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 financial statements.

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 entities whose financial statement users are comfortable with this form of engagement. However, a compilation provides no assurance that financial statements fairly state the financial position of a business, and so is not preferred by lenders and creditors.

A compilation engagement may address either a complete set of financial statements or an individual statement.

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.

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.

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.

Related Topics

What are financial statement footnotes?
What is a financial statement audit?
What is a financial statement error correction?
What is a financial statement review?