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.
The Kentucky Engagement Letter for Review of Financial Statements and Compilation by an Accounting Firm is a formal agreement that outlines the specific terms and conditions between a client and an accounting firm in the state of Kentucky. This letter serves as a written confirmation of the engagement between the two parties and provides a detailed description of the services to be performed. The engagement letter is a crucial document that helps establish clear expectations and responsibilities for both the client and the accounting firm. It ensures that there is a mutual understanding of the scope of work, deadlines, fees, and any other relevant terms. This letter also helps protect both parties in case of a dispute or misunderstanding. There are typically two different types of engagement letters related to financial statements review and compilation that are commonly used in Kentucky. These include: 1. Engagement Letter for Review of Financial Statements: In this type of engagement, the accounting firm is engaged to perform a review of the client's financial statements. The review involves analytical procedures and inquiries aimed at providing limited assurance that the financial statements are free from material misstatements. The engagement letter outlines the specific procedures to be followed and the responsibility of each party throughout the review process. 2. Engagement Letter for Compilation of Financial Statements: This type of engagement involves the accounting firm assisting the client in preparing financial statements without providing any assurance on their accuracy or compliance with accounting principles. The engagement letter defines the responsibilities of both the client and the accounting firm, including the information required from the client and the procedures to be performed by the accounting firm during the compilation process. Both types of engagement letter for financial statements review and compilation ensure compliance with professional standards, such as the Statements on Standards for Accounting and Review Services (STARS), issued by the American Institute of Certified Public Accountants (AICPA). These standards help maintain the integrity and reliability of financial statements and provide stakeholders with a reasonable level of assurance. In summary, the Kentucky Engagement Letter for Review of Financial Statements and Compilation by an Accounting Firm is a critical agreement that establishes the terms and conditions between a client and an accounting firm. It ensures a clear understanding of the services to be performed and protects both parties involved. The two common types of engagement letters include those for the review of financial statements and the compilation of financial statements.
