Discussion:Anybody done an "except for FIN46" opinion letter?

Thanks, MJ

As more fully described in Note X to the financial statements, the Company’s financial statements do not include the accounts of FIN 46 Entity that the Company has determined is a variable interest entity and in which the Company holds a variable interest and is the primary beneficiary entitled to receive a majority of the FIN 46 Entity’s residual returns. In our opinion, the Company’s financial statements should include the accounts of FIN 46 Entity to conform with accounting principles generally accepted in the United States of America. The effects of this departure from generally accepted accounting principles on the financial position, results of operations, and cash flows of ABC Company are not reasonably determinable.

In our opinion, except for the effects of not including the accounts of FIN 46 Entity in the accompanying financial statements as explained in the preceding paragraph, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.''

You could also consider doing an agreed upon procedures engagement where you look at components of the financials that they deem significant - i.e. accounts receivable, payables etc. However, I don't like that idea as it doesn't present a complete picture. I'd approach the client and suggest that a qualified report excluding the real estate entities was an option but would still suggest the full audit and include as supplementary information consolidating schedules so the effects of the real estate entities were visible. That would serve to demonstrate that you made their effects 100% clear to your client in case the purchase goes through and comes out bad on the other end.

The numbers for the land and building and the balance sheet of the land/building holding companies is material to the consolidated FS, so I'm worried about doing an "except for" since all the CPE classes I've gone to say we can't just dismiss FIN46 and use the except for as a crutch... but I've seen opinions with them in there. If I could do that then I'd do it, but I feel like later the peer reviewer might be a bit cranky with me.

I looked in PPC audit reports and found this information about another possiblity:

REPORTING ON A SPECIAL-PURPOSE FINANCIAL PRESENTATION THAT DOES NOT CONSTITUTE A COMPLETE PRESENTATION BUT ONE THAT IS OTHERWISE IN CONFORMITY WITH GAAP OR OCBOA

 1307.1    Auditors may be requested to report on a special-purpose financial presentation prepared on a basis of accounting prescribed in a contractual agreement or regulatory provision that does not constitute a complete presentation of historical financial position or results of operations, but is otherwise in conformity with generally accepted accounting principles or an other comprehensive basis of accounting. For example, a regulatory agency might require a schedule of gross income and certain expenses, with expenses defined to exclude such items as interest, depreciation, and taxes. A lease agreement might have a similar requirement. Also, a buy-sell agreement may specify a schedule of certain assets and liabilities which, although measured in conformity with generally accepted accounting principles, do not constitute substantially all of the company’s assets and liabilities. Reports on such presentations are covered by SAS No. 62 at AU 623.23–.26. SAS No. 62 requires the following:

¯ The presentation should be regarded as a financial statement (even though, as indicated earlier, certain items might be excluded). ¯ The presentation should differ from a complete financial statement only to the extent necessary to meet the special purpose for which the presentation was prepared. In all other respects, including note disclosures, GAAP should be followed. ¯ For expressing an opinion, materiality should be measured in relation to the presentation taken as a whole.