Compiled financial statements represent the most basic level of service that certified public accountants provide with respect to financial statements. In a compilation, the CPA must comply with certain basic requirements of professional standards, such as having a knowledge of the client's industry and applicable accounting principles, having a clear understanding with the client as to the services to be provided, and reading the financial statements to determine whether there are any obvious departures from generally accepted accounting principles (or, in some cases, another comprehensive basis of accounting used by the entity). It may be necessary for the CPA to perform "other accounting services" (such as creating a general ledger for the client, or assisting the client with adjusting entries for the books of the client (before the financial statements can be prepared). Upon completion, a report on the financial statements is issued that states a compilation was performed in accordance with AICPA professional standards, but no assurance is expressed that the statements are in conformity with generally accepted accounting principles. This is known as the expression of "no assurance." Compiled financial statements are often prepared for privately-held entities that do not need a higher level of assurance expressed by the CPA.
Connecticut Engagement Letter for Review of Financial Statements and Compilation by Accounting Firm An engagement letter is an essential document that defines the professional relationship between an accounting firm and its client. Specifically, a Connecticut Engagement Letter for Review of Financial Statements and Compilation is a contract that outlines the terms and conditions for conducting a review or compilation of financial statements for a business or organization based in Connecticut. In Connecticut, there are generally two types of engagement letters related to financial statement review and compilation: 1. Review Engagement Letter: This type of letter is used when an accounting firm is engaged to perform a review of financial statements. A review engagement involves assessing the plausibility of the financial statements without providing an opinion or expressing absolute assurance on the accuracy and completeness of the data. The letter outlines the scope, objectives, and limitations of the review, as well as the responsibilities of both the accounting firm and the client. 2. Compilation Engagement Letter: This letter is used when an accounting firm is engaged for the purpose of compiling financial statements. A compilation engagement involves gathering financial data provided by the client and organizing it into a proper financial statement format, without performing analytical procedures or offering any assurance on the accuracy of the information. The letter establishes the terms of the compilation process and clarifies the responsibilities of both parties involved. Both engagement letters typically cover various key aspects, such as: a. Objectives: Clearly stating the purpose of the engagement, whether it is a review or a compilation, and defining the nature and extent of work to be performed by the accounting firm. b. Responsibility: Outlining the respective responsibilities of the accounting firm and the client during the engagement, ensuring compliance with relevant professional standards and legal requirements. c. Reporting: Describing the form and content of the final report to be issued by the accounting firm, highlighting the limitations of the review or compilation engagement. d. Deadlines: Setting clear timelines for the completion of the engagement, including submission of required documents by the client and the delivery of final reports by the accounting firm. e. Fee Structure: Specifying the fee arrangement for the engagement, including details on billing, payment terms, and any associated expenses. f. Termination: Defining the conditions under which either party can terminate the engagement and the mechanisms for resolving disputes or disagreements. g. Confidentiality: Addressing the confidentiality and security of client information, ensuring that the accounting firm will maintain the privacy of all financial data shared during the engagement. h. Acceptance: Requiring both parties, client, and accounting firm, to sign and acknowledge their agreement to the terms and conditions stated in the engagement letter. It is crucial for all parties involved to carefully review and understand the Connecticut Engagement Letter for Review of Financial Statements and Compilation before proceeding with the engagement. This letter serves as a legally binding agreement, safeguarding the interests of both the accounting firm and the client throughout the engagement process.
