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.
An Illinois engagement letter for review of financial statements and compilation by an accounting firm is a formal written agreement that outlines the scope, objectives, and responsibilities of both the accounting firm and the client in regard to the review and compilation services to be provided. This document is crucial in establishing clear communication and expectations between the client and the accounting firm. The primary purpose of an engagement letter for review of financial statements is to facilitate an independent assessment of the client's financial statements. It ensures that the accounting firm will perform a review engagement in accordance with the applicable professional standards, such as Generally Accepted Accounting Principles (GAAP) and Generally Accepted Auditing Standards (GAS). The letter will detail the procedures to be followed during the review, including evaluation of significant estimates made by management and analytical procedures applied to financial data. On the other hand, an engagement letter for compilation of financial statements outlines the accounting firm's responsibility to assist the client in presenting financial information in the form of financial statements without providing any assurance or opinion on the accuracy or completeness of the information. It is essential to note that a compilation engagement does not constitute an audit or review. While the core purpose remains the same, there might be different types or variations of engagement letters for review of financial statements and compilation, depending on the specific circumstances and requirements. For example, an engagement letter for review might be tailored for a publicly traded company, a nonprofit organization, or a small business. Furthermore, the engagement letter may contain additional sections covering specific services to be provided, fee arrangements, timelines for completion, client representations, and confidentiality clauses. It is important to review and understand the engagement letter thoroughly before signing to ensure all relevant terms and conditions are included and agreed upon. In summary, an Illinois engagement letter for review of financial statements and compilation by an accounting firm acts as a legally binding contract that sets out the expectations and responsibilities of both parties involved. Different types of engagement letters can cater to the diverse needs of various organizations, ensuring compliance with professional standards while delivering accurate and reliable financial information.
