Preparing financial statements is important for business managers and directors, regardless of the sector in which their company is active. Financial statements have a significant impact on decision making and the planning of future business operations.
When it comes to the reliability and credibility of financial statements, Chartered Professional Accountants (CPAs) offer different levels of assurance. Different engagements allow CPAs to adapt their approach to their clients' needs and to provide a level of assurance that is appropriate for the situation. There are three types of engagements: compilation engagement, review engagement and audit.
Experts at T2inc explain the basics of a compilation engagement and how this service can benefit your company.
What is a compilation engagement?
‘Compilation engagement’, formerly known as ‘notice to reader’, refers to a professional service where an accountant or accounting firm collects financial information provided by a company’s management and presents this information in the form of financial statements. If the accountant encounters erroneous or misleading financial data, they will seek clarification or supporting documentation from the client.
However, note that the accountant does not provide any guarantees or assurances with this service. To make this clear, each page of the financial statement report will be marked "Unaudited - See Compilation Engagement Report".
Why carry out a compilation engagement?
A compilation engagement offers many benefits, such as:
- Providing a financial statement report in a format that allows for better readability and easier understanding
- Assisting management in preparing business tax returns by providing an overview of financial information
- Providing a global view of the financial health of the company before making important decisions for moving forward
- Enabling financial institutions to have an overview of the company's financial status before granting a loan or other form of financing
Compilation engagement vs. review engagement
The primary difference between a compilation engagement and a review engagement is the level of assurance provided. A compilation engagement provides financial information in its raw form, while a review engagement provides limited assurance on the validity of the financial information included in the report.
How to perform a compilation engagement
To complete a compilation assignment, an accountant will follow the following steps:
- Understand the client's needs: Talk with the client to understand their needs, goals, and the financial information they want to present.
- Gather data: Gather relevant financial information from the client, such as financial statements, income statements, balance sheets, bank statements, etc.
- Organize the data: Organize the collected financial data into an appropriate format and present it in the form of financial statements.
- Presentation of financial statements: Present the compiled financial statements in a way that is clear, accurate, and in accordance with applicable accounting standards.
- Request clarification: If they encounter ambiguous or incomplete financial information, they will request additional clarification or supporting documentation from the client.
- Prepare the report: Prepare a compilation report using a standard template.
- Add a disclaimer: Add a disclaimer on each page of the report to inform readers that the compiled financial information has not been audited.
- Deliver the report: Deliver the compiled report to the client and discuss the results of the compilation with the client.
Who can provide a compilation engagement service?
A compilation engagement, like an audit and a review engagement, is performed by a Chartered Professional Accountant (CPA).
The role of an accountant in a compilation engagement is to provide expert advice and assist the company in maintaining accurate financial records. This involves working closely with the company to collect and analyze financial data and preparing financial statements compliant with GAAP (Generally Accepted Accounting Principles).
At T2inc, our experts specialize in business accounting and will take the time to guide you and explain the results of your compilation engagement.
Make your compilation engagement easy with T2inc
A compilation engagement is an essential tool for maintaining accurate corporate financial records. Creating a compilation engagement involves collecting, organizing and presenting financial information in a structured and easy-to-understand manner.
A compilation engagement allows companies to clearly assess their financial position and make informed decisions. By following best practices and working closely with the company, accountants can provide a successful compilation engagement that will benefit both the company and its stakeholders.
For more information on this important accounting document, contact us today! We offer CPA signed financial statement compilation engagement writing services!