Practitioner 39;s Compilation Report

[Katariina Washuk]

Inits Strategy and Work Program 2009-2011, the IAASB agreed to revise and redraft ISRE 2400 and ISRS 4410. These standards are in need of revision to better assist practitioners in providing services to small and medium-sized entities, where those entities increasingly are not required to have their financial statements audited.

At its meeting in March 2009 the IAASB considered a project proposal.

The IAASB Consultative Advisory Group (CAG) discussed the project proposal at its March 2009 meeting.

At its June 2009 meeting, the IAASB considered the scope and directional issues to be addressed in this project.

The IAASB agreed to develop the revised standards for review and compilation engagements together, because the services are related, and have a number of issues in common that can best be addressed contemporaneously.

A key challenge is to distinguish the reviews from other assurance services and also from other types of related services, and to distinguish the compilation from assurance services.

At the IAASB's September 2009 meeting , it discussed the significant issues to be addressed for the revision of ISRE 2400, including:

The IAASB CAG discussed these issues at its September 2009 meeting.

At its December 2009 meeting, the IAASB discussed significant issues to be addressed in the revision of ISRS 4410, including:

In March 2010, IAASB Staff issued a Staff Project Update, Assurance and Related Services on Financial Statements Other Than Audits. This Staff Project Update reports on the progress that has been made with this project in the context of development of standards for assurance and related services other than audits.

At its March 2010 meeting, the IAASB CAG discussed the approach to performing compilations and reviews respectively and also discussed aspects of the draft requirements developed by the Task Force for each standard.

At its March 2010 meeting, the IAASB discussed draft requirements developed by the Task Force for the revised standards.

At its June 2010 meeting, the IAASB considered the first read of the revised ISRS 4410, and of the revised ISRE 2400.

At its September 2010 meeting, the IAASB CAG discussed the proposed revised ISRS 4410, and a number of significant issues in relation to the second read of ISRE 2400.

At its September 2010 meeting, the IAASB considered the second read of ISRS 4410 and discussed the following key issues:

In October 2010, IAASB Staff issued a brochure Meeting Diverse Needs, to communicate the broad range of assurance and related services that is supported by International Standards.

At its December 2010 meeting, the IAASB considered the second read of proposed ISRE 2400 (Revised) and discussed the following key issues:

At its June 2011 meeting, the IAASB considered an initial tranche of significant issues raised by respondents for the Exposure Draft (ED) of proposed ISRS 4410 (Revised). The IAASB considered and provided views on the following significant issues:

At its December 2011 meeting, the IAASB considered an initial tranche of significant issues raised by respondents for the Exposure Draft (ED) of proposed ISRE 2400 (Revised). The IAASB considered and provided views on the following significant issues:

Why compilations now? As more and more smaller entities become exempt from audit requirements, small- and medium-sized practices (SMPs) will need to focus more on providing other services if their businesses are to survive and prosper. In addition, demand for non-audit services, in particular accounting and compilation services, is growing, as evidenced by the results of recent IFAC SMP Quick Polls.

Small- and medium-sized entities (SMEs) often turn to professional accountants in public practice to provide financial reporting expertise. Assistance with preparation of annual historical financial statements is one common example. But ISRS 4410 (Revised) also provides the necessary flexibility for the practitioner to tailor the nature of the engagement to meet other needs, for example, the preparation of financial information for use by external parties, such as bank lenders, grant funders, in connection with a change of ownership, or simply for internal use by management.

Helping to meet the demands of this growing market was the release in March 2012 by the International Auditing and Assurance Standards Board (IAASB) of International Standard on Related Services (ISRS) 4410 (Revised), Compilation Engagements, effective for compilation reports dated on or after July 1, 2013. The standard, set out in an easy-to-read format, with objectives, requirements, and application and other explanatory material, can be used by professional accountants in public practice for a wide range of engagements for which assurance on the reported information is not required.

The IFAC SMP Committee monitored the development of the standard and submitted comment letters at all key stages, from project proposal through to the release of the final standard. At a recent meeting, the SMP Committee approved a project proposal to develop a publication to help practices market and perform compilation engagements. This followed a poll to investigate the need for the development of new resources and tools to support the implementation of IAASB standards.

Key features of an ISRS 4410 Compilation engagement: A compilation engagement is not an assurance engagement. While the practitioner applies accounting and financial reporting expertise to assist management with the preparation and presentation of financial information, the practitioner is not required to verify the completeness or accuracy of the information provided by management. However, users will often value the involvement of a professional accountant in compiling the financial information.

SMEs may face a variety of financial reporting demands. Therefore, flexibility to use an appropriate basis of accounting is needed when an accounting framework is not mandated. ISRS 4410 (Revised) allows for this, enabling practitioners to help clients select a framework that is appropriate for users of the information.

During the compilation, a practitioner may become aware that the records, documents, explanations, and other information, including significant judgments, are incomplete or inaccurate, in which case the practitioner is required to request additional or corrected information from management. Likewise, the practitioner may become aware of a material misstatement or an inadequate description of the basis of accounting in the compiled information, in which case the practitioner is required to recommend changes to management to rectify the situation. If in the rare circumstance management does not provide the additional information or agree to the change recommended, then the practitioner would have to resign from the engagement in order to avoid being associated with information known to be materially false or misleading. The practitioner either completes the engagement satisfactorily or else the practitioner must resign.

Learn more: To help practices provide Compilation, Review, Other Assurance and Related Services, IFAC and its member organizations provide a wealth of Audit and Assurance resources on the Global Knowledge Gateway.

Join the conversation below: As the SMP Committee goes about developing material to help practitioners market and perform compilation engagements, please share what you would like to see covered in the material.

Phil Cowperthwaite is a partner of Cowperthwaite Mehta, a ten-person firm in Toronto, Canada. His primary area of practice is providing assurance services to small and micro not-for-profit entities. Phil served on the International Auditing and Assurance Standards Board (IAASB) from 2006 to 2011, where he chaired, among others, the Task Force on compilation (ISRS 4410) and review engagements (ISRS 2400).

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One of the many challenging issues in public accounting during the coronavirus pandemic is the question of how practitioners should handle compilations of financial statements in which clients have elected to omit substantially all disclosures.

Cost savings is just one of many reasons why reporting entities choose to distribute financial statements that omit substantially all disclosures. It may be too costly for a company to prepare financial statements with a full set of disclosures when the information is only being used by internal staff or banks that already are well informed about the company's financials.

But pandemic-related issues related to cash flow, liquidity, subsequent events, and going concern create a danger that financial statements that omit disclosures about such issues may mislead users. And a practitioner is not permitted to issue a compilation report if, in the practitioner's professional judgment, the financial statements would be misleading to users of such financial statements.

The Statements on Standards for Accounting and Review Services (SSARSs) are clear for engagements that substantially omit all disclosures. AR-C Section 80, Compilation of Financial Statements, does not preclude practitioners from adding additional paragraphs in their report to emphasize matters that the practitioner considers appropriate.

While the practitioner has no control over distribution, the practitioner may advise the client to limit the distribution of the financial statements to users for whom the financial statements were designed.

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