[Anonymous]

Hi friends,

I am not sure if I am missing something/linkage here, but I cannot understand the purpose of a Compilation engagement.

Why does the management have to hire an accountant/CPA to just collect their F/S together when the management can prepare their own F/S? It’s like when you can do your own homework, but needed someone else to just print them out and staple them for you? It does not make any sense to me.

I may look really stupid by asking questions like this. I can never get it. Please help if you can! Thanks much!

[MikeHoncho]

This may be an oversimplified example but it's like a tax return preparer filing a 1040 for a client. The client has the info but needs an expert to put it together so it conforms to reporting requirements

Done: 5/22/14

"Always do sober what you said you'd do drunk. That will teach you to keep your mouth shut."
- Ernest Hemingway

[MikeHoncho]

This may be an oversimplified example but it's like a tax return preparer filing a 1040 for a client. The client has the info but needs an expert to put it together so it conforms to reporting requirements

Done: 5/22/14

"Always do sober what you said you'd do drunk. That will teach you to keep your mouth shut."
- Ernest Hemingway

[Anonymous]

@MikeHoncho:

Thanks for the example! Yea I know a tax return preparer may help a client, who may not know tax at all, with 1040. But here, the situation is if the management is capable enough to prepare their own F/S, why they still need someone else to put the F/S they prepared together? I cannot get it.

[Anonymous]

@MikeHoncho:

Thanks for the example! Yea I know a tax return preparer may help a client, who may not know tax at all, with 1040. But here, the situation is if the management is capable enough to prepare their own F/S, why they still need someone else to put the F/S they prepared together? I cannot get it.

[Kimboroni]

I think the problem is with your assumption that management is capable of preparing their own f/s. They may have all of the facts, but not in the right format or with the proper disclosures. So if they need help with that, they hire a CPA.

AUD 84 (1/9/14-Wiley books/TB + free materials)
FAR 83 (5/21/14-the above + NINJA 10 Pt Combo Lite)
REG 84 (7/9/14-Wiley books/TB + NINJA Audio/FC/Notes)
BEC 76 (10/5/14-Wiley books/TB + NINJA Audio/FC)

Disclaimer: My ninja avatar is not meant to imply that I have any affiliation with this site other than being a forum member. That's a pic of a T-shirt that my daughter gave me for my birthday. 🙂

[Kimboroni]

I think the problem is with your assumption that management is capable of preparing their own f/s. They may have all of the facts, but not in the right format or with the proper disclosures. So if they need help with that, they hire a CPA.

AUD 84 (1/9/14-Wiley books/TB + free materials)
FAR 83 (5/21/14-the above + NINJA 10 Pt Combo Lite)
REG 84 (7/9/14-Wiley books/TB + NINJA Audio/FC/Notes)
BEC 76 (10/5/14-Wiley books/TB + NINJA Audio/FC)

Disclaimer: My ninja avatar is not meant to imply that I have any affiliation with this site other than being a forum member. That's a pic of a T-shirt that my daughter gave me for my birthday. 🙂

[Anonymous]

@ Kimboroni:

Yea, your explanation is reasonable! Thanks so much!

[Anonymous]

@ Kimboroni:

Yea, your explanation is reasonable! Thanks so much!

[Anonymous]

I do a lot of compilations for small companies and small governments. In most cases, I am what stands between an unscrupulous employee and theft. I'm there to make sure everything is done right and assets are protected. I also handle filing the monthly/quarterly tax filings.

[Anonymous]

I do a lot of compilations for small companies and small governments. In most cases, I am what stands between an unscrupulous employee and theft. I'm there to make sure everything is done right and assets are protected. I also handle filing the monthly/quarterly tax filings.

[Study Monk]

Compilations are usually required by lenders. Compilations are kind of stupid since there is no assurance involved, but Banks prefer to look at profession looking financials. Some small companies might print out the trial balance if asked to prepare financials, or organize the financials in a way that is hard to understand.

I have worked at a company and audited companies that have people with no college education running the accounting departments. The preparing financials skill is not a necessity for a small company, because accounting software these days have dozen of other ways to see information the owner might want to know.

Another way to look at is Banks might require audits for high risk loans, reviews for medium risk loans, and compilations for low risk loans. Compilations can also be an additional service offered with tax returns. Here is your tax return and nicely presentable financials for your records. Trust me a good accounting firm is meticulous in the spacing, font choice, and overall presentation of the financials they prepare. A compilation is a valued asset for all those OCD small business owners out there who want to finish their calender year with clean organized looking financials.

I spoke to an ancient wise man who sent me on a mushroom induced journey through an ancient forest to find the key to passing the CPA exam. A talking spider monkey told me to throw the last of my drinking water in the dirt to find what I was looking for. So I followed his instructions and the following message appeared in the soil:

"Do 5000 multiple choice questions for each section"

[Study Monk]

Compilations are usually required by lenders. Compilations are kind of stupid since there is no assurance involved, but Banks prefer to look at profession looking financials. Some small companies might print out the trial balance if asked to prepare financials, or organize the financials in a way that is hard to understand.

I have worked at a company and audited companies that have people with no college education running the accounting departments. The preparing financials skill is not a necessity for a small company, because accounting software these days have dozen of other ways to see information the owner might want to know.

Another way to look at is Banks might require audits for high risk loans, reviews for medium risk loans, and compilations for low risk loans. Compilations can also be an additional service offered with tax returns. Here is your tax return and nicely presentable financials for your records. Trust me a good accounting firm is meticulous in the spacing, font choice, and overall presentation of the financials they prepare. A compilation is a valued asset for all those OCD small business owners out there who want to finish their calender year with clean organized looking financials.

I spoke to an ancient wise man who sent me on a mushroom induced journey through an ancient forest to find the key to passing the CPA exam. A talking spider monkey told me to throw the last of my drinking water in the dirt to find what I was looking for. So I followed his instructions and the following message appeared in the soil:

"Do 5000 multiple choice questions for each section"

[Anonymous]

@ Kricket: Thanks for the example!

@ Study Monk: Thanks for the examples! Now I get a lot more understanding regarding the compilation engagement. I am not an AUD fan, but it starts to make sense to me.

[Anonymous]

@ Kricket: Thanks for the example!

@ Study Monk: Thanks for the examples! Now I get a lot more understanding regarding the compilation engagement. I am not an AUD fan, but it starts to make sense to me.

[ymmit]

CPA's are expected to be experts at US GAAP required footnote disclosures and presentation. Management usually wont know any of this. Let's say a construction company needs a comp, how will their management know what is required in the footnotes?

Licensed CPA!

[Author]

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