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Aicpa compilation report

July 1999 Issue AICPA Council Votes To Permit CPAs In Non-CPA Firms To Issue Compilations At its May meeting, the AICPA Council passed a resolution to permit CPAs in non-CPA firms to issue compilation reports under the Statements on Standards for Accounting and Review Services. The main objective of the resolution is to eliminate the need for recently enacted

legislation in Florida that created a fourth level of financial statement service called an assembly. Because of a number of court decisions, the Florida Board of Accountancy was obligated to develop a way for CPAs working in non-CPA firms such as American Express Tax and Business Services to issue reports on financial statements. Under existing AICPA standards, however,

CPAs are not permitted to submit assembly reports to clients and others. With the passage of the resolution, rescission of the Florida legislation is expected. The resolution revises the language of Rule 505, Form of Organization and Name, to eliminate the requirement that compilation reports be issued by CPA firms. The resolution requires, however, that non-CPA organizations

that issue compilation reports must assign to a CPA the ultimate responsibility for any financial statement compilation services provided by the firm and for each business unit performing such compilation services; non-CPA owners cannot assume ultimate responsibility for such services. The resolution also states that any compilation report issued by a CPA in a non-CPA firm must

be signed individually and may not be signed in the name of the firm or organization. The Uniform Accountancy Act will have to be revised to accommodate the Council's resolution. States such as New York that have UAA-type legislation in the works will have to decide whether to change their legislation to accommodate the resolution. The resolution passed with relative ease. It

appears the desire to eliminate the need for the assembly service in Florida was considered more important than the fact that CPA firms are losing the competitive advantage of being the only entities permitted to issue compilation reports. Small CPA firms that rely principally upon financial statement services may not agree. * Home | Contact | Subscribe | Advertise | Archives |

NYSSCPA | About The CPA Journal The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful

accountants, managers, and executives in today's practice environments. ?2009 The New York State Society of CPAs. Legal Notices Knowing how to perform compilation engagements is important for CPAs. Below I provide an overview of the salient points of AR-C 80, Compilation Engagements.The guidance for compilations is located in AR-C 80, Compilation

Engagements.The accountant should perform a compilation engagement when he is engaged to do so.A compilation engagement letter should be prepared and signed by the accountant or the accountant¡¯s firm and management or those charged with governance. An engagement letter to only prepare financial statements is not a trigger for the performance of a compilation

engagement.Previously (in the SSARS 19 days), the preparation and submission of financial statements to a client triggered the performance of a compilation engagement. Now, compilation engagement guidance is applicable only when the accountant is engaged to (requested to) perform a compilation. The objectives of the accountant in a compilation engagement are to:Assist

management in the presentation of financial statements Report on the financial statements in accordance with the compilation engagement section of the SSARSsMore...In a compilation engagement, a compilation report is always required. A compilation engagement is an attest, nonassurance service. Nonassurance means the accountant is not required to verify the accuracy or

completeness of the information provided by management or otherwise gather evidence to express an opinion or a conclusion on the financial statements.The compilation report looks distinctly different from audit or review reports (which include paragraph titles such as Management Responsibility and Accountant¡¯s Responsibility). The standard compilation report is one paragraph

with no paragraph titles. (See the Sample Compilation Report section below.)The accountant prepares financial statements as directed by management or those charged with governance. The financials should be prepared using an acceptable reporting framework including any of the following:Cash basisTax basisRegulatory basisContractual basisOther basis (as long as the

basis uses reasonable, logical criteria that are applied to all material items) Generally accepted accounting principles (GAAP)All of the above bases of accounting, with the exception of GAAP, are referred to as special purpose frameworks. The description of special purpose frameworks may be included in:The financial statement titlesThe notes to the financial statements,

orOtherwise on the face of the financial statementsManagement specifies the financial statements to be prepared. The most common financial statements created include:Balance sheetIncome statementCash flow statementThe accountant can, if directed by management, create and issue just one financial statement (e.g., income statement). Some bases of accounting (e.g., taxbasis) do not require the issuance of a cash flow statement.The financial statements can be for an annual period or for a shorter or longer period. So, financial statements can be for a fiscal year, quarterly, or monthly, for example.Should a reference to the compilation report be included at the bottom of each financial statement page (including supplementary information)? While not

required, it is acceptable to add a reference such as:See Accountant¡¯s ReportSee Accountant¡¯s Compilation Report, orSee Independent Accountant¡¯s Compilation ReportWhy add such references? The accountant¡¯s report may become detached from the financial statements. The reference notifies the reader of the financial statement that a compilation report exists.The accountant

should prepare and retain the following documentation:The engagement letterThe financial statements, and The accountant¡¯s compilation reportThe accountant should document any significant consultations or judgments.If the accountant departs from a presumptively mandatory requirement, it is necessary to document the justification for the departure and how the alternative

procedures performed are sufficient to achieve the intent of the requirement. (The SSARSs use the word should to indicate a presumptively mandatory requirement.)While it is possible for the accountant to perform only a compilation and not prepare the financial statements, most compilation engagement letters will state that the following will be performed by the

accountant:Preparation of the financial statements (a nonattest service)A compilation service (an attest service)Since a nonattest service and an attest service are being provided, the accountant will add language to the engagement letter describing the client¡¯s responsibility for the nonattest service. AICPA independence standards require the accountant to consider whether he is

independent when he performs an attest service (e.g., compilation) and a nonattest service (e.g., preparation of financial statements) for the same client. If management does not possess the requisite skill, knowledge, and experience to oversee the preparation of the financial statements and accept responsibility, the accountant may not be independent.The accountant

should:Read the financial statements in light of the accountant¡¯s understanding of the selected financial reporting framework and the significant accounting policies adopted by managementConsider whether the financial statements appear appropriate in form and free from obvious material misstatementsHere are examples of inappropriate form and obvious material

misstatements:An equity account is shown in the liability section of the balance sheetThe balance sheet does not reflect the accrual of receivables though the financial statements were supposedly prepared in accordance with GAAPTotal assets as reflected on the balance sheet do not equal the individual items on the statement (an addition error)The financial statements omit a

material debt disclosure, though the statements were prepared in accordance with GAAP and substantially all disclosures were to be includedGiven that the focus of a compilation is the reading of the financial statements to determine if they are appropriate in form and free from obvious material misstatements, what are some procedures that are not required?Confirmation of

cash Testing of subsequent receiptsAnalytical comparisons with the prior yearSubstantive analyticsConfirmation of debtA search for unrecorded liabilities Is it permissible to perform audit or review procedures while conducting a compilation engagement? While not required to do so, such procedures are allowed. If you perform audit or review procedures, be careful not to imply to

the client or other parties that you are performing a service other than a compilation.The accountant is not required to perform procedures to ensure the completeness of the client-supplied information, but what if the client provides information that is obviously not complete or contains material errors? If management-supplied information is not complete or appears incorrect, the

accountant should request corrections. Also, the accountant should request corrections if:The financial statements do not appropriately refer to the applicable financial reporting frameworkRevisions are necessary to comply with the selected reporting framework, or The financial statements are otherwise misleadingIf requested or corrected information is not received or if the

financial statements are not corrected, the accountant should consider withdrawing from the engagement and may wish to consult with legal counsel. If the accountant decides not to withdraw and a material departure from the reporting framework exists, he should modify the compilation report to disclose the departure. See the example below in Reporting Known Departures from

the Applicable Financial Reporting Framework.The following is a sample compilation report:Management is responsible for the accompanying financial statements of XYZ Company, which comprise the balance sheets as of December 31, 20X2 and 20X1 and the related statements of income, changes in stockholder¡¯s equity, and cash flows for the years then ended, and the

related notes to the financial statements in accordance with accounting principles generally accepted in the United States of America. I (We) have performed a compilation engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. I (we) did not audit or review the

financial statements nor was (were) I (we) required to perform any procedures to verify the accuracy or completeness of the information provided by management. I (we) do not express an opinion, a conclusion, nor provide any assurance on these financial statements.[Signature of accounting firm or accountant, as appropriate][Accountant¡¯s city and state][Report Date]The

compilation report should:Include a statement that management (owners) is (are) responsible for the financial statementsIdentify the financial statementsIdentify the entitySpecify the date or period coveredInclude a statement that the compilation was performed in accordance with SSARSInclude a statement that the accountant did not audit or review the financial statements nor

was the accountant required to perform any procedures to verify the accuracy or completeness of the information provided by management, and does not express an opinion, a conclusion, nor provide any assurance on the financial statementsInclude the signature of the accountant or the accountant¡¯s firmInclude the city and state where the accountant practices andInclude the

date of the report (which should be the date the accountant completes the compilation procedures)You may have noticed that a compilation title and salutation are not required. Can they be included? While AR-C 80 does not require a report title or a salutation, it is permissible to add them. Here¡¯s a sample report title and salutation:

Accountant¡¯s Compilation

ReportTo the Board of Directors and ManagementXYZ CompanyThe signature on the compilation report can be manual, printed, or digital. If the accountant¡¯s letterhead includes the city and state where the accountant practices, then the city and state can be omitted from the bottom of the compilation report.The date of the compilation report should be the date the accountant

completes the compilation procedures.Can the accountant omit all disclosures (notes to the financial statements) in a compilation engagement? Yes. Alternatively, the accountant can provide selected disclosures or if needed, full disclosure. In short, the accountant can do any of the following:Omit all disclosuresProvide selected disclosures, orProvide full disclosureThe compilation

report should disclose the omission of substantially all disclosures with language such as the following:Management has elected to omit substantially all the disclosures ordinarily included in financial statements prepared in accordance with the tax-basis of accounting. If the omitted disclosures were included in the financial statements, they might influence the user¡¯s conclusions

about the company¡¯s assets, liabilities, equity, revenue, and expenses. Accordingly, the financial statements are not designed for those who are not informed about such matters.The engagement letter should describe the level of disclosure to be included in the financial statements. If the accountant becomes aware of a material departure from the basis of accounting that is not

corrected, he should modify the compilation report to disclose the departure. For example:Management is responsible for the accompanying financial statements of XYZ Company, which comprise the balance sheets as of December 31, 20X2 and 20X1 and the related statements of income, changes in stockholder¡¯s equity, and cash flows for the years then ended, and the related

notes to the financial statements in accordance with accounting principles generally accepted in the United States of America. I (We) have performed compilation engagements in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. I (we) did not audit or review the financial

statements nor was (were) I (we) required to perform any procedures to verify the accuracy or completeness of the information provided by management. I (we) do not express an opinion, a conclusion, nor provide any assurance on these financial statements.Accounting principles generally accepted in the United States of America require that material impairments in the fair value

of owned property be recognized in the balance sheet. Management has informed us that a recent appraisal of its Fumbleton office reflected a fair value of $2.25 million less than carrying value. If accounting principles generally accepted in the United States of America were followed, the buildings and equity accounts would have decreased by $2.25 million. [Signature of

accounting firm or accountant, as appropriate][Accountant¡¯s city and state][Report Date]The effects of the departure, if known, should be disclosed in a separate paragraph of the compilation report. If the effects of the departure are not known and cannot be readily determined with the accountant¡¯s procedures, the compilation report should include a statement that the

determination has not been made by management.The accountant may not issue a compilation report that states the financial statements (as a whole) are not presented in accordance with the applicable financial reporting framework. Doing so is considered, in effect, an adverse opinion. An adverse opinion can only be expressed in an audit engagement.Other accountants might

perform a compilation of a subsidiary. What is your reporting responsibility if you are performing a compilation of a consolidated entity that includes the subsidiary? The compilation report for the consolidated entity is not altered to make a reference to the other accountant. AR-C 80 is silent in regard to whether you are required to obtain a copy of the other accountant¡¯s compilation

report.If the accountant becomes aware of uncertainties with regard to an entity¡¯s ability to continue as a going concern, he may suggest additional disclosures. Without the additional going concern disclosures, it is possible that the financial statements could be misleading.If substantially all disclosures are omitted from the financial statements, disclosure of the going concern

uncertainty is not required. Even so, the accountant should be careful not to issue financial statements that are misleading. If needed, ask management to include the requisite going concern disclosures.If the necessary going concern disclosures are not added and the financial statements are misleading, the accountant should consider withdrawing from the engagement.Is it

permissible to include an emphasis-of-a-matter paragraph in a compilation report? Yes.The following is an example of a going concern uncertainty paragraph that could be added to a compilation report:Going ConcernAs discussed in Note H, certain conditions indicate that the Company may be unable to continue as a going concern. The accompanying financial statements do not

include any adjustments that might be necessary should the Company be unable to continue as a going concern.Where should an accountant¡¯s lack of independence be noted in the compilation report? The accountant can disclose his lack of independence in the last paragraph of the compilation report with wording such as: I am (We are) not independent with respect to XYZ

Company.The reason for the lack of independence need not be included, but if the accountant includes one reason for a lack of independence, then all such reasons should be included. If independence is impaired and the accountant desires to provide the reason independence is impaired, the compilation report may include wording such as:We are not independent with respect

to XYZ Company as of and for the year ended June 30, 2019, because an engagement team member made management decisions on behalf of XYZ Company.The compilation report should highlight the use of a special purpose framework when one is used. If a special purpose framework is used and disclosures are included, then the compilation report should include a separate

paragraph such as the following:We draw attention to Note X in the financial statements, which describes the basis of accounting. The financial statements are prepared in accordance with the tax-basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America.If disclosures are omitted, the separate paragraph

could read as follows:The financial statements are prepared in accordance with the tax-basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America.Unless the entity elects to omit substantially all disclosures, the compilation report should be modified to describe departures when the financial statements do

not contain:A description of the special purpose frameworkA summary of significant accounting policies A description of how the special purpose framework differs from GAAPDisclosures similar to those of GAAP The description of the special purpose framework can be included in the titles of the financial statements or the notes. If the financial statements omit notes, the financial

statement titles should include the special purpose framework; for example, Statement of Revenues and Expenses¡ªTax Basis.If substantially all disclosures are omitted, then 2, 3, and 4 above are not necessary. However, the accountant should include a separate paragraph in the accountant¡¯s compilation report stating that management elected to omit substantially all

disclosures. (See the preceding section titled Omission of Substantially All Disclosures.)Click here for more information about which special purpose framework you should use.In addition to historical financial statements, AR-C 80 may be applied to the following:Specified elements, accounts, or items of a financial statement, including schedules of:RentsRoyaltiesProfit

participation, orIncome tax provisionsSupplementary informationRequired supplementary informationPro forma financial informationAR-C 80 can be applied to prospective information.Prospective financial information is defined as any financial information about the future. Prospective financial information can be presented as:A complete set of financial statements, orOne or more

elements, items, or accountsIf you prepare prospective financial information, the summary of significant assumptions must be included Why? It is considered essential to the user¡¯s understanding of such information.If you prepare a financial projection, you should not exclude:The identification of hypothetical assumptions, orThe description of the limitations on the usefulness of the

presentationThe compilation report should include statements that:The forecasted or projected results may not be achieved andThe accountant assumes no responsibility to update the report for events and circumstances occurring after the date of the reportAR-C 80 references the AICPA Guide Prospective Financial Information as suitable criteria for the preparation and

presentation of prospective financial information.Is it permissible to perform a compilation engagement with regard to prescribed forms?Yes. There is nothing in the SSARSs that prohibits the accountant from performing a compilation engagement with regard to prescribed forms (e.g., bank personal financial statement).When a bank, credit union, regulatory or governmental

agency, or other similar entity designs a prescribed form to meet its needs, there is a presumption that the required information is sufficient. What should be done if the prescribed form conflicts with the applicable basis of accounting? For example, what if the prescribed form requires all numbers to be in compliance with GAAP with the exception of receivables? Follow the form,

and no departure from the applicable reporting framework exists. In effect, the form and its related directions are treated as though they are the applicable reporting framework. The accountant must report departures from the prescribed form and related instructions as a departure from the applicable financial reporting framework. Include any significant departures in the

compilation report. (See the preceding section titled Reporting Known Departures from the Applicable Financial Reporting Framework.)If the prescribed form includes a compilation report not in conformity with AR-C 80, the report should not be signed. Append an appropriate compilation report to the prescribed form.There you have it. Now you know how to perform a compilation

engagement.The main things to remember are (1) you need a signed engagement letter, (2) always include a compilation report with the financial statements, and (3) read the financial statements to determine if they are appropriate.If you desire to issue financial statements without a compilation report, read my article about the use of AR-C 70, The Definitive Guide to

Preparations.If you desire to issue financial statements in conjunction with a review engagement, read my article about the use of AR-C 90, Review Engagements. aicpa sample compilation report. aicpa ssars 21 compilation report. aicpa accountant's compilation report. aicpa illustrative compilation report. aicpa compilation report template. aicpa compilation report 2020

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