Most small business owners do their finances and taxes. This can help you initially. But when you deal with third parties, DIY accounting won’t suffice. You will need the services of a Chartered Professional Accountant (CPA) to prepare financial statements in compliance with the regulatory standards. The CPA has three levels of engagement, starting with compilation engagement, review engagement and audit, each more detailed than the other. Depending on the purpose of the financial statements, you can opt for any of the three engagements.

The most basic service is the compilation engagement service. This article will discuss compilation engagement and when your business needs it.

What Is a Compilation Engagement Service?

In this engagement, CPAs will compile all business financial information you provide into financial statements that meet the accepted accounting practices. The professional will seek clarification or ask for a supporting document if there are any errors or misleading financial data. You may ask how it is different than preparing a statement. Accountants do not provide guarantees or assurances that the information is accurate and complete. They have just compiled the information provided.

Many times, you only need a statement compiled in the accepted format.

When Do Small Business Owners Need Compilation Engagement Services?

When your small business must interact with a third party on the financial front, maybe for an investment or a loan application, they might need a financial statement even if it is not audited. Some jurisdictions or industries might require compiled financial information for compliance.

Small businesses can also use a compiled financial statement for internal purposes like business and financial planning, budgeting, and filing business tax returns. A well-formatted financial statement can help you understand the trends, forecast cash flows and set up proper systems to ensure liquidity. A financial statement serves many purposes.   

Regulatory Standards for Compilation Engagement

Since there is a lot of ambiguity around the compliance engagement service, the Canadian Auditing and Assurance Standards Board (AASB) published rules around this service in the Canadian Standard on Related Services (CSRS) 4200. The standard outlines when and how an accountant should undertake a compilation engagement and helps the user understand the service. It aims to ensure both an accountant and the management communicate their responsibilities and the nature and scope of the compilation engagement.

The Process of Compilation

• Know the Intent: Before approaching a CPA for compiling financial statements, you should know why you need these statements. Is it for lenders, third parties or internal controls? Establishing the purpose of these statements at the beginning can help both the CPA and the management design a tailor-made solution that serves your purpose.
• Clarify Responsibilities: Once you are sure what you are looking for, both parties clarify the responsibilities of the CPA and the management. The management is responsible for providing complete and accurate details of all business transactions, and the CPA is responsible for compiling the statements based on the information provided. However, the professional is not responsible for the accuracy of the information.
• Gathering Financial Information: The company’s management should collect all financial documents related to business transactions, including bank statements, tax returns, journal entries, and other records and information that could influence the financial statements.
• Preparing Financial Statement: The CPA will prepare financial statements according to the appropriate accounting framework. They will also discuss the frameworks to ensure you acknowledge and agree with the chosen framework. In case of any misleading information or errors in data, they will seek clarification from management. Each page of the financial statement will be marked “Unaudited—See Compilation Engagement Report.”
• Preparing Compilation Report: The accountant will prepare a compilation report, clearly communicating that the information provided by the management was not audited or reviewed by the accountant. Thus, the accountant gives no assurance of the accuracy and completeness of the financial information. The report will also include the basis of accounting applied.

Compilation engagement services are a cost-effective alternative for small businesses to get financial statements without needing review and audit. As a small business owner, you can begin with the compilation and avail of the other more costly services when a business requirement arises.

Contact Ford Keast LLP in London For Review and Compilation Engagement Services

Ford Keast LLP’s accountants can provide compilation engagement, review engagement, and audit services depending on your business requirements. To learn how Ford Keast LLP can provide you with the best accounting expertise, contact us online or at 519-679-9330.