It is essentially an engagement in which a public accountant assembles information provided by a client into an arithmetically correct and not false or misleading set of financial statements. The accountant does not verify the accuracy or completeness of the information provided or expresses any opinion, therefore, the accountant is not required to examine or review information supplied by the client. However, if the accountant believes that the financial information might be false or misleading, the accountant should request further explanation or supporting documentation to satisfy that the financial information is not false or misleading. Due to the accountant’s limited involvement under a compilation engagement, each page of the financial statement carries a caution, or warning called a “Notice to Reader”, which warns readers that the accountant has not performed an audit or a review engagement on the financial information and that the information presented may not be useful for the readers’ purposes.
A compilation engagement is appropriate only where the client and other users do not need financial information that conforms in all respects to generally accepted accounting principles, audit and review assurance is not required, and the client understands that the statements may not be appropriate for general purpose use. A compilation engagement may be applicable where financial statements are prepared for the exclusive use of the company’s management or for income tax purposes.
Although the accountant has limited involvement with a compilation engagement, professional standards require that work is planned and executed according to plan, be performed by a person with adequate technical training in accounting and with due professional skill and care, and assistants employed by the accountant are supervised.
False or misleading is a very broad term. Financial information can be false when they do not depict the real financial picture of an organization. Financial information is misleading if it guides the decision maker into the wrong direction. Therefore, professional due care still need to be exercised under a compilation engagement.
For more information on compilation engagements and if it is suitable for your business purposes, please contact Lourdes Alvarez – Professional Accountants.