Preparation engagements under AR-C 70

In this lesson you will

Determine whether AR-C 70 applies, including the SSARS No. 27 consulting carve-out
Draft the engagement terms AR-C 70 requires
Apply the per-page legend and the alternatives when it cannot be placed
Handle known departures and omitted disclosures in prepared statements

When AR-C 70 applies

AR-C 70 applies when an accountant in public practice is engaged to prepare financial statements or prospective financial information and is not engaged to audit, review or compile them. The section is not required (though you may apply it) when you prepare statements:

as part of a consulting engagement under CS section 100 where preparing the statements is not the primary objective (added by SSARS No. 27, effective for periods ending on or after December 15, 2026)
as part of a personal financial plan under PFP section 100
in a valuation under VS section 100
solely for submission to taxing authorities
in connection with litigation services

AR-C 70 says a preparation engagement is a nonattest service and does not require a determination of independence. AR-C 70 says you do not verify management's information or gather evidence. The preparation engagement guide has scoping examples.

Engagement terms

AR-C 70 requires the agreed terms to be documented in an engagement letter or other suitable written agreement covering:

the objective of the engagement
management's responsibilities from the AR-C 60 preconditions
management's agreement that each page will say no assurance is provided, or that you will issue a disclaimer
your responsibilities
the limitations of the engagement
the applicable financial reporting framework
whether the statements will contain known departures or omit substantially all disclosures

AR-C 70 requires signatures from you or your firm and from management or those charged with governance.

The legend and its alternatives

AR-C 70.14 requires a statement on each page of the financial statements indicating, at a minimum, that "no assurance is provided." The application material gives examples such as "No assurance is provided on these financial statements." The firm name is not required.

If you cannot put the statement on each page, AR-C 70.14 gives three choices: issue a disclaimer that makes clear no assurance is provided, perform a compilation under AR-C 80, or withdraw and tell management why.

Preparing the statements

You prepare the statements from management's records, documents and explanations (AR-C 70). Other requirements:

Special purpose frameworks. Include a description of the framework on the face of the statements or in a note (AR-C 70).
Significant judgments. If you help management make significant judgments about amounts or disclosures, discuss them so management understands and accepts responsibility (AR-C 70).
Bad information. If records are incomplete or inaccurate, ask for corrected information. If management will not provide it, disclose the material misstatement in the statements or withdraw (AR-C 70.17).
Known departures. When statements contain a known departure from the framework, disclose the material misstatement in the statements (AR-C 70).
Omitted disclosures. You may prepare statements that omit substantially all disclosures if you disclose the omission in the statements or an accompanying disclaimer (AR-C 70.20), but not if the result would mislead users (AR-C 70.21).

Documentation minimum

AR-C 70 requires, at a minimum, the engagement letter or other written agreement and a copy of the financial statements you prepared. That is a floor. Keep the trial balance, adjusting entries you proposed, and notes of significant judgments discussed with management.

Common findings

No signed engagement letter, or one that omits the departure and omitted-disclosure terms.
Statements released without the legend on every page, including notes and supplementary schedules.
A departure (for example, no depreciation recorded) left undisclosed because "it is only a preparation."
Monthly preparation for an audit or review client without an ET 1.295 evaluation.

Use the preparation engagement checklist to close the file.

Worked example

A known departure at Maple Ridge Dental, PLLC

Maple Ridge Dental, PLLC engages your firm to prepare its GAAP financial statements for the year ended December 31, 2026, for the owners' use. The engagement letter states that the statements will omit substantially all disclosures and will contain one known departure.

The practice holds a building lease with 8 years remaining and annual payments of $96,000. The owners decline to record a right-of-use asset and lease liability. Using the practice's incremental borrowing rate of 6%, the present value of the remaining payments is about $596,000 (annuity factor for 8 years at 6% is 6.2098; $96,000 x 6.2098 = $596,141).

Total liabilities before the lease are $410,000. The unrecorded lease liability would increase liabilities by 145% ($596,141 / $410,000). That is material.

Under AR-C 70 you disclose the material misstatement in the statements. Because disclosures are omitted, you place the disclosure on the face of the balance sheet in a note line: "The Company has not recognized a lease liability and right-of-use asset for its building lease as required by accounting principles generally accepted in the United States of America. Had the lease been recognized, liabilities would have increased by approximately $596,000." Each page carries "No assurance is provided on these financial statements."

Self-check

Answer each question before you open the answer.

Does a preparation engagement require you to determine independence?
Show answer
No. AR-C 70 says it is a nonattest service and does not require an independence determination. The service can still affect independence for a separate audit, review or compilation of the same client under ET 1.295.
The client wants statements to go to a bank but refuses to allow the "no assurance is provided" statement on each page. What are your options?
Show answer
AR-C 70.14 allows three: issue a disclaimer stating no assurance is provided, perform a compilation under AR-C 80 instead, or withdraw and tell management why. You cannot release the statements with no legend and no disclaimer.
You prepare tax returns and, solely for filing, a balance sheet that goes on the return. Does AR-C 70 apply?
Show answer
It is not required. AR-C 70 excludes statements prepared solely for submission to taxing authorities, though you may apply the section voluntarily.
What is the minimum documentation for a preparation engagement?
Show answer
AR-C 70 requires the engagement letter or other written agreement and a copy of the financial statements prepared. Departures from presumptively mandatory requirements also need the documentation in AR-C 70.

Sources

Back to the syllabus

Standards are paraphrased from the primary sources listed above; read the source before relying on a requirement. This lesson is training material, not professional advice. Report an error