[barelystayingsane]

If management is responsible for the preparation and presentation of the financial statements, what does the accountant do in a compilation engagement? I had always thought a compilation was the preparation of financial statements. Or does it mean that management is responsible for the accountant’s work?

Thanks!

[Anonymous]

Hey @Barely, are you planning to score 99 on AUD? LOL. [You'll owe me big time for my being prophetic:]

I am no auditor but I am sure that management cannot be responsible for the accountant's work.

I've seen some compilation reports from books and there are signature and date parts (at the end of the report) after the opinion paragraphs.

I'd like to guess, the companies engage the auditors to compile their FS for the auditor's signatures, a sort of a compliance requirement or something.

[Anonymous]

I do a lot of compilations. Basically, we take the client's info (i.e. check stubs, deposit slips, invoices and bank statements), to create the financial statements, which ARE management's responsibility because we can only compile what management sends us. It is up to the Auditor to decide if the financial statements are accurate. The Field Work standard applies to Audits not to Compilations. I very rarely go to a compilation clients office, unless I know they are getting audited. Those are usually government clients. For example: If I book A/P of $500 on a clients BS because they sent me invoices totaling $500 that are being paid in the next month, and the auditor shows up and finds that there are $20,000 of outstanding bills to a vendor, then Management is responsible for that, not me.

Here is a compilation report that may help you. There are other paragraphs that can be added. This one is pretty generic.

To Management

XYZ Company

City, State

I (We) have compiled the accompanying balance sheet of XYZ Company (a corporation) as of December 31, 20XX, and the related statements of income and retained earnings and cash flows for the year then ended. I (We) have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or provide any assurance about whether the financial statements are in accordance with accounting principles generally accepted in the United States of America.

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America and for designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of the financial statements.

My (Our) responsibility is to conduct the compilation in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. The objective of a compilation is to assist management presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements.

I am (We are) not independent with respect to XYZ Company.

[barelystayingsane]

Thanks for all your help with my audit questions, Kricket!!!

So I see this as kind of a three-step process:

1) Management gives the accountant everything they need to compile the financial statements, making sure they give them enough so that the financials are a fair presentation of the company.

2) The accountant compiles the financial statements (i.e., does the legwork).

3) Management reads over the financials to make sure they are a fair presentation.

So that covers the fair presentation. Still not quite sure how management is responsible for the preparation of the financials, since SSARS apply when an accountant submits financial statements, i.e., presents financials that he or she has prepared (which implies that the accountant has created statements that would not otherwise exist). I suppose if you consider Step #1 above (giving the accountant all of the information he or she needs) to be synonymous with preparing the financials, then yes, management would be responsible.

[Anonymous]

I don't make any management decisions or “step into the shoes of management”. If they ask my advice, I give it to them, but ultimately, it's up to management to do the right thing. More and more clients are moving to QuickBooks and it may have all of the invoices, bills and checks in it, but it doesn't have things like amortization and depreciation. Management could give the auditor the QB statements, but they wouldn't be right. I also don't submit the financials to the auditors. Management does that. It is their responsibility to make sure that the statements are accurate. If there is an entry in the FS that management doesn't agree with, and I've had this happen, then they have to justify to me why it needs to be changed. Once, and only once, I changed something at the insistence of management and, guess what, they had a finding on their audit report because of it. Hard lesson learned on their part. Basically, by saying that the FS are managements responsibility, it means that management is responsible for either doing them or having them done.

[Anonymous]

Here is something I came up with for compilation and I believe will help you.

For any Compilation use the following mnemonic, you should be able to spot the right answer.

For Compilation remember KU STAFF RID R. ( i pronounce it as qstaff reader)

K- knowing the client's business (may include knowing abt client's acc principle, practice)

U- Establish understanding with the client

S- staff qualification

T- transaction types

A- acc basis

F-form and content of fin statement

F-form of acc records

R- read fin statement (for obvious misstatement/fraud/omissions)

I- Incomplete (in FS doc is incomplete ask for more information from mgmnt)

D- document (1. Engagement letter 2. Significant issues/finding 3. Oral/written communication)

R – Report ( CAR of MR ARSOM)

C- The accounting report is Compiled

A- Not Audited or

R – Reviewed

MR – Mngmt responsibility (Design/Implement/Maintainenance of internal control for fair presentation)

AR – Acc responsibility

S – The complilation is in line with SSARS

O- Objective is to assist

M- Management

[Author]

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