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 engagement letter for the preparation of financial statements is a formal agreement between a client and a professional accountant or accounting firm. It outlines the terms and conditions of the engagement, including the scope of work, responsibilities of both parties, and the fees involved. This letter serves as a clear communication tool to ensure both parties have a mutual understanding of the expectations and obligations. Keywords: engagement letter, preparation, financial statements, formal agreement, client, professional accountant, accounting firm, scope of work, responsibilities, fees, clear communication, mutual understanding, expectations, obligations. There are different types of engagement letters for the preparation of financial statements, each tailored to specific accounting services. Here are some notable types: 1. Compilation Engagement Letter: This type of engagement letter is used when a client requires the accountant to compile their financial statements based on information provided by the client. It states that the accountant will present the financial statements without expressing any assurance or opinion on their accuracy or compliance with accounting standards. 2. Review Engagement Letter: In a review engagement, the accountant performs an analytical review of the financial statements to provide limited assurance on their presentation. The engagement letter outlines the accountant's responsibilities, such as inquiries and analytical procedures performed, as well as the limitations of the review. 3. Audit Engagement Letter: An audit engagement letter is used when the client requests a full examination and verification of their financial statements. The letter details the scope of the audit work, including sample selections, testing methodologies, and the expression of an audit opinion on the fairness and compliance of the financial statements. 4. Agreed-Upon Procedures Engagement Letter: This type of engagement letter outlines the specific procedures agreed upon between the accountant and the client. It is used when the client needs the accountant to perform customized procedures to address specific concerns, such as forensic accounting or due diligence. 5. Special Purpose Engagement Letter: Special purpose engagements may involve the preparation of financial statements that adhere to a specific framework or regulation other than generally accepted accounting principles. This engagement letter clarifies the purpose and limitations of the engagement and addresses any unique requirements. Note that the terminology and content of engagement letters may vary depending on the jurisdiction and professional standards followed. It is essential to consult with a qualified accountant or accounting firm to ensure compliance with applicable regulations.
