For many businesses, especially those in growth mode or preparing for reviewed financial statements or audits, compilation engagements can offer critical support.
But what is a compilation engagement? And, more importantly, when do you need one?
Let’s break down what a compilation engagement is, when it’s required, and how it compares to other financial reporting services, such as reviews and audits.
What Is a Compilation Engagement?
A compilation engagement is a financial statement preparation service provided by a certified public accountant (CPA). Although no opinion is issued, a compilation ensures that your financial records are organized, formatted correctly in accordance with accounting principles generally accepted in the United States of America (GAAP), and ready for review.
Typically, when you enter into this type of agreement with an accounting firm, your partner will prepare financial statements and related disclosures, but not provide any level of assurance. This means that your partner doesn’t verify your numbers or records, nor do they perform any tests or issue an opinion.
They help you organize your financial reporting in accordance with GAAP to prepare you and your team for future audits.
When Are Compilation Engagements Required?
There are a few instances where you might need to engage in a compilation. Compilation engagements are often required in situations such as:
- A lender or creditor requests financial statements but does not require a review or audit.
- Investors need current and properly formatted reports to assess financial health.
- Your business must meet contractual or regulatory reporting obligations.
- You are preparing for a future audit or plan to seek outside investment.
- Your internal records are incomplete or inconsistent, and you need help getting organized.
Many companies use compilation engagements to gain financial clarity and avoid delays in more comprehensive audits later.
Common Pitfalls and the Value of Preparation
According to Assurance Dimensions, LLC, President and Audit Partner, Bennie Lewis, CPA, a frequent issue during audits is the lack of preparation and accurate records, “Many delays or findings in an audit are caused when the business hasn’t kept accounting records, sought advice from advisors, or invested in a sound accounting practice held accountable by the governing members.”
By engaging in a compilation ahead of an audit, businesses can stay ahead of these challenges and demonstrate good financial governance.
Compilation vs. Review vs. Audit
It is essential to understand that compilations, review engagements, and audits are distinct services. Here are the differences:
Compilations:
- Organizes financial records, rather than reviewing or testing them.
- Require less time to complete.
- Often less expensive than reviews or audits.
Reviews:
- Limited in scope, resulting in a lower level of confidence.
- Often less costly than an audit, but pricier than a compilation.
Audits:
- Full-scope testing and verification, resulting in an auditing professional issuing an opinion.
- Often, it is more expensive due to the time required to conduct an audit thoroughly.
Why Work with Assurance Dimensions?
Assurance Dimensions, an experienced auditing firm, brings clarity and efficiency to every compilation engagement we process. Our goal is to help businesses determine if a compilation is the right solution for their needs, while tailoring our approach to best fit each client’s needs.
If you’re unsure whether your company needs a compilation engagement or are wondering if an audit or review is a better choice, contact us today. Our team is here to help you organize and maintain your financial records, so you’re ready for any situation.
Ready to take control of your financial reporting? Contact Assurance Dimensions today for assistance with your audit, compilation and review engagements.