The world of auditing can be a mysterious one to the layman, and much of the terminology used in the industry can be confusing. One such term that is commonly misunderstood is the compilation. Today we wanted to explain compilations: what they are, why you would need one, how they differ from reviews or audits, and how you can arrange having a compilation completed for your business or non-profit organization. Read on to get a better idea of compilations to find out if this is the correct level of service that you require.  

What is a Compilation?

Compilations are the most basic forms of audit services. The result of a compilation is a cover page that is written by a Certified Public Accountant (CPA) that you include with your financial statements. The cover letter, printed on the CPAs letterhead, explains to lenders that your financial statements are correctly prepared in accordance with GAAP or other accounting methods as required. It does not, however, offer any assurance from the CPA or audit firm. The accountant will create an engagement letter that explains the work they have performed, any issues with reporting, and any sign of illegal activity or fraud that is noticed.

When is a Financial Statement Compilation Necessary?

The primary reason to have a financial statement compilation completed is if you are a small business owner, usually a sole proprietor, who is seeking a personal loan. In some cases, a compilation is sufficient to obtain a loan, however, the lending organization may want a more thorough review or audit to secure a loan. Generally speaking, obtaining a loan requires that you show your accounting reporting follows a generally accepted reporting. Lending organizations require this to ensure they are properly assessing the risks of lending you money.

How Do Compilations Differ from Audits or Reviews?

As aforementioned, compilations are really the starting point to having a CPA review the practices in your business and assuring others that everything is order. They often involve just a cursory check of your financial statements without doing the necessary research needed to issue an official opinion as with audits or officially reviewed financial statements as are issued in reviews. So to be more succinct, audits and reviews offer assurance that your organization’s financials statements are compliant with GAAP, while compilations do not offer this assurance.

How Can I Order a Compilation?

If a compilation is required, your bank or lender will typically request this information up front, but it is not a bad idea to ask what form of scrutiny that your financial statements need to undergo prior to the loan application process. A compilation engagement involves gaining a general understanding of your business, financial reporting system, and the accounting fundamentals used. Because it does not require the deep dive into your financial reporting necessary for an accounting review or audit, there typically is not any necessary preparation on the part of your organization. Therefore, if you have financial statements needed to be reviewed by a CPA, you are ready to order a compilation. Engaging a CPA office or audit and attestation provider is as simple as locating and finding an auditing firm and inquiring if they provide compilations.

Compilation Services

Because compilations, reviews, and audits all differ in the amount of preparation, time, money, and complexity, you want to be sure that you are choosing the correct type of audit service prior to engaging a CPA or audit firm. If you are unsure of what type of documents you need to include with your financial statements, contact The Baird Audit Group in Augusta, GA for assistance. We can help ensure you are selecting the correct level of service for you need. The Baird Audit Group is a full-service audit and attestation firm with a combined 75+ years of experience in conducting government audits, financial audits, review and attestation, and compilations for business and non-profit organizations. Contact us online or by calling (706) 855-9500 today.