Comparison of Compilations and Financial Statement Preparation

Here's a summary of how a compilation engagement differs from a preparation service

This post provides a comparison of compilations and financial statement preparation services.

Recently, the Accounting and Review Services Committee of the AICPA issued SSARS 21.

Under SSARS 21, a CPA can use Section 70 — Preparation of Financial Statements or Section 80 — Compilation Engagements. The Preparation option offers some economies of effort, one being that no compilation report is required. But some CPAs have wondered, “What are the difference in the two types of services?”

Here’s a summary.

QuestionPreparing Financial StatementsCompilations
Can notes to the financial statements be omitted?
YesYes
Can the financial statements go to users other management?
YesYes
Considered an assurance service?
NoNo
Considered an attest service?
NoYes
Does the engagement require a report?
No - required wording stating “no assurance is provided” or a disclaimer
Yes - compilation report
Effective for periods ending on or after December 15, 2015 (early implementation permitted)?
YesYes
If the accountant is not independent, is that fact required to be disclosed?
NoYes
Is a signed engagement letter required?
YesYes
Is the accountant required to determine if he or she is independent of the client?
NoYes
Management is responsible for financial statements?YesYes
Minimum documentation
1. Engagement letter
2. Copy of financial statements
1. Engagement letter
2. Copy of financial statements
3. Copy of report
Procedures1. Prepare the financial statements based on the information provided
2. If the accountant becomes aware that supplied information is incorrect or incomplete, request corrected or additional information
1. Read the financial statements
2. Consider whether the financial statements appear appropriate
3. If the accountant becomes aware that supplied information is incorrect or incomplete, request corrected or additional information
4. If the accountant becomes aware that revisions to the financial statements are necessary, request that corrections be made
Is the accountant required to make inquiries or perform other procedures to verify, corroborate, or review information supplied?NoNo
Subject to Peer ReviewNot known at this timeYes
When does the standard apply?
Accountant engaged to prepare financial statements
Accountant engaged to compile financial statements

For additional information about Preparation of Financial Statement engagements, click here.

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3 thoughts on “Comparison of Compilations and Financial Statement Preparation

  1. Thanks Charles. No management representation letter required? It may not be subject peer review. If not subject to peer review may be the quality of the financial statements will go down. I have already seen income statement replacing revenue with income, etc.