Notice to Reader: There’s a new compilation standard in town
The following article is a summarized version of the Compilation Engagements Management Briefing provided by Chartered Professional Accountants Canada. For the complete briefing, please visit CPA Canada.
As CPA Canada recently shared, “Some things never change. But the compilation standard isn’t one of them.”
After almost 35 years, the Auditing and Assurance Standards Board (AASB) issued a new standard for compilation engagements effective for periods ending on or after December 14, 2021 with earlier application permitted.
If you manage a business and engage a practitioner to compile your financial information, these changes will affect you.
What is a compilation engagement?
A compilation engagement is when a public accountant assists an organization in the preparation of financial statements and provides a compilation engagement report under the heading Notice to Reader.
A compilation engagement does not provide any assurance on the compiled financial statements prepared by management meaning, a public accountant is not required to verify the completeness or accuracy of the information provided by management and does not carry out procedures designed to provide assurance over its integrity.
What changes can you expect in a compilation engagement?
- Your practitioner will ask you whether the compiled financial information is intended to be used by a third party (e.g., your lender) and whether the third party has access to additional information.
- A discussion about the expected basis of accounting.
- A new engagement letter.
- A discussion of your business and operations, accounting system and accounting records.
- A discussion about significant judgments that the practitioner has assisted management with in the preparation of the compiled financial information. An example of a significant judgment could include the allowance for doubtful accounts or the recognition and measurement of revenue.
- Your need to answer any questions the practitioner may ask if they believe the compiled financial information appears misleading.
- You acknowledge that you take responsibility for the final version of the financial information.
- Your compiled ﬁnancial information will now include a note describing the basis of accounting applied to assist users in understanding how the compiled ﬁnancial information is prepared. Your practitioner may help you select the basis of accounting; however, the basis of accounting is still your responsibility, and you will be asked to acknowledge this responsibility.
- The new compilation engagement report will be attached to your compiled financial information
What will the new compilation report look like?
You can expect a new report to be attached to your compiled ﬁnancial information that more clearly describes your responsibilities as management, the responsibilities of the practitioner and an explanation of the limitations of a compilation engagement. A sample compilation engagement report is included below with some of the key points highlighted with callouts.
These changes that will affect the next compilation engagement for the preparation of your company’s financial statements. You may find it useful to have a discussion with your practitioner about which services you’ll require moving forward. You may also wish to reassess your own needs and consider any third parties who may request your financial information.
For more information on the new compilation standards and how they impact you, please contact your DMCL advisor.