Financial statement compilation definition
/What is a Financial Statement Compilation?
A financial statement compilation is a service to assist the management of a business in presenting its financial statements . This presentation involves no activities to obtain any assurance that there are no material modifications needed for the financial statements to be in conformity with the applicable accounting framework (such as GAAP or IFRS ). Thus, a person engaged in a compilation does not use inquiries, analytical procedures , or review procedures, nor does he need to obtain an understanding of internal controls or engage in other audit procedures . In short, compilation activities are not designed to provide any assurance regarding the information contained within the financial statements.
Cost of a Compilation
A financial statement compilation is the least expensive of the various forms of auditing services (the other two being a review and an audit ), and so is preferred by those cost-sensitive entities whose financial statement users are comfortable with this form of engagement. However, because there is no assurance that compiled financial statements fairly present the results and financial position of a business, a compilation is not preferred by lenders and creditors .
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The Compilation Work Product
A compilation engagement may address either a complete set of financial statements or an individual statement.
Compilation Responsibilities
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.
Compilation Documentation
The accountant should create sufficient documentation to provide a clear understanding of the work that he has completed. This documentation should include the engagement letter, significant issues, and any communications to management regarding fraud or illegal acts noted by the accountant.
When completed, the accountant provides a written report that should accompany the compiled financial statements. This report states that the accountant has not audited or reviewed the financial statements, and therefore does not express an opinion or provide any assurance that the financial statements are in accordance with a financial reporting framework.
When to Withdraw from a Compilation Engagement
If the accountant believes that the financial statements being compiled may be materially misstated , he should obtain additional information to confirm or deny this impression. If he is unable to obtain such additional information, the accountant should withdraw from the engagement.
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