 Hello and welcome to the session. This is Professor Farhad in which we would look at two reports, one for examination and one is for review for pro forma financial information. What is neat about the reports is it summarizes everything that you have learned about pro forma financial information. So basically summarizes everything. Let's go ahead and get started by looking at the report. First we need to know that there are no standard reports. So the AI CPA don't have a standard report. They provide examples and this is one of the examples, couple examples that I used to illustrate the concepts. I know I keep saying this every time but you need to notice that there's no standard report but they give you some examples. First you have to have the title independent accountants report because you are providing an assurance you need to be independent. You have to mention the address C. Who are you addressing the report to? First you have to start by looking at the nature of the engagement. What's the nature of the engagement? We have examined. There's an examination. The pro forma adjustment given a fact to the underlying transaction describe a note one and the application of these adjustments to the historical amounts of the balance sheet of Adam company and related pro forma condensed statement of income for the year and criteria based and note one. So remember pro forma is applying adjustments to historical financial information. So you have to explain that the pro forma adjustment and describe it and in our situation it's the adjustment is described in note one which is we don't have to know about this. The historical condensed financial statements are derived from the historical financial statement of Adam company. Of course they are which were audited by us. So we audited the financial statement and it looked here that we are using the financial statement of another company Y company which were audited by another company and this is an example. If you remember when I explained the pro forma financial statement we looked at Tesla and solar city and we said let's assume Tesla and solar city merge took place on January 1st 2015. Well in reality the merger took place sometime in November 2016. So this basically will be an example where you have two companies merging and you are looking at the consolidated financial statement on a prior date seeing what if that happened earlier what if that transaction took place earlier. We also have to know that the pro forma financial adjustments are based on management assumptions again they are described in note one. Adam company management is responsible for the pro forma financial information of course the company is responsible and our responsibility as the practitioner is to express an opinion of course we are expressing an opinion this is an examination on the pro forma financial statement based on our examination. The next thing we do is we talk about our examination it was conducted following the certified public accountant the AICPA American Institute of AICPA those standards require that we plan and perform the examination to obtain reasonable assurance based on the criteria and note one you know management assumption provide a reasonable basis for presenting the significant effect of that transaction or event. So basically we talk a little bit more and we talk about the examination involving performing procedures to obtain evidence again examination you need evidence about management assumptions and related pro forma adjustment and the pro forma amount and the pro forma condensed balance sheet of Adam company and statement of income for the year ended the nature timing and extent of the procedures depend on our judgment including an assessment of the risk of material misstatement whether due to error or fraud so it sounds like an audit except we cannot use the word audit we use the word examination also it sounds like an audit we believe that the evidence obtained a sufficient and appropriate to provide reasonable basis for our opinion this is an examination so we have to describe the engagement explain what an examination is we are we are collecting sufficient appropriate evidence to provide reasonable basis reasonable assurance for our again opinion we also have to talk about the objective of the engagement the objective is to show the significant effect on the historical financial information might have been had the transaction occurred at an earlier date again with the with the example of tesla and solar city the actual merger took place in november 2016 while tesla and so solar city prepared the pro forma as of the beginning of 2015 but we have to have a limitation of the engagement discuss the limitations the pro forma condensed are not necessarily indicative of the results of operation that would have been obtained so although we're saying this is what could have happened but it doesn't mean that would have actually have happened but this is what we think would have happened okay so there's a limitation in a sense that don't take this you know as truth there's a grain of salt here okay and here we're not limiting the report what we're saying is the engagement itself has its own limitation so we have to let you know don't believe this is this is that is that this is the truth 100 percent it is the truth based on our assumption but it doesn't mean that what could have happened what could have had what could have had happened okay because you don't know what could have happened this is what we think then the last paragraph is our opinion based on note one management assumptions provide a reasonable basis in all material respect the related pro forma adjustment give appropriate effect to those assumptions so we're saying everything is good based on the assumptions based on the criteria and note one basically this is a clean opinion then we use the signature a block then we use the signature block now this is what we went over is an examination of the pro forma the next thing we're gonna look at is a review of the pro forma before we proceed any further i have a public announcement about my company farhat lectures dot com farhat accounting lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses my CPA material is aligned with your CPA review course such as becker roger wiley gleam miles my accounting courses are aligned with your accounting courses broken down by chapter and topics my resources consist of lectures multiple choice questions true false questions as well as exercises go ahead start your free trial today no obligation no credit card required for a review again there is no standard report practically the same thing a icpa provide examples we have to start with the title and the word the title will have the word independent that we are independent we have to have the address c we have to mention the nature of the engagement now what we are doing we are not examining we are reviewing and practically the rest of it is practically the same as examination i'm not going to go over but practically the same explaining what's the management responsibility what is your responsibility and the criteria is a note one so basically everything the same except paragraph one we have reviewed now now in the second paragraph now we're going to talk about what did we do well we reviewed following a icpa practically the same thing we followed a icpa to obtain limited assurance a review comes with limited limited assurance based on the criteria and note one we describe the engagement what is a review basically then we have to explicitly state now this this sounds like why are we doing this we have to explicitly state that a review is less in scope than an examination so this is different so we explicitly say in the second paragraph that this is a review this is not an examination and we say that in an examination we issue an opinion here we are not issuing any opinion so we have to say this a review is substantially less in scope than an examination which is the objective of which is to obtain reasonable assurance whether based on the criteria presented the significant effect directly attributed in all attributable to in all material respect blah blah blah until we say in order to express an opinion so we we're not doing any of this we're just saying this is what an examination is so everything that i that i scratched out it's basically telling you that's not what we're doing this is this is an examination accordingly we do not express an opinion this is a review we believe that our review reasonable basis for a conclusion we provide a conclusion we don't provide an opinion we have provide reasonable assurance for a conclusion which is a limited assurance again same thing we tell you what's the objective of the engagement the objective of the engagement to show you what would have what would have happened assuming the transaction took place earlier we also tell you about the limitation of the engagement what we're telling you not necessarily what would have had happened but this is what we think so again not necessarily indicative of the results of the operation and guess what we have a conclusion the conclusion obviously will be different than the examination because we are dealing with a review a review will provide a negative assurance or limited assurance and it would read something like this a review based on our review we are not aware of any material modification that would be made the management assumption in order for them to provide reasonable basis for presenting the significant effect blah blah blah that's that's the criteria based on note one so on and so forth so it's a limited assurance or negative assurance the conclusion what should you do now the best way to kind of consolidate your knowledge is to go to far hat lectures and work mcqs whether those mcqs are cpa practice or previously released a icpa questions you really want to get those questions insert correctly on the cpa exam those are easy points good luck study hard stay safe and don't shortchange yourself the cpa exam is worth it