U.S. Citizenship and Immigration Services (USCIS) regulations concerning investor-based petitions require a review of financial information from sources that may include income tax returns, audited financial statements, and other financial data evidencing the investor-petitioner’s initial and ongoing capital investment. The accurate presentation of financial documentation concerning the valuation of assets contributed to a business, as well as the financial status of a business, is critical to eligibility. Moreover, at the end of the two-year conditional permanent residence period in EB-5 cases and ongoing reporting for renewals of E-2 cases, the investor must demonstrate that the investment and the enterprise have been sustained. An understanding of financial documentation, therefore, is essential to preparing petitions that will qualify the investor for immigration benefits.
Of course, it is important that your immigration lawyer be familiar with the details of accounting systems, financial and tax reporting. It is critical to understand that there are many legitimate combinations of systems and methods of accounting used in business. This knowledge alone can be very valuable in identifying potential ways to helping you the client address the evidentiary requirements of immigration petitions. This article will discuss the three types of financial statements.
Different Financial Statements
Financial statements are an important tool for the investor to manage and control the investment. All investors no matter how small should have financial statements for both their use and as evidence for their future petitions. If the financial statements have been compiled, reviewed, or audited by a CPA, the financial statements should be accompanied by an accountant’s report that describes the CPA’s level of service and indicates whether the financial statements contain departures from GAAP. There are three general types of engagements.
Compilation engagements are engagements in which a CPA receives information supplied by the client and arranges it into proper financial statement form in accordance with GAAP, without attempting to express any assurance on those statements. The CPA is concerned that the assembly of information is arithmetically correct; however, the CPA does not attempt to verify the accuracy or completeness of the information provided. In a compilation engagement, the CPA is not required to make inquiries of management or perform other procedures to verify, corroborate, or review information supplied by the client. Compiled financial statements are common for a majority of small companies or companies that do not have reporting requirements to a bank or other creditors.
In a review engagement, the CPA goes beyond putting client information together. The CPA also makes certain inquiries of management and performs analytical procedures. However, in a review, the CPA is not required to understand the company’s internal control, test the accounting records, observe inventory, confirm receivables, or obtain other corroborating evidence, as is required in an audit. Review engagements are distinguishable from audits in that the scope of review is less than that of an audit and, therefore, the level of assurance provided is lower. A review consists primarily of enquiry, analytical procedures, and discussion related to information supplied to the public accountant by the enterprise with the limited objective of assessing whether information being reported on is plausible within the framework of appropriate criteria.
In an audit engagement, the CPA goes beyond a review, and on a test basis, examines evidence supporting the amounts and disclosures in a company’s financial statements. The objective of an independent, external audit in accordance with generally accepted auditing standards (GAAS) is to express an opinion on whether an entity’s financial statements present fairly, in all material respects, its financial position, results of operations, and cash flows in conformity with GAAP. This is the highest form of assurance. The auditor performs the audit with an attitude of professional skepticism and seeks reasonable assurance as to whether the financial statements are free of material misstatement. Materiality and audit risk affect the application of GAAS, especially the fieldwork and reporting standards, and are reflected in the auditor’s standard report. The auditor must make judgments about materiality and audit risk in determining the nature, timing, and extent of procedures to apply, and in evaluating the results.
The subsequent petitions for the immigrant investor require accurate and informative financial reports. These reports along with other documentary evidence will need to be submitted to USCIS to meet the high evidentiary standards.