Compilations of Historical Financial Statements

Many clients request that CPAs perform a compilation rather than a review or an audit. Compilations provide no explicit assurance that the information is fairly presented and independence is not required.

Traditionally, a compilation is performed to assist management in presenting financial information in financial statement format. Accountants must understand accounting principles and practices used and have a good understanding of the client's business transactions and records.

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At a minimum, accountants must read compiled statements for appropriate format and material misstatement that is obvious. If information presented to the accountant appears unreasonable, the accountant should not accept it and instead should ask for revised, updated information. If this is impossible, the accountants should most likely not continue with the engagement. Beyond this, accountants have no requirement to perform any investigative procedures to substantiate the numbers given.

Grogan CPA has been asked to do a compilation for Indiana Industries, a manufacturer of automobile parts. Indiana Industries has presented information on its operations that appears to not include all twelve months of the year; instead, it includes eleven months of sales and approximately ten and one half months of expenses. Grogan CPA has asked the client for more complete information, and the client stated that no assurance is needed by the accountant and that Grogan CPA should use the information as given.