When to restate compiled financial statements?

We issued some compiled annual financial statements for the period ending 6/30/14 which were used by a bank to make offers of financing. Now...as I'm reviewing the clients July bills for their monthly bookeeping. I see several June dated bills that were not included in the July details. I'm sure this was an oversight and not any kind of intentional chicanery. The amounts are certainly arguably not material...that said...how do you determine when to "make an issue" of something like this?

It's a compilation of client supplied data. If an error is discovered after the fact you notify managment that an error was discovered. They do with that as they are moved.

Oh Cool - Do you have a cite for that treatment? (Not, that I don't believe you, I just wonder where to find these things in the future, so I don't have to bug you guys...)

Thanks!

I would think it would be covered in the SSARS. AR section 80.16
http://www.aicpa.org/Research/Standards ... -00080.pdf
or interpretation
http://www.aicpa.org/Research/Standards ... 0080_9.pdf

Thanks Frankly -

It's in 80.47-80.52. It looks like it hinges on whether or not "the accountant believes...that persons [using the financial statements] would attach importance to the information." In which case, they say you should work with management to provide updated information in the form of restated financials.

Honestly, I don't think that the users would care since it's a small amount...Maybe I should write management a letter saying that they should tell the users (banks) about the information?

More or less than 5% of net income? (many people would consider this to be the "line in the sand" in the context of immaterial vs. material.)

Well it's funny you should say that. It's about 5.5% of net income.

I think you now need to take this one step further.

What was the net income, as was it accrual or OCBOA? (I only ask this as your statement about June bills not in July details makes me think non-accrual)

I think you now need to take this one step further.

What was the net income, as was it accrual or OCBOA? (I only ask this as your statement about June bills not in July details makes me think non-accrual)

It's accrual - I mispoke - I should have said that there were several june dated bills that were include in the july details. (I.e. they should have been included in June...)

So what's my next step? I just happen to be meeting with the client tonight...

Banker is probably going to ask for tax return. Accrual also? Smart banker will see difference.

You should think about telling management and ask them if they want to restate. Which is akin to here are the restated financials, give them to the banker if you want.

What was the annual net income?

Well these FS are for 6 months, but the net income was about $60k and the expense that was left out was for about 3.4k. Annual net income will be about $100-120k...if that matters

Also - I should mention that this is for an HOA, so the tax return will file an 1120H, which we do on a cash basis.

Your OP stated annual, so I went with that. It's a coin toss to me.

Your OP stated annual, so I went with that. It's a coin toss to me.

Gotcha. Sorry for the confusion.

I discussed the issue with management, but I'd like to write a letter to get it in writing. I was thinking about something along the lines of:

Dear Management:

Here's the issue - this may be material to the financial statements and it's our recommendation that you relay this information to all potential lenders who are using the financial statements.

Do you think that's good? Or do I need to make a determination myself as to whether or not it's material, and then either:

a. let it go, or
b. press the issue and make sure they talk to the lenders/restate per the cites above?

Thanks again for your help on this Doug, it's been really great.

I think you should tell the BOD (in writing) that the June financial was missing an accounts payable item for $x,xxx and it affects the net income by the same amount. I personally, would give them the restated financials.

Done - Talked to the president of the board last night. He's a great guy. Completely understanding. We're going to restate and let the lenders know in the mean time. Thanks again for your help Doug.

edit: Also, I did put it in writing, and cc'd each member of the board.

I agree with Doug M. I would restate the financials even though the change may not be material. I would however bring the potential changes to the attention of the client and let them make the decision.

I deal with many banks and have gotten business from bankers. ! A restatement of the financials for the bank would show good faith and professionalism on your part. In addition it is always good to cover your end when financial statements are being read by 3rd parties such as banks.