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.
North Dakota Engagement Letter for Review of Financial Statements and Compilation by Accounting Firm An engagement letter is a crucial document that outlines the terms and conditions of a professional service engagement between an accounting firm and its client. In North Dakota, when it comes to the review of financial statements and compilation services, specific engagement letters are used to ensure a clear understanding of the agreed-upon scope of work and to establish a professional relationship. Key Elements of a North Dakota Engagement Letter for the Review of Financial Statements and Compilation: 1. Introduction: The engagement letter starts with a professional greeting and a clear statement of its purpose. The parties involved, including the accounting firm's name and the client's name, are clearly identified. 2. Scope of Work: This section outlines the specific services to be provided by the accounting firm. For North Dakota engagements, it generally includes a review of financial statements or a compilation of financial statements. The letter should clearly state the level of assurance provided in each case. 3. Terms and Conditions: This section defines the terms and conditions of the engagement, including the estimated timeframe for completion, any limitations, and the responsibilities of both the accounting firm and the client. 4. Fees and Billing: The engagement letter should clearly state the fees and billing arrangements for the agreed-upon services. This could include hourly rates, fixed fees, or any other agreed-upon compensation structure. 5. Independence and Confidentiality: To ensure independence and protect sensitive information, this section highlights the accounting firm's commitment to maintaining confidentiality and avoiding any conflicts of interest that could compromise their professional judgment. 6. Communication: It is essential to establish lines of communication between the accounting firm and the client. The engagement letter should specify the primary contacts for both parties and the preferred method of communication. 7. Other Provisions: Depending on the engagement, additional provisions may be included, such as termination clauses, dispute resolution methods, or any applicable laws or regulations specific to North Dakota. Types of North Dakota Engagement Letters for Review of Financial Statements and Compilation: 1. Engagement Letter for Review of Financial Statements: This type of engagement letter is used when an accounting firm is engaged to perform a review of financial statements. The review provides limited assurance that no material modifications are needed for the financial statements to conform to the applicable financial reporting framework. 2. Engagement Letter for Compilation of Financial Statements: This type of engagement letter is used when an accounting firm is engaged to compile financial statements based on information provided by the client. The objective is to assist the client in presenting their financial information in the form of financial statements, without providing any assurance or expressing an opinion. It is important for accounting firms in North Dakota to tailor their engagement letters to the specific services agreed upon with their clients. These letters serve as formal agreements that foster transparency, establish expectations, and ensure the professional standards of the accounting profession are met.
