A compilation engagement is the lowest level of CPA service related to financial statements. The CPA assists management in presenting financial information in the form of financial statements without performing any verification procedures.
What Is a Compilation?
In a compilation, the CPA:
- Does: Present management's financial data in financial statement format
- Does NOT: Verify or test the underlying data
- Does NOT: Express any assurance on the financial statements
- Does NOT: Perform analytical procedures or inquiries (beyond understanding the framework)
Levels of CPA Financial Statement Services
| Service | Assurance Level | Procedures |
|---|---|---|
| Audit | Reasonable (highest) | Extensive testing, confirmation, observation |
| Review | Limited (moderate) | Analytical procedures and inquiries |
| Compilation | None | Presentation of management's data |
| Preparation | None | Even less formal than compilation |
When Compilations Are Used
- Small businesses needing formatted financial statements
- Bank loan requirements (when full audit isn't required)
- Internal management reporting
- Business planning and analysis
- Tax basis financial statements
Standards Governing Compilations
SSARS (Statements on Standards for Accounting and Review Services)
- AR-C Section 80: Compilation Engagements
- Issued by the AICPA's Accounting and Review Services Committee
- Less rigorous than audit standards but still require professional competence
Compilation Report
The compilation report states:
- Management is responsible for the financial statements
- The CPA compiled the statements
- No assurance is expressed
- Notes any departures from the applicable framework (optional)
Key Requirements
Before the Engagement
- Engagement letter with clear terms
- Understanding of the applicable financial reporting framework
- Client acceptance and continuance evaluation
During the Engagement
- Read the financial statements for obvious material misstatements
- Consider whether the financial reporting framework is appropriate
- No requirement for inquiry, analytical procedures, or verification
After the Engagement
- Issue compilation report
- Assemble and archive working papers
- Maintain documentation per firm policy
CPA Firm Economics
Compilations are typically:
- Lower fee: Reflecting less work involved
- Higher volume: More clients can be served
- Entry point: Often leads to higher-level services
- Efficient: Standardized processes with lower risk