Preparing special reports

Although unusual, there are several instances when reporting is intended to not be in conformity with GAAP. Special reports help an auditor view information in a way other than in the typical financial statement format. These reports are not extremely common, but when it is applicable, it is important to fully understand if and why they are needed.

According to GAAP, there are five types of special reports one should be familiar with. The first being when an entity prepares its financial statements on other comprehensive basis of accounting or OCBOA. To do this properly, one of the below criteria must be met:

• The entity is required to comply with different reporting provisions of another government regulatory agency.
• The entity uses a basis of accounting that it uses, or expects to use, to file its deferral income tax return.
• The entity uses cash basis of accounting and has substantial support.
• The entity uses a definite set of criteria, such as price level basis of accounting, that is applied to all material items in the financial statements.

The next special reporting is used on special elements, accounts, or items in the financial statements. This could be a separate engagement or could be done alongside a normal financial statement audit. This is a more unique situation such as an entity charging rent based on its commercial tenants’ sales, as opposed to one fixed rate.

Next, special reporting is required when applying agreed-upon procedures. This is when an auditor is engaged to report findings to a third party based on either financial or nonfinancial information. Here the auditor does not express an opinion, but instead the report is expressed by processes and procedures and findings.

Compliance reports are another example of special reports. This could be required when an entity is contractually required by regulatory agencies to provided reports by an independent auditor. This could be something as simple as a bank requiring an entity to keep a certain current ratio in a loan agreement.

The last type of special reporting comes when an entity needs special purpose financial statements prepared to comply with a contractual agreement or regulations. This is a very specific report to assure the entity is in compliance with a contract. These are normally only for the use by the parties involved in the agreement.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.