Compilation Report: Assembling Financial Data Without Assurance

August 31, 2024 3 min read Finance Accounting Auditing Financial Report Accounting Practices Financial Statements Non-Assurance Services CPA

A compilation report involves assembling financial data without providing any assurance on the accuracy or compliance of the presented information.

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A Compilation Report is a type of financial statement prepared by an accountant where they compile financial data provided by a company, presenting it in the form of official financial statements. Unlike audits and reviews, a compilation does not provide any assurance about the accuracy or completeness of the information. The primary goal is to organize the financial data in a standardized manner for easy comprehension by users.

Definition and Purpose

A compilation report involves the professional assembly of financial information presented by management, with no verification for accuracy, compliance, or completeness. The primary purpose is to convert raw financial data into a structured financial statement format, typically including balance sheets, income statements, and cash flow statements, without providing any form of assurance on the validity of the numbers.

Types of Financial Statements

While focusing on compilations, it is important to distinguish between the types of financial statements that may be involved:

Balance Sheet: A snapshot of the company’s financial position at a specific point in time, detailing assets, liabilities, and equity.
Income Statement: Displays the company’s financial performance over a specific period, including revenue, expenses, and net profit/loss.
Cash Flow Statement: Summarizes the cash inflows and outflows over a period, providing insight into the company’s liquidity.

Special Considerations

No Assurance Provided

A key characteristic of a compilation report is the absence of any assurance. The accountant does not attest to the reliability, accuracy, or compliance of the financial data with accounting standards.

Accountant’s Responsibility

The accountant’s role in a compilation is limited to preparing the financial statement format and ensuring clerical accuracy, without auditing or reviewing the underlying data. The responsibility for the data’s accuracy remains with the company’s management.

Examples

Small Business Financial Statements: A local bakery provides its raw financial data to an accountant, who compiles it into structured financial statements for a loan application.
Startup Financial Summary: A tech startup assembles its internal financial data, and an accountant prepares a compilation report for potential investors.

Historical Context

The concept of compilation reports evolved as businesses needed standardized financial documents for stakeholders while balancing cost constraints. Over time, compiling role-separated accountants’ evaluations to provide flexible yet professionally formatted financial data presentations.

Applicability

Compilation reports are particularly useful for small businesses, startups, and companies that require professionally formatted financial statements without the higher cost of reviews or audits. They may also serve as preliminary reports before undertaking more rigorous verification procedures.

Audit: An examination providing the highest level of assurance on the accuracy and compliance of financial statements.
Review: Provides limited assurance by performing inquiry and analytical procedures without extensive verification.

Assurance Services: Professional services ensuring the accuracy, compliance, and reliability of information.
Non-Assurance Services: Services like compilations where the practitioner’s role is limited to presenting or summarizing information without assurance.

FAQs

What Distinguishes a Compilation from an Audit?

A compilation involves organizing financial data into a presentable format without assessing accuracy or compliance. In contrast, an audit involves verifying the data’s accuracy and compliance, providing assurance of its reliability.

Why Would a Company Choose a Compilation Over an Audit?

A company might choose a compilation over an audit due to lower costs, less rigorous procedures, and when stakeholders do not require formal assurance on the financial data.

Who Can Prepare a Compilation Report?

Certified Public Accountants (CPAs) typically prepare compilation reports, ensuring standard formats and professional presentation.

References

American Institute of CPAs (AICPA)
Financial Accounting Standards Board (FASB)
Generally Accepted Accounting Principles (GAAP)

Summary

A Compilation Report is an accountant-prepared assembly of financial data into standardized statements without providing assurance on the data’s accuracy or compliance. Suitable for businesses that require professional documentation without the added cost or complexity of reviews or audits, compilations offer a practical financial reporting solution.