFI (formerly Section 4250, Future-oriented Financial Information, in Part V of the CPA Canada Handbook – Accounting, now withdrawn) that are critical to prevent the compiled financial information from being misleading. By offering transparency through these disclosures, the notes give users a clear understanding of the underlying assumptions, limitations, and potential variations in the compiled financial information.
Engagement documentation
In addition to the items identified in the “Knowledge the practitioner is required to obtain” section, the practitioner’s documentation should include a reconciliation of the entity’s accounting records to the actual results incorporated into the compiled financial information.
Relevant sections
The Exposure Draft of proposed CSRS 4250 includes paragraphs:
- 32, A49-A51;
- 33, A52-59; and
- 44(h).
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Reading the compiled financial information to consider whether it does not appear misleading
What should you know?
Proposed CSRS 4250 requires the practitioner to read the compiled financial information and, based on their knowledge of the entity, the basis of accounting, and the assumptions applied, consider whether it does not appear misleading. This involves whether the:
- significant assumptions do not appear to be inappropriate in the circumstances;
- period covered is does not appear to extend beyond when such information can be estimated; and
- compiled financial information does not appear to be incorrectly identified as a forecast, projection, or pro forma.
If any matters arise, the practitioner must bring the matters to management's attention and request additional or corrected information. If management does not address these matters, the practitioner must withdraw from the engagement and inform them of the reasons.
Engagement documentation
As applicable, the practitioner must document their communications to management regarding matters that may cause the compiled financial information to appear misleading and how management has addressed these matters. If management has not addressed the matters, the practitioner would document their reason(s) for withdrawing from the engagement.
Relevant sections
The Exposure Draft of proposed CSRS 4250 includes paragraphs:
- 35, A62-A67;
- 36;
- 37; and
- 44(j).
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The compilation engagement report
What should you know?
Proposed CSRS 4250’s compilation engagement report is designed to be informative, clear, and understandable to users. The report’s key features include following:
- Aligns with the CSRS 4200 to ensure consistency.
- Is titled either “Compilation Engagement Report on Future-oriented Financial Information” or “Compilation Engagement Report on Pro Forma” to distinguish it from a compilation engagement report on historical financial information.
- Uses the phrase “preparation and presentation” in reference to compiling the financial information, to address the need for comparability with historical financial information for the future period.
- States explicitly that the practitioner compiled the financial information based on information provided by management. This statement informs users that while the practitioner compiles the FOFI, management retains responsibility for the information and the basis on which it is compiled.
- Identifies the compiled financial information as either a forecast, projection, or pro forma.
- Refers to the notes in the compiled financial information, specifically highlighting the basis of accounting, the assumptions used, and the purpose of the projection or pro forma. Instead of listing all required notes, the report focuses on those deemed most important by the board, capturing the rest by stating that the notes also describe “other explanatory information.”
- Distinguishes clearly between management’s responsibilities and the practitioner’s responsibilities. For example, the report explains that management is responsible for the accuracy and completeness of the compiled financial information, including the appropriateness of the underlying assumptions up to their effective date. In contrast, the practitioner is responsible for assisting management in preparing and presenting the compiled financial information but has not performed any procedures to verify its accuracy or completeness or evaluate the appropriateness of management’s assumptions.
- Cautions readers about the potential for material variations in actual results. This caution highlights that the compiled financial information is based on assumptions about future conditions, actions, events, or transactions, and emphasizes that the practitioner has no obligation to update their report after its issuance. This warning is crucial in preventing users from placing undue reliance on the compiled financial information.
- Does not require each page of the compiled financial information to be labelled “Unaudited”, as the report itself emphasizes and clarifies the limitations of the information.
Engagement documentation
The practitioner’s documentation should include a copy of the:
- final version of the compiled financial information for which management or those charged with governance, as appropriate, have taken responsibility; and
- compilation engagement report.
Relevant sections
The Exposure Draft of proposed CSRS 4250 includes paragraphs:
- 44, A22, A73-A75; and
- Appendix 2.
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