Discussion:S Corp compilation report witk K-1 paragraph
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Discussion Forum Index --> Accounting Questions --> S Corp compilation report witk K-1 paragraph
| 26 June 2007 | |
| I do an accountant's compilation report for an S Corp that omits substantially all disclosures. In addtion to the other paragraphs in this report, I want to add the following paragraph and would like your reaction/feed-back:
This is the normal paragraph: The Company, with the consent of the shareholders, has elected under the Internal Revenue Code to be an S corporation. In lieu of corporation income taxes, the shareholders of an S corporation are taxed on their proportionate share of the Company’s taxable income. Therefore, no provision or liability for federal or state income taxes have been included in these financial statements. I want to add this paragraph: The financial statements include certain corporate items that are conveyed to the shareholders by means of federal income tax Schedule K which affect the shareholders’ basis and individual tax liability. These items are segregated as the Company generates Schedule K-1 for the shareholders with its corporate tax return. The effect of this departure from the income tax basis of accounting on the accompanying financial statements has not been determined. Thanks. Mrs. Leaf | |
| 26 June 2007 | |
| Leafy, your profile doesn't say whether you are a CPA or not. Could you update it please? | |
| June 27, 2007 | |
| Usually the paragraph in the report that states "substantially all disclosures" are omitted is for statements issued with no notes, in my experience. With that in mind, why would you include any paragraph regarding the S-corp election? Second, what is actually meant by your new paragraph? Why are you stating this is a departure from the tax basis of accounting? It seems like some information is missing here. | |
| 27 June 2007 | |
| I agree. "substantially all disclosures" are omitted. Leave them out of letter. Most readers of finanial statements do not know what all that means anyway. | |
| 28 June 2007 | |
| I question the second sentence in your second paragraph where you refer to "state" income taxes.
S Corps don't pay FEDERAL income taxes (except for the built-in-gains), but they do pay some form of taxes to states. I believe reference to "state" should be removed. | |
Bottom Line (talk|edits) said: | 28 June 2007 |
| Depends upon what state she's in. S-corps don't pay state tax in FL. | |
| 8 July 2007 | |
1st paragraph is ok. It explains the business set up and why there are no provisions for taxes.
2nd paragraph is not needed. A person who reads the financials and knows what an s corp is knows there are flow through items. | |
| 9 July 2007 | |
| Yeah, this seems like "overkill". In an S, most if not all of the s/h's realize what tax implications they have....as BL says, FL does not tax pass through entities since there is no personal income tax in FL.
The AICPA gives guidelines for client letters for compilations and they don't mention anything about stated or non stated items. I go with what is current with the AICPA for letters with the F/S...in my opinion they are the authority!! | |
