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Many new CPAs are not familiar with two of the local CPA firm’s most popular engagements: compilations and reviews. Shorten your learning curve and impress your boss with your knowledge gained by taking this course. CPA firm staff, including paraprofessionals, new to performing compilation or review engagements, will benefit from this course.
Highlights include identifying the engagement type and the applicable professional standards, executing the engagement programs, effective inquiries and analytical procedures, representation letters, the accountant’s report and workpaper documentation.
Objectives:Identify the activities required to perform basic compilations and reviews of financial statements, draft the accountant’s report, and document the engagement in accordance with professional standards
Prerequisite: None
733678
Chapter 1 - Introduction to Compilation Engagements
Learning Objectives
Upon completion of this chapter, you should be able to
Introduction
In this chapter, we discuss the following:
Resources
Defining a Compilation
Definition
In a compilation engagement, the accountant presents in the form of financial statements information that is the representation of management (owners) without undertaking to express any assurance on the statements. In other words, using management's records, the accountant creates financial statements without gathering evidence or opining about the validity of those underlying records. Because compiled financial statements provide the reader no assurance regarding the statements, they represent the lowest level of financial statement service accountants can provide to their clients. Accordingly, standards governing compilation engagements require that financial statements presented by the accountant to the client or third parties must at least be compiled.
Compilation engagements may only be provided to nonpublic entities. Accountants may not perform compilations for entities that have listed securities, filings with a regulatory agency in preparation for a public sale of securities or a subsidiary, or are joint ventures or controlled enterprises of a public entity.
Comparison to an Audit
By providing no assurance on the associated financial statements, compilations are significantly different from audit engagements. An audit engagement, for example, begins with a set of financial statements provided by management. In these financial statements, management asserts that the transactions and accounts underlying the financial statements: 1) exist or occurred, 2) are complete, 3) represent rights and obligations of the company, 4) are valued and allocated correctly, and 5) are presented and provide disclosure in accordance with generally accepted accounting principles. The auditor's objective is to provide reasonable assurance on the financial statements. In order to provide reasonable assurance, the auditor must obtain evidence - through such procedures as inquiry, analytical procedures, confirmations, vouching, management representation letters, and others - to corroborate management's assertions about the financial statements. Since reasonable assurance is the highest level of assurance provided by accountants, the audit requires the highest level of rigor.
Comparison to a ReviewCompilation engagements are also significantly different from review engagements. A review engagement provides limited assurance on the financial statements. While limited assurance is significantly lower that the reasonable assurance provided by an audit, it is a higher level of assurance than the compilation which provides no assurance about the financial statements. Like an audit, a review engagement begins with a set of financial statements and the associated management assertions. Because the accountant's objective is to provide limited assurance on the financial statements, the accountant must obtain limited evidence, through inquiry, analytical procedures and management's representation letter, to corroborate management's assertions about the financial statements.
IndependenceImportance
Because compilation engagements provide no assurance on the financial statements being compiled, accountants are not required to be independent of their clients on these engagements. The accountant must, however, note their lack of independence on the compilation report or, if the compilation is for management-use-only, in the engagement letter. It is also important to note that the reason for the lack of independence is not disclosed in the compilation report or, for management-use-only engagements, in the engagement letter.
Since disclosure is required when the accountant lacks independence on a compilation engagement, it is important to examine some of the items that more typically cause the accountant to lose (impair) independence.
Unpaid Fees
An accountant's independence is impaired when fees for professional services rendered more than one year prior to the date of the accountant's report remain unpaid when the current year's report is released. These fees include both billed and unbilled amounts.
Specific Services That Impair Independence
There are also some specific services that impair the accountant's independence. These services include
Customer Service
Customer Service
Customer Service
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