It is common for firms to collate the engagement report and the final financial statements as a service to their clients. However, there is a lack of consistency regarding whether firms should include their name and letterhead on the financial statements.
Is there a correct approach?
Printing the engagement report, such as a compilation report, review engagement report, or independent auditor’s report, on a firm’s letterhead is acceptable and common practice. In fact, it is a requirement for the full firm name to appear on these documents. There is, however, no requirement for the firm name to be included on the financial statements.
In compilation engagements, when firms compile the financial statements from information provided by clients, printing them on a firm’s letterhead could imply a higher level of involvement than is appropriate. From a risk management perspective, it seems counterintuitive to take steps to document client responsibility for the financial statements (such as obtaining management representations) and the acceptance of the draft financial statements by owners/managers, only to then print the financial statements on a firm’s letterhead.
In assurance engagements, there is no reason to print the financial statements on the firm’s letterhead. This is because the practitioner provides an independent opinion or conclusion on management’s financial statements. Throughout an assurance engagement, practitioners are required to remind their client that management is responsible for the financial statements. This is communicated through the engagement letter, the management representation letter, and the independent auditor’s report (or independent practitioners’ review engagement report). Assurance standards also require management to approve and take responsibility for the financial statements before the practitioner finalizes their report. Accordingly, printing all pages of the financial statement package on a firm’s letterhead would convey the wrong message to the client and third parties who use those financial statements.
Is it permissible to include the firm name?
Including the firm name on the financial statements is not a breach of standards as there are no specific standards or rules related to this issue. However, insurers and advisors consistently recommend against creating the appearance of a higher level of firm involvement than is actually true, from a risk perspective, for clients and users of the financial statements.
