Financial Statement Reviews and Compliations
In a compilation engagement, the accountant’s procedures are limited to assisting the client in presenting financial information in the form of financial statements. The accountant generally prepares the financial statements and then reads them to make sure that they appear appropriate in form and content. Because the accountant does not perform any other procedures, the accountant does not obtain any assurance that the financial statements are free of material misstatement.
In contrast, in a review engagement, the accountant performs analytical and inquiry procedures in order to obtain a limited level of assurance that the financial statements are free of material misstatement. Many accountants make the mistake of viewing the review engagement as a compilation engagement with only a few procedures added on. However, a review engagement has elements in common with an audit engagement in that both engagements are performed with an objective of obtaining a level of assurance about whether the financial statements are free of material misstatement.
When the accountant performs a compilation engagement, the objective is to assist the client in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance about whether material modifications need to be made in the statements for them to be in conformity with the applicable financial reporting framework.