Compiled financial statements represent the most basic level of service that certified public accountants provide with respect to financial statements. In a compilation, the CPA must comply with certain basic requirements of professional standards, such as having a knowledge of the client's industry and applicable accounting principles, having a clear understanding with the client as to the services to be provided, and reading the financial statements to determine whether there are any obvious departures from generally accepted accounting principles (or, in some cases, another comprehensive basis of accounting used by the entity). It may be necessary for the CPA to perform "other accounting services" (such as creating a general ledger for the client, or assisting the client with adjusting entries for the books of the client (before the financial statements can be prepared). Upon completion, a report on the financial statements is issued that states a compilation was performed in accordance with AICPA professional standards, but no assurance is expressed that the statements are in conformity with generally accepted accounting principles. This is known as the expression of "no assurance." Compiled financial statements are often prepared for privately-held entities that do not need a higher level of assurance expressed by the CPA.
Engagement Letter Format for Due Diligence: A Comprehensive Guide Introduction: In the realm of business transactions, due diligence plays a crucial role in evaluating potential risks and opportunities. To establish a formal agreement between the client and the professional services' provider, an engagement letter is exchanged. It outlines the terms, scope, and conditions of the due diligence engagement. This article provides a detailed description of the engagement letter format for due diligence, highlighting its key components and potential variations. 1. Heading: The engagement letter begins with a clear and concise heading, including the names of the client and the professional services' provider. Keywords: engagement letter, due diligence, client, professional services' provider. 2. Date: The engagement letter incorporates a date, ensuring clarity and indicating the initiation of the engagement process. Keywords: date, initiation, engagement process. 3. Background Information: This section presents a brief background of the parties involved, including their roles, responsibilities, and expectations. It sets the context for the due diligence engagement. Keywords: background, parties involved, roles, responsibilities, expectations. 4. Objective: The engagement letter defines the main objective of the due diligence process, highlighting its purpose and specific goals. It may include keywords such as: objective, purpose, specific goals, due diligence process. 5. Scope of Work: This section outlines the tasks, activities, and deliverables to be performed during the due diligence engagement. It clarifies the extent of the services provided, including any limitations or exclusions. Keywords: scope of work, tasks, activities, deliverables, services provided, limitations, exclusions. 6. Confidentiality: Due diligence involves accessing sensitive information, thus requiring a strong emphasis on confidentiality. The engagement letter specifies the client's confidential information and the obligations of the professional services' provider to maintain confidentiality. Keywords: confidentiality, sensitive information, obligations. 7. Timeline and Deadlines: To ensure efficiency and accountability, the engagement letter includes a timeline and deadlines for various stages of the due diligence process. Keywords: timeline, deadlines, efficiency, accountability. 8. Fee Structure: This section defines the fee structure, including the basis for billing, payment terms, and any additional costs. It ensures transparency in financial matters. Keywords: fee structure, billing, payment terms, additional costs, transparency. 9. Termination: The engagement letter addresses the conditions under which either party may terminate the engagement, ensuring mutual understanding and agreement. Keywords: termination, mutual understanding, agreement. 10. Limitation of Liability: To manage potential risks and disputes, the engagement letter may specify the extent of liability for both parties, providing a framework for resolving any issues. Keywords: limitation of liability, risks, disputes, framework. Different Types of Engagement Letter Format for Due Diligence: 1. General Due Diligence Engagement Letter: For standard due diligence engagements, this format covers a wide range of industries and sectors. 2. Financial Due Diligence Engagement Letter: Specifically designed for due diligence engagements focused on financial matters, such as audits and financial statement analysis. 3. Legal Due Diligence Engagement Letter: Tailored for due diligence engagements that primarily involve legal aspects, such as contract reviews, compliance assessments, and regulatory issues. Conclusion: Engagement letters for due diligence engagements provide a clear understanding and formalize the responsibilities and expectations between the client and the professional services' provider. By incorporating the outlined elements and relevant keywords, one can create an effective engagement letter format for due diligence. It is essential to consider the specific requirements of the engagement and modify the format accordingly.
