Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

What is an “appropriate salutation” for a compilation report or review report?

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After listening to a Compilation and Review update for 2012 webcast from the AICPA, I’ve changed my mind on what would be an appropriate salutation.

One of the presenters, mentioned that the salutation should not include a personal greeting along the lines of “Dear Board”.  (I won’t identify him because it was his opinion and not an authoritative comment so it is not fair to cite him as an authority.)

I submitted a question to clarify why he thought that. The moderator presented the question. Response was along the lines of the compilation and review reports are still reports and not letters.  As such, it would not be appropriate to include a personal salutation along the lines of “dear directors.”

That represents a substantial change from the approach I have been using for the last year in my reports.  That is also quite different from what I have provided as samples on this blog.

So I looked at the professional literature again.  Here are the key ideas.

Exhibit 3-1 of the Compilations and Review Engagements Guide highlights the changes made by SSARS 19.  In terms of an addressee, before SSARS an addressee was not required.  SSARS 19 requires an “appropriate salutation” for the addressee.

AR section 80.17 b says a compilation report should include an addressee.  The only guidance is the following sentence:

The accountant’s report should be addressed as appropriate in the circumstances of the engagement.

The same comment exists in paragraph AR 90.28 for a review.

The examples in the codified standards literally include the comment [Appropriate Salutation], including the brackets.

In the Compilations and Review Engagements Guide, there are 32 sample compilation reports. The only formats for the salutations are the following:

  • Board of Directors
  • XYZ Company
  • Board of Trustees
  • ABC Organization
  • Honorable mayor, members of the city Council, and citizens of City of X
  • City of X, state Y

or simply

  • [Appropriate Salutation]

No street address.  No city, except for the government audit.  No personal greeting.

For reviews, there are 20 sample reports, all of which use the same format as the compilations.

So, what should be included in an appropriate salutation?

I think it is up to professional judgment.

As a starting position, it would be very easy to argue the appropriate salutation should only include the name of the governing body and the name of the client.  That is what the various examples show in the Guide.

At the other end of a continuum would be something that is comparable to a business letter, including name of the governing body, organization name, address, city, state, and personal salutation.  Support for this position would be the idea that such a formulation is the standard salutation for business correspondence in the U.S.  Also, the guidance in SSARS 19 is very vague on this point.

I have been using the latter approach, but I am going to make a change.

I will go with the following format for an appropriate salutation:

  • Governing body
  • Name of client
  • City, State

I’ve told you my opinion.  You need to figure out for yourself what approach you believe is appropriate.  That is what we call professional judgment.  Use it.

Written by Jim Ulvog

November 20, 2011, 15:44 pm at 3:44 pm

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