Compilation Definition & Meaning

what is a compilation

Unlike an audit or review report, a compilation report comprises a single paragraph, without paragraph titles. It should identify the entity (client), compiled financial statements, and the period covered. As an organization grows and new opportunities emerge, management may find it necessary to expand and develop new business relationships. This can also be a catalyst to find new sources of financing such as a business loan or line of credit.

  • He or she is not required to be independent of the company requiring compilation services in order to perform such a form of engagement.
  • As the chart indicates, a compilation engagement is not a certification and the expert does not offer any assurance regarding the financial statements.
  • He/she is required to follow the accepted reporting framework (IFRS or US GAAP) when preparing the financial statements.
  • When an auditor issues a qualified opinion, the auditor believes the financial statements are fairly stated in all material respects except for a material departure from GAAP.

However, if the auditor concludes that the departures from GAAP are so significant that the financial statements as a whole are not fairly stated, an adverse opinion must be issued. An adverse opinion will include language describing what the auditor believes is materially misstated in the financial statements, and the effects of the misstatements. To obtain reasonable assurance, items are observed, tested, confirmed, compared or traced based on the auditor’s judgment of their materiality and risk. After gathering appropriate evidence through this process, the auditor issues an opinion about whether the financial statements are free from material misstatement. Between them the terms “compilations” and “derivative works” comprise every copyrightable work that employs preexisting material or data of any kind.

How a Compilation Engagement Works

The actual movie, an audiovisual work, has its own copyright covering the things that are original to the movie and not in the screenplay, such as the director’s particular arrangement for a shot. Often times it is the author of the underlying work who is creating the additions or improvements to it. However, in cases where the underlying work enjoys copyright protection, when a new author seeks to add material to a pre-existing work, the new author must get the permission from the underlying work’s copyright owner.

The engagement letter is an agreement to provide compilation engagement to a client, and it defines the services to be performed by the professional accountant/auditor and the compensation to be paid. For the engagement letter to be legally binding, it must be signed by the authorized representatives of both the service provider and the client. When performing compilation, the accountant should prepare adequate documentation that bookkeeping business names provides information on the work that has been carried out. Some of the documentation includes the engagement letter, financial statements, and communication with management regarding significant issues identified during the audit. A compilation engagement is a mandate through which a certified public accountant collects the information provided by the management of the company and presents it in the form of financial statements.


It is common when starting a new business relationship that a supplier, creditor, or bank will request a financial statement compilation, review, or audit. If this is the first time an organization has received such a request, there can be confusion about the differences between these three types of financial statement reports. All three—compilation, review, audit—are forms of attest services which help an organization tell its story about its financial position and performance as explained through financial statements. To help clients, prospects and others, Selden Fox has provided a brief overview outlining the differences in these options.

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At the bottom, the report should include a signature of the accountant or accountant’s firm, the accountant’s city and state, and date of the report (date when accountant completed compilation procedures). There is also a gray area between reproducing a work and creating a derivative work. Otherwise, a copier could simply make a minor change (an unimportant word in a book, or a pixel or two in a computer image) and avoid infringing. The test for infringement established by court cases is whether the copy is “substantially similar” to the original work. There is no hard-and-fast rule determining when something is a substantially similar copy, and when it is a derivative work, since both will incorporate the original work in some way and also have changed material.

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The accountant should possess a greater knowledge of the operations of the business in order to compile the financial statements. A compilation involves (1) gaining a general understanding of your business, accounting principles used and financial reporting system and (2) presenting financial information in the accepted format of proper financial statements. The CPA expresses no assurance about the accuracy of the financial statements presented. The report attached to the financial statement emphasizes that the service is a compilation. With compilations, or compiled financial statements, the outside accountant converts the client’s data into financial statements without providing any assurances or auditing services. Unlike an audit engagement where auditors are required to provide an opinion on the fairness of the financial statements, a compilation engagement does not require the accountant to provide an opinion on the correctness of the financial statements.

what is a compilation

An analysis will be done over significant account balances, and an inquiry will be made of management regarding accounting procedures and practices, as well as explanations for variances from prior to current year figures. Unlike compilations, procedures are performed to ensure there is a reasonable basis for providing limited assurance that no material changes are necessary. The CPA must be independent from the entity and any of its affiliates to perform a review of financial statements.

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