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903.1 Since the definition of a
compilation engagement indicates that the CPA is merely putting
information supplied by the client into proper financial statement form
without expressing any assurance, it is logical to assume that required
procedures are minimal. SSARS No. 19 (AR 80.13) clearly states that the accountant “. . . is not required
- to make inquiries or perform other procedures to verify, corroborate, or
- review information supplied by the entity.” Likewise, accountants have
- no obligation to obtain an understanding of or communicate deficiencies
- in internal control or to asses control risk. This, of course, does not
- reduce the accountants' obligation to obtain additional or revised
- information if they become aware that information supplied to them is
- inaccurate, incomplete, or misleading. Nor does it reduce the
- accountants' responsibilities when departures from generally accepted
- accounting principles (GAAP) are known to them.
903.2 The SSARS address the accountant's responsibilities relative to fraud and illegal acts on compilation engagements
- Also, if the accountant becomes
- aware of significant weaknesses in the client's internal control, it is
- only prudent that he or she communicate those findings to the client.
- See the discussion beginning at paragraph 905.9 regarding communication of fraud or illegal acts and internal control matters
Compilation Performance Requirements903.3 SSARS No. 19 (AR 80) establishes the performance requirements for compilations. A practitioner engaged to compile financial statements should:
- a. Establish an understanding with the client regarding the
- services to be performed and document the understanding through a
- written communication with management. Engagement letters are discussed
- in section 902.
- Have, or obtain, knowledge of the accounting principles and practices
- of the client's industry and a general understanding of certain matters
- related to the entity itself (AR 80.06-.08). Knowledge of the industry and understanding of the entity are discussed in section 902.
- Read the compiled financial statements and consider whether they
- appear to be appropriate in form and free from obvious material error (AR 80.12). See discussion on reading the compiled financial statements at paragraph 903.5.
- Take certain actions when the accountant becomes aware that
- information supplied by the client is incorrect, incomplete, or
- otherwise unsatisfactory (AR 80.13). See discussion of unsatisfactory information at paragraph 903.4.
- Prepare documentation in sufficient detail to provide a clear
- understanding of the work performed. Certain items of documentation are
- required (AR 80.14-.15). See discussion of compilation documentation requirements at paragraph 905.5.
It should be noted that the SSARS standards apply to compilations of
interim financial statements, as well as annual financial statements.
903.4 Actions Necessary When the Information Is Incorrect, Incomplete, or Otherwise Unsatisfactory.
Although it is not a requirement, the accountant may have made
inquiries or performed other procedures to verify, corroborate, or
review information supplied by the client.
- Based on the results of these
- inquiries or procedures, knowledge gained from prior engagements, or the
- financial statements themselves, the accountant may become aware that
- the information supplied by the client is incorrect, incomplete, or
- otherwise unsatisfactory for the purpose of compiling financial
- statements. In such a case, the accountant should obtain additional or
- revised information. If the client refuses to provide the requested
- information, the accountant should withdraw from the engagement.
903.5 Reading the Compiled Financial Statements. The reading of the financial statements that is required by SSARS No. 19 (AR 80.12) stipulates an inspection of the statements after their preparation.
- The inspection is a review of the final product before release. In many
- firms, this procedure is performed by requiring a technical review. The
- reading should be directed toward identifying obvious material errors
- (including mathematical or clerical mistakes, and mistakes in the
- application of accounting principles) that are observable on the face of
- the financial statements (and in the disclosures, if applicable), given
- the accountant's knowledge of the client and the client's industry.
903.6 Appropriate Workpaper Documentation. Paragraph 905.5 lists
the documentation requirements for compilation engagements.
Management-use-only Financial Statements903.7 SSARS No. 19 allows accountants to provide management-use-only financial statements without issuing a compilation report. (Accountants may still issue a compilation report when they submit management-use-only financial statements, however.)
- SSARS No. 19 (AR 60.04) defines third parties as all parties, including those charged with governance, who are not members of management. Management
- is defined as “the person(s) with executive responsibility for the
- conduct of the entity's operations.” The compilation performance
- standards are the same for management-use-only financial statements as
- they are for third-party financial statements. The definition of third parties
- may present a problem for some CIRAs interested in management-use-only
- financial statements because third parties include “those charged with
- governance,” which encompasses the board of directors and audit
- committee (if the CIRA has one) unless they perform management
- functions. Also, CIRAs commonly distribute copies of their financial
- statements to third parties such as residents. Therefore, the authors
- believe it will be rare for accountants to submit management-use-only
- financial statements to their CIRA clients.
903.8 Because the authors believe it will be rare for accountants to submit management-use-only financial statements to a CIRA
- the preparation of
- management-use-only financial statements is not discussed and the
- applicable practice aids are not included in this Guide. Practitioners should refer to Chapter 3 of PPC's Guide to Compilation and Review Engagements when performing engagements to compile management-use-only financial statements.
Checklists and Practice Aids
903.9 Exhibit 9-1
lists the checklists and practice aids developed by the authors for a
typical compilation of a CIRA's financial statements. These checklists
and practice aids have been adapted from PPC's Guide to Compilation and Review Engagements,
and they are designed to assist practitioners in complying with the
applicable performance and reporting requirements. Although the
checklists and practice aids listed in Exhibit 9-1 are recommended for compilations of CIRA financial statements, those in PPC's Guide to Compilation and Review Engagements are equally acceptable.
Practice aid forms listed on web site here.