1.4 Compilation engagements

A compilation engagement is a type of non-assurance engagement performed by professional accountants where they assist a client in preparing financial statements without providing any assurance or expressing an opinion on the accuracy or completeness of the information presented. The objective of a compilation engagement is to organize and present the client’s financial information in the form of financial statements, without undertaking the extensive procedures and verification performed in an audit or review engagement.

Here are the key aspects of compilation engagements:

Engagement Letter: The engagement letter for a compilation engagement outlines the nature and scope of the services to be provided. It defines the responsibilities of both the accountant and the client, including the client’s responsibility for the accuracy and completeness of the financial information provided.

Organizing and Presenting Financial Statements: In a compilation engagement, the accountant assists the client in organizing their financial information and preparing financial statements. This involves taking the client’s accounting records and data and presenting them in the form of financial statements, including the balance sheet, income statement, statement of cash flows, and notes to the financial statements.

No Assurance or Opinion: Unlike assurance engagements such as audits or reviews, the accountant does not provide any assurance or express an opinion on the financial statements’ accuracy or completeness. The accountant does not perform any independent verification or testing of the information provided by the client.

Disclosure and Compliance: The accountant may provide guidance to the client on the disclosure requirements of applicable accounting standards or regulatory frameworks. However, the accountant does not verify the accuracy or adequacy of the disclosures made by the client.

Limited Procedures: While compilation engagements do not involve independent verification or extensive procedures, the accountant may perform basic inquiries or limited procedures to identify obvious errors, inconsistencies, or incomplete information in the financial statements. These procedures are not designed to provide any level of assurance on the financial statements’ accuracy but rather to ensure that the statements are free from obvious misstatements or misunderstandings.

Engagement Report: Upon completion of the compilation engagement, the accountant typically issues a compilation report. This report acknowledges that the financial statements have been compiled based on the information provided by the client and does not express any assurance or opinion on their accuracy or completeness.

Use and Distribution: The compiled financial statements and the compilation report are primarily intended for internal use by the client or for sharing with third parties as specified by the engagement agreement. However, it’s important to note that compiled financial statements may not be suitable for external use or for obtaining financing, as they do not provide the same level of assurance as audited or reviewed financial statements.

Compilation engagements provide a valuable service to clients by assisting them in presenting their financial information in a structured format. However, users of compiled financial statements should be aware that these statements do not provide the same level of assurance as audited or reviewed financial statements and should exercise caution when relying on them for decision-making purposes.