Compilation presentation is a type of financial statement preparation where the accountant assists the entity in presenting its financial data without providing any assurance on the statements’ accuracy or conformity with Generally Accepted Accounting Principles (GAAP). This type of engagement is specifically guided by the American Institute of Certified Public Accountants (AICPA) Statements on Standards for Accounting and Review Services (SSARS).
Role of the Accountant
In a compilation engagement, the accountant compiles the financial information provided by the entity into financial statements but does not verify the accuracy or completeness of the information. The role involves:
- Arranging the data in a specified format.
- Ensuring that the information is presented in compliance with the applicable financial reporting framework.
- No requirement for the accountant to provide any assurance or opinion on the financial statements.
AICPA Statements on Standards for Accounting and Review Services (SSARS)
The SSARS framework sets the standards for accountants performing compilation engagements. Some key elements include:
- Engagement Letter: Clearly outlines the scope of services, disclaimers, and limitations of the engagement. It specifies that the accountant will not provide assurance on the financial statements.
- Compilation Report: Accompanying the financial statements, this report indicates that the statements were compiled based on information provided by the entity, without an audit or review.
Types of Compilation Engagements
- Basic Compilation: No footnotes or detailed disclosures are provided, and the financial statement is primarily used for internal purposes.
- Enhanced Compilation: Includes additional disclosures and notes, as per the needs of external users like creditors and stakeholders.
Special Considerations
- Confidentiality: The accountant must maintain confidentiality of the financial information.
- Non-reliance: The accountant explicitly states that the users should not rely on the statements for decision-making purposes without additional verification.
Examples and Applicability
Example: Small Business Financial Reporting
A local bakery opts for a compilation of its financial statements for internal management purposes without requiring an audit, as it would be cost-prohibitive. The compilation report provided by the accountant helps the bakery manage its operations and budget planning.
Applicability
- Small and medium-sized businesses needing regular financial statements but cannot afford extensive audits.
- Enterprises preparing preliminary financial data for internal analysis or minor stakeholder requirements.
Historical Context
The concept of compilation engagements emerged to serve the needs of smaller businesses that required formal financial statements but did not necessitate the exhaustive processes of reviews or audits. Over the years, the standards and requirements have been refined to ensure clarity and usability while maintaining the distinction from assurance services.
Comparison with Assurance Services
| Type | Assurance Provided | Nature of Engagement | Scope of Work |
|---|---|---|---|
| Compilation | None | Preparation and presentation | Formatting and disclosure |
| Review | Limited | Analytical procedures and inquiries | Moderate analysis |
| Audit | Reasonable | Extensive testing and verification | Verification and validation |
Related Terms
- GAAP: Generally Accepted Accounting Principles; a framework for financial accounting.
- Audit: An independent examination providing a reasonable assurance on financial statements.
- Review: A service providing limited assurance through inquiry and analytical procedures.
FAQs
Q1: What differentiates a compilation from an audit? A: Compilation involves the presentation of financial data without verification, while an audit provides a reasonable assurance through extensive testing.
Q2: Can an accountant provide any assurance in a compilation? A: No, there is no assurance given in a compilation engagement.
Q3: Is a compilation report mandatory? A: Yes, it serves as a disclaimer and part of the engagement deliverables.
Q4: For whom is a compilation most suitable? A: Small to medium-sized businesses looking for an economical way to organize and present their financial data.
References
- FASB GAAP Overview
- AICPA SSARS Standards
- Arens, A. A., Elder, R. J., & Beasley, M. S. (2017). Auditing and Assurance Services: An Integrated Approach. Pearson.
Summary
Compilation presentation provides a valuable service for entities needing to compile their financial data without the costs or requirements of an audit or review. Governed by the SSARS under the AICPA, it serves as an efficient and structured way to prepare financial statements while explicitly disclaiming any assurance. It is particularly useful for small to medium enterprises, serving internal and limited external purposes effectively.
