Do you lack independence in a compilation engagement? If yes, then here’s how to disclose the impairment in the compilation report.
An accountant can issue a compilation report even though independence is lacking. When independence is impaired, SSARS 21 requires that the CPA modify the compilation report. The cause of the impairment (e.g., you own a portion of the business) can be disclosed in the compilation report but is not required. You can–if you prefer–simply say you are not independent; this is what most CPAs do.
Lacking Independence in Current Year
The accountant’s compilation report can disclose a lack of independence as follows:
We are not independent with respect to ABC Company.
Just add this sentence separately at the bottom of the compilation report.
Lacking Independence in the Prior Year
If you were not independent in 2016 but you are independent in 2017 (and comparative statements are presented), the accountant’s report can read:
As of and for the year ended December 31, 2016, we were not independent with respect to ABC Company.
Alternatively, the report can read:
As of and for the year ended December 31, 2016, we were not independent with respect to ABC Company. We are currently independent with respect to ABC Company.
Independence in Review Engagements and Audits
CPAs must be independent to perform review engagements or audits. There are no exceptions. See the AICPA Code of Professional Conduct for guidance on independence issues. Independence rules are found in section 1.200.
Independence in Preparation of Financial Statement Engagements
CPAs can perform a Preparation of Financial Statement engagement without being independent. No independence disclosure is required since this service is a nonattest engagement.