Unaudited financial statements disclosure requirements come from the Statements on Standards for Accounting and Review Services (SSARS), and what you must disclose depends on how the statements were produced. A set prepared internally carries different labeling than a compilation, and a compilation carries different report language than a review. Each level exists to tell readers exactly how much independent work stands behind the numbers, and getting the wrong disclosures on the page can mislead a lender or investor and expose both the company and the accountant.
The Three SSARS Service Levels and What Each Must Disclose
SSARS governs three service levels below a full audit for nonpublic entities: preparation, compilation, and review.1AICPA & CIMA. AICPA SSARSs Currently Effective Each triggers a different set of disclosures.
Preparation Engagements: The “No Assurance” Legend
An accountant engaged only to prepare financial statements under AR-C Section 70 issues no report. Instead, a legend must appear on each page of the financial statements stating, at a minimum, that “no assurance is provided.” The statements look professional but carry zero independent verification, and the legend is the only cue a reader gets.
If the legend cannot be placed on each page, SSARS gives the accountant two options: issue a separate disclaimer making clear no assurance is provided, or upgrade the engagement to a compilation under AR-C Section 80. Skipping the warning is not an option. Because a preparation engagement is a nonattest service, the accountant does not need to be independent of the entity, which makes the page-by-page legend even more important for the reader.
Compilation Reports: Required Elements
A compilation engagement under AR-C Section 80 produces a formal compilation report that accompanies the financial statements. The report is typically one paragraph and must include:
- A statement that management is responsible for the financial statements.
- A clear statement that the accountant did not audit or review the statements and does not express an opinion or provide any assurance on them.
- Identification of the financial reporting framework used (GAAP, cash basis, tax basis, and so on).
Additional paragraphs are required when the statements use a special purpose framework instead of GAAP, when management has omitted substantially all required disclosures, when the accountant’s independence is impaired, or when there is a known departure from the applicable framework.2AICPA & CIMA. Illustrative Accountants Compilation Reports on Financial Statements
A common misconception: the accountant is not required to print “See Accountant’s Compilation Report” at the bottom of each financial statement page. Many do it as a practical safeguard in case the report and statements are separated, but it is optional. The report itself carries the required disclosures.
Review Reports: Limited Assurance Language
A review under AR-C Section 90 provides limited assurance, which sits meaningfully above a compilation but well below an audit. The accountant performs inquiries and analytical procedures and then issues a review report that must explain the nature and scope of what was done, so readers understand what “limited assurance” actually means.
The review report must state that a review is substantially less in scope than an audit and that the accountant does not express an opinion. Specifically, it conveys that the accountant is not aware of any material modifications that should be made for the statements to conform with the applicable framework.3Wiley Online Library. AR-C Section 90A – Codification of Statements on Standards for Accounting and Review Services A review does not involve testing accounting records, assessing fraud risk, or evaluating internal controls, and the report must make that limitation clear so users do not treat the conclusion as an audit opinion.
Disclosing the Basis of Accounting
Whatever the engagement level, unaudited statements must disclose the accounting framework used. Many smaller businesses skip full GAAP because of cost and complexity, opting instead for a special purpose framework such as cash basis, income tax basis, or a regulatory basis.
When a special purpose framework is used, the notes should include a policy note describing that basis and identifying the primary differences between it and GAAP.4Journal of Accountancy. OCBOA Financial Statements Under a cash basis, for example, revenue is recognized when cash is received rather than when earned, and assets may not be capitalized the same way. The notes should flag those differences so a reader used to GAAP statements can adjust their interpretation.
Dollar amounts on those differences are not required. The accountant does not need to calculate what revenue or assets would look like under GAAP. A qualitative description of where the frameworks diverge is enough. Disclosures for items like uncertain tax positions and subsequent events follow the same standards regardless of the framework used.
When Management Omits GAAP Note Disclosures
In a compilation, management can elect to omit substantially all of the note disclosures that GAAP would normally require. This is common for internal-use statements or for small businesses where the cost of full disclosures outweighs the benefit. The omission triggers specific language in the compilation report.
A separate paragraph must contain three elements: a statement that management has elected to omit substantially all disclosures required by the applicable framework (and the statement of cash flows, if that was also omitted); a warning that if those disclosures had been included, they might influence the user’s conclusions about the entity’s financial position and results of operations; and a note that the financial statements are not designed for those who are not informed about such matters.
There is an important guardrail. The accountant should not issue a compilation report on statements that omit substantially all disclosures if the omission was undertaken with the intention of misleading readers. Selectively omitting only the disclosures that would reveal bad news, while keeping the flattering ones, would not qualify as a permissible omission of “substantially all” disclosures.
Management Responsibility and Going Concern
Across all engagement levels, the statements and any accompanying report must make clear that management bears responsibility for the preparation and content of the financial statements. In a compilation, the statement appears in the compilation report. In a review, it appears in the review report. For preparation engagements, the engagement letter typically establishes this responsibility, since there is no public-facing report.
That responsibility extends beyond the numbers. It includes selecting appropriate accounting principles, designing and maintaining internal controls relevant to financial reporting, and evaluating whether the entity can continue operating as a going concern. That last point catches business owners off guard. Even in compilation and review engagements, the accountant must consider whether evidence suggests the entity may not survive the next twelve months. If going concern uncertainties surface, the accountant discusses the issue with management, and the report may need modification depending on how management responds and whether adequate disclosure is made in the statements.
When Unaudited Statements Are Not Enough
Disclosure requirements only matter if unaudited statements are acceptable in the first place. Several situations require audited or reviewed statements, so knowing where the line falls prevents preparing something a lender, regulator, or investor will reject.
Public companies filing Form 10-K with the SEC must include audited financial statements; inactive registrants are a narrow exception.5U.S. Securities and Exchange Commission. Financial Reporting Manual – Topic 1 Businesses in the SBA’s 8(a) Business Development Program face tiered requirements based on gross annual receipts, with audited statements required at the top tier, reviewed statements in the middle, and compilations or in-house statements permitted only below the lowest cutoff.6eCFR. 13 CFR 124.602 – What Kind of Annual Financial Statement Must a Participant Submit to SBA Many states require nonprofits to obtain independent audits once annual revenue or contributions cross a threshold that varies by state, and any nonprofit spending $750,000 or more in federal awards during a fiscal year must obtain a single audit under the Uniform Guidance. Commercial lenders routinely embed financial statement requirements into loan covenants, and delivering a compilation when the covenant calls for audited statements can trigger a technical default even if the business is otherwise healthy.
What the Disclaimers Do and Do Not Protect Against
Unaudited status is not a free pass for inaccuracy. Fraud in financial statements is defined as an intentional act resulting in a material misstatement, and that definition applies whether the statements were audited, reviewed, compiled, or prepared internally.7Public Company Accounting Oversight Board. AS 2401 – Consideration of Fraud in a Financial Statement Audit Management remains responsible for designing controls to prevent and detect fraud and for recording transactions consistent with the assertions in the statements.
When unaudited statements are submitted to a lender to obtain financing, intentional misstatements can produce bank fraud charges, civil liability for negligent misrepresentation, or breach of contract claims. The disclaimers and legends discussed above protect the accountant from liability for undiscovered errors. They do not protect management from the consequences of deliberate misstatement. A compilation report saying “no assurance is provided” shields the CPA, not the business owner who inflated receivables to qualify for a loan.
Even unintentional errors carry risk. If an accountant performing a compilation or review discovers information suggesting the entity may not be able to continue as a going concern, professional standards require follow-up with management. Ignoring red flags or failing to modify the report when warranted exposes both sides. Treat the disclosure requirements as the minimum framework for honest reporting rather than a bureaucratic exercise, and the rest of the exposure takes care of itself.