Compilation engagement

What is a Compilation Engagement 

A Compilation Engagement is an accounting service provided by a professional accountant (often a CPA) that involves assembling financial information into a set of financial statements or reports. This is typically done for businesses or individuals who need financial information prepared in a standard format but do not require an audit or a review.

Features of a Compilation Engagement

The accountant compiles financial data provided by the client into a structured financial statement format, often following a standard framework like Accounting Standards for Private Enterprises (ASPE). Unlike audits or reviews, a compilation does not provide any assurance about the accuracy or completeness of the financial information. The accountant simply organizes and presents the data. A compilation engagement includes a “Notice to Reader” report, which states that the financial information is based on the information provided by management and has not been audited or reviewed.

When is a Compilation Engagement Used

Small Businesses and Startups – To prepare financial statements for management, investors, or creditors without the cost or complexity of an audit or review.

Tax Filings – To present financial information in a format suitable for corporate or personal tax filings.

Lender or Investor Requirements – Some financial institutions or stakeholders may require financial statements prepared by a professional accountant.

Budgeting and Decision-Making – To create a formal record of financial performance for internal planning and forecasting.

compilation engagement canada

Types of Compilation Engagement

  • Internal Management Use
  • Tax Filing
  • Lender or Investor-Requested Compilation
  • Partnership or Shareholder Reporting
  • Pre-Audit Preparation
  • Business Valuation or Sale

Compilation Engagement Report Structure

A Compilation Engagement Report is a formal statement issued by a professional accountant as part of a compilation engagement. It accompanies the compiled financial statements and includes a “Notice to Reader” indicating the nature and limitations of the engagement. This report clarifies that the financial information was prepared based on management-provided data and does not include assurance regarding its accuracy or completeness.

Section

Description

Title

“Compilation Engagement Report”

Addressee

Directed to the intended users (e.g., management, shareholders, or lenders).

Scope of Engagement

States that the engagement was performed in accordance with CSRS 4200: Compilation Engagements.

Management Responsibility

Acknowledges that management is responsible for providing the financial information and its fair presentation.

Accountant’s Responsibility

Explains that the accountant compiled the financial information but did not audit, review, or verify it.

Notice to Reader

States that the accountant does not express assurance or an opinion on the financial information.

Basis of Accounting

Identifies the financial reporting framework used (e.g., ASPE, IFRS, or special purpose framework).

Signature and Date

Signed by the accountant or accounting firm with the date of the report.

This table outlines the key components of a compilation engagement report for clarity and ease of understanding. Let me know if you’d like a specific example formatted for your use!

Compilation Engagement vs Notice to Reader

A Compilation Engagement and a Notice to Reader are related, but they refer to different aspects of the financial reporting process in accounting. Below is a comparison:

Aspect

Compilation Engagement

Notice to Reader

Definition

A Compilation Engagement is the process where an accountant compiles financial information based on data provided by the client, with no assurance on the accuracy of the information.

A Notice to Reader is the report or disclaimer included with compiled financial statements, clarifying that no assurance is provided.

Purpose

To organize and present financial information in a structured format, typically for internal use, tax filing, or for lenders/investors who do not require an audit or review.

To inform readers that the financial statements have been compiled and not audited or reviewed, providing no assurance regarding their accuracy.

Scope of Work

The accountant gathers and arranges the financial data, following agreed-upon procedures but does not verify or provide assurance on the data.

The Notice to Reader is a statement added to the compiled financial statements to explain that the information is based solely on the client’s data.

Assurance

No assurance or verification is provided in a compilation engagement. It is simply a compilation of provided data.

The Notice to Reader specifically disclaims any assurance about the completeness or accuracy of the financial data.

Who Issues It

The accountant or accounting firm conducting the compilation engagement issues the engagement report.

The Notice to Reader is issued as part of the compiled financial statements, often by the accountant or firm conducting the compilation.

Legal or Regulatory Impact

Required when preparing financial statements that are needed for specific purposes, such as business transactions, tax filing, or bank loans.

The Notice to Reader is a required disclosure in the compilation process, ensuring transparency for users of the compiled financial statements.

Content

Includes a report describing the nature of the engagement, the accountant’s role, and any limitations.

A short statement explaining that the financial statements are based on information provided by management and are not audited or reviewed.

A Compilation Engagement refers to the entire process of compiling the financial statements, while the Notice to Reader is the disclaimer that accompanies the financial statements to inform the reader that no assurance has been provided. The Notice to Reader is an essential part of the compilation engagement but does not stand alone as a comprehensive report.

Compilation Engagement vs Review Engagement

A Compilation Engagement and a Review Engagement are both types of accounting services that involve the preparation of financial statements, but they differ significantly in terms of the level of assurance provided, the procedures involved, and their purpose. Below is a detailed comparison:

Aspect

Compilation Engagement

Review Engagement

Definition

In a compilation engagement, the accountant compiles financial information provided by the client into a structured format without verifying or providing assurance on its accuracy.

A review engagement involves the accountant performing limited procedures (such as inquiries and analytical procedures) to provide moderate assurance that the financial statements are free of material misstatement.

Level of Assurance

No assurance is provided. The accountant does not verify the accuracy or completeness of the information.

Provides limited assurance that the financial statements are free of material misstatement. It is more thorough than a compilation but less than an audit.

Procedures Involved

The accountant compiles the financial information, organizing it into financial statements without checking its accuracy or completeness.

The accountant performs limited procedures, which include inquiries, analytical procedures, and discussions with management, but does not perform detailed testing of the data.

Purpose

Primarily used for internal purposes, tax filing, or to meet basic reporting requirements when no assurance is needed (e.g., for small businesses or informal financial reporting).

Used when a business or stakeholder requires a higher level of confidence in the financial statements, but an audit is not necessary (e.g., for lenders or investors who require limited assurance).

Engagement Report

Includes a Notice to Reader that clearly states the financial statements are compiled and no assurance is provided.

It includes a review report that states the procedures performed and provides limited assurance about the financial statements.

Nature of Work

The accountant organizes and presents the data without performing any verification or detailed analysis.

The accountant reviews the financial statements, analyzes the data and performing limited inquiries and tests, but does not provide full verification.

Cost

Generally more cost-effective than a review engagement due to its simpler and less time-consuming nature.

Typically more expensive than a compilation because it involves more procedures and a higher level of assurance.

Level of Detail

Provides basic financial statements based on the information provided by the client.

The financial statements are reviewed with limited testing and analysis to ensure they are reasonable and not materially misstated.

Example Use Cases

Small businesses, tax filings, and situations where basic financial reporting is required but no assurance is needed.

Used by businesses that need to provide limited assurance to investors, banks, or other stakeholders without undergoing a full audit.

A compilation does not assure the accuracy of the financial statements, while a review provides limited assurance that the statements are free from material misstatement. In a compilation, the accountant only organizes the data provided by the client, while in a review, the accountant conducts limited procedures such as inquiries and analytical reviews to assess the financial statements. A compilation engagement is usually less expensive because it involves minimal work, whereas a review engagement requires more effort and provides a higher level of assurance, making it more costly.

FAQs For Compilation Engagement Service

Can a non-CPA prepare a compilation report in Canada?

No, in Canada, a compilation report must be prepared by a Chartered Professional Accountant (CPA) or a firm licensed by a provincial CPA body.

What is required for a compilation engagement?

  • An engagement letter.
  • An understanding of the client’s business and financial reporting framework.
  • The use of the CPA Canada Handbook – Accounting.
  • A properly prepared Compilation Engagement Report.
  • Financial information compiled based on information provided by management without assurance

How much does a CPA compilation cost?

The cost of a CPA compilation in Canada typically ranges from $500 to $2,500, depending on the complexity of the financial information and the size of the business.

Can a non-CPA do a compilation?

No, in Canada, only a CPA or a licensed firm can perform a compilation engagement and issue a Compilation Engagement Report as per CPA Canada standards.

Who can do a compilation report?

In Canada, only a Chartered Professional Accountant (CPA) or a licensed CPA firm can prepare and issue a compilation report.

What is the difference between compilation engagement and notice to reader?

A Notice to Reader is a report issued under a Compilation Engagement. The compilation engagement refers to the process of compiling financial information, while the Notice to the Reader is the accompanying document stating that no assurance is provided.

Who can prepare compiled financial statements?

In Canada, only a Chartered Professional Accountant (CPA) or a licensed CPA firm can prepare compiled financial statements under a compilation engagement.

Compilation engagement vs Notice to Reader.

A Compilation Engagement is a process performed by a CPA to compile financial information without providing assurance. A Notice to Reader is the report issued as part of a compilation engagement, stating that the financial statements were prepared using information provided by management.