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.
Nassau New York Engagement Letter for Review of Financial Statements and Compilation by Accounting Firm
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FAQ
In a preparation engagement, the accountant is literally preparing the financial statements based on information management provides (e.g. trial balances). In a compilation engagement, management prepares the financial statements, and the accountant will read and help finalize the financial statements.
Consolidated financial statements are also required under the generally accepted accounting principles (GAAP). According to the Financial Accounting Standards Board (FASB) guidelines, almost all subsidiaries, with few exceptions, must be included in a parent company's consolidated financial statements.
02 Because a compilation engagement is not an assurance engagement, a compilation engagement does not require the accountant to verify the accu- racy or completeness of the information provided by management or otherwise gather evidence to express an opinion or a conclusion on the financial state- ments.
When performing compilation, the accountant should prepare adequate documentation that provides information on the work that has been carried out. Some of the documentation includes the engagement letter, financial statements, and communication with management regarding significant issues identified during the audit.
The financial statement review engagement letter is designed to spell out the who, what and how of the review. It generally contains five parts: the introduction, the CPA responsibilities, the company responsibilities, the report and other matters. Like any contact it is a binding legal agreement if properly prepared.
Under a compilation, management takes responsibility for the preparation and presentation of the financial statements. The accountant providing the compilation services should have sufficient industry-level experience and knowledge of the client to compile the financial statements.
Review Engagement Documentation Requirements Engagement letter. Financial statements. Accountant's review report. Communications with management or others regarding fraud or noncompliance with laws or regulations.
A company's management has the responsibility for preparing the company's financial statements and related disclosures. The company's outside, independent auditor then subjects the financial statements and disclosures to an audit.
The requirement that the accountant modify the accountant's compilation report whenever the accountant's independence is impaired is retained. The accountant is required to obtain an engagement letter signed by both the accountant and the client's management.
When performing compilation, the accountant should prepare adequate documentation that provides information on the work that has been carried out. Some of the documentation includes the engagement letter, financial statements, and communication with management regarding significant issues identified during the audit.