What is a compilation?

Definition

A compilation is an accountant's lowest level of service on a company's financial statements. The accountant takes the owner's books and presents them as a statement package, without giving assurance that the numbers are fairly stated.

On the books, this is a service, not an account and not a dollar line. It sits below a review, which adds limited assurance, and below an audit, which gives an opinion.

Where it shows up

Balance Sheet: Related to presenting the statement without assurance.

P&L: Related to presenting the statement without assurance.

Cash flow: Related to presenting the statement without assurance.

See also: Review Engagement · Audit · Financial Statement Package

You will not find this work as a line on the Balance Sheet. The compilation is a letter and a pack issued after the period is closed.

The Income Statement is presented as part of the same pack. The accountant is not saying those revenue and expense lines are fairly stated.

The Statement of Cash Flows is presented the same way. Owners and lenders see the result as a Financial Statement Package with a compilation letter attached.

How it works

Someone asks for compiled statements, often a bank, a landlord, or an owner who wants a clean pack. The request usually lands after year-end close, when the annual numbers are ready.

The accountant starts with the owner's books, often QuickBooks. They read the Trial Balance, put the accounts onto statement lines, and check that the pack adds.

They may ask the owner to fix obvious issues, such as an account that is clearly in the wrong place. They do not test samples, and they do not run the analytics required for a review.

The accountant also notes whether the statements follow generally accepted accounting principles, or some other basis the owner uses. A compilation can still be issued on a basis other than GAAP if the letter says so.

They do not take over the company's general ledger or post a journal entry for the company. Internal controls may come up only if something obvious is missing; a compilation does not require the accountant to test those procedures.

When the work is done, the accountant issues a compilation letter. The letter says the statements were compiled, that no assurance is given, and that management owns the numbers.

The letter is attached to the pack the owner already produced, now formatted. Readers rely on management for the numbers; the accountant is saying the pack was assembled, not examined.

The fee is usually lower than a review or an audit because the work is lighter. The owner still has to provide complete books; the accountant is not rebuilding the year from a shoebox.

Example

A toy store's CPA puts the owner's QuickBooks into a statement package. The owner needs a clean year-end pack for the landlord, not an opinion.

The CPA takes the Trial Balance, maps the accounts onto a Balance Sheet and an Income Statement, and writes a compilation letter. No sample of toy invoices is tested.

Payroll, rent, and toy purchases already sit in the books. The CPA is arranging those numbers, not proving them.

The landlord receives the statements plus the letter. The letter says the CPA compiled the pack and gives no assurance on whether the numbers are fairly stated.

If the landlord had asked for a review, the CPA would have added inquiry and analytics. The toy store's file only called for a compilation, so the work stopped at presentation.

Common mix-ups

A compilation is not a review. A review adds inquiry, analytics, and limited assurance; a compilation presents the statements with none of that.

A compilation is not an audit. An audit examines evidence and gives an independent opinion; a compilation does not.

A compilation is not the year-end close. The close produces the books; the compilation is a later service that formats those books into a pack with a letter.

Related terms

• Review Engagement: A limited-assurance engagement based mostly on inquiry and analytics.
• Audit: An independent examination giving an opinion on whether statements are fairly stated.
• Financial Statement Package: The bundled set of statements and schedules delivered after a close.
• Generally Accepted Accounting Principles: The common US rules for how financial statements are prepared.
• Year-End Close: The heavier close at fiscal year end, including closing entries and audit preparation.
• Professional Fees: Payments to accountants, attorneys, and other outside advisors.
• Trial Balance: A listing of every ledger account balance, used to check that debits equal credits.
• Internal Controls: The procedures that keep the books accurate and assets protected.