Preparation Engagements and the No-Assurance Legend Under SSARS

A preparation engagement under AR-C 70 occurs when an accountant prepares financial statements for management without issuing a report and without providing assurance. The financial statements must clearly state that no assurance is provided, usually on each page.

Preparation is easy to confuse with compilation because both provide no assurance. The difference is reporting: a preparation engagement normally has no accountant’s report, while a compilation has a report that disclaims assurance.

    flowchart TD
	    A["Management provides records and information"] --> B["Accountant prepares financial statements"]
	    B --> C["Accountant applies financial reporting framework knowledge"]
	    C --> D{"Obvious error or missing information noticed?"}
	    D -- "No" --> E["Add no-assurance legend to each page"]
	    D -- "Yes" --> F["Discuss with management"]
	    F --> G{"Resolved?"}
	    G -- "Yes" --> E
	    G -- "No" --> H["Do not issue misleading statements; consider withdrawal"]
	    E --> I["Deliver statements without accountant's report"]

What Preparation Means

In a preparation engagement, the accountant uses management’s information to prepare financial statements in accordance with a selected reporting framework. The accountant may format the statements, classify accounts, and apply financial statement presentation knowledge.

The accountant does not:

• Audit the financial statements.
• Review the financial statements.
• Compile the financial statements under AR-C 80.
• Express an opinion.
• Express a conclusion.
• Provide any assurance.

Management remains responsible for the financial statements and for the completeness and accuracy of the underlying information.

Core AR-C 70 Requirements

If the accountant cannot place the no-assurance legend on each page, a disclaimer can be issued instead. The exam usually tests the ordinary rule: each page states that no assurance is provided.

Preparation vs. Compilation

If a question says “no report,” think preparation. If it says “report disclaiming assurance,” think compilation.

Obvious Errors and Misleading Information

A preparation engagement does not require verification, inquiry, analytical procedures, confirmations, or internal control testing. However, the accountant should respond to obvious errors, incomplete information, or misleading presentation that comes to attention.

No assurance does not allow the accountant to ignore a problem that is plainly visible.

Relationship to Bookkeeping

Bookkeeping and preparation can be related, but they are not the same service. Bookkeeping records transactions and maintains accounting records. Preparation presents financial information in financial statement form under AR-C 70.

The same accountant may perform bookkeeping and later prepare financial statements, but the preparation engagement still requires the required understanding with management and the no-assurance legend.

Exam Traps

• Preparation provides no assurance and normally no accountant’s report.
• The no-assurance legend belongs on each page of prepared financial statements.
• Independence is not required for preparation.
• Preparation is not the same as compilation; compilation has a report.
• The accountant does not verify the data, but must address obvious misleading issues that come to attention.
• Management remains responsible for the underlying information.

Quick Review

Use this sequence for preparation engagement questions:

1. Confirm the accountant prepared financial statements under AR-C 70.
2. Identify that no assurance is provided.
3. Look for no accountant’s report.
4. Confirm the no-assurance legend or equivalent disclaimer.
5. Remember independence is not required.
6. If obvious errors appear, management must address them before the accountant is associated with the statements.

Review Questions