Points to remember by CA while preparing the compilation of unaudited financials.

Reporting on a Compilation Engagement of Standards on Related Services (SRS) 4410
25. It is essential that the accountant clearly brings out the nature of association with the financial statements and the nature of the work performed by him. The report on compilation engagements should, ordinarily, be in the following lay out:

(a) Title: The title of the report should be “Accountant’s Report on Compilation of Unaudited Financial
Statements” (and not “Auditor’s Report”);

(b) Addressee: The report should ordinarily be addressed to the appointing authority;

(c) Identification of the financial information also noting that it is based on the information provided by the management;

(d) When relevant, a statement that the accountant is not independent of the entity;

(e) A statement that the management is responsible for:

♦ completeness and accuracy of the underlying data and complete disclosure of all material and relevant information to the accountant;

♦ maintaining adequate accounting and other records and internal controls and selecting and applying appropriate accounting policies;

♦ preparation and presentation of financial statements or other financial information in accordance with the applicable laws and regulations, if any;

♦ establishing controls to safeguard the assets of the entity and preventing and detecting frauds or other irregularities;

♦ establishing controls for ensuring that the activities of the entity are carried out in accordance with the applicable laws and regulations and preventing and detecting any non-compliance;

(f) A statement that the engagement was performed in accordance with this Auditing and Assurance Standard;

(g) A statement that neither an audit nor a review has been carried out and that accordingly no assurance is expressed on the financial information;

(h) A paragraph, when considered necessary, drawing attention to the disclosure of material departures from the identified financial reporting framework;

(i) Date of the report;

(j) Place of signature; and

(k) Accountant’s signature: The report on compilation of financial information should be signed by the auditor in his personal name. Where a firm is appointed for the engagement, the report should be signed in the personal name of the accountant and in the name of the firm. The partner/proprietor signing the report on compilation of financial information should also mention the membership number assigned by the Institute of Chartered Accountants of India Appendix II to this Standard contains examples of compilation reports.

26. The financial statements or other financial information compiled by the accountant should contain a reference such as “Unaudited,” “Compiled without Audit or Review” and also “Refer to Compilation Report” on each page of the financial information or on the front of the complete set of financial statements.

Compatibility with International Standard on Auditing (ISA) 930

The standards for compilation engagements established in this Auditing and Assurance Standard are generally consistent in all material respects with those set out in the International Standard on Auditing (ISA) 930, “Engagements to Compile Financial Information”, except for the additional section titled, “Special Considerations”, as given in paragraphs 19 to 22 of this Auditing and Assurance Standard.

The said section has been added to provide guidance to members in respect of certain typical issues which might be faced by the members in carrying out compilation engagements. For example, duties and responsibilities of the accountant in case of clients having an identified financial reporting framework, such as the Companies Act, 1956 and any material departures therefrom; clients having no identified financial reporting framework, say, where the financial statements are based on the
requirements of the Income Tax Act, 1961. The section also provides guidance in respect of situations where the accountant becomes aware of a material non-compliance with the applicable Accounting Standards; as also duties of the accountant relating to accounting estimates made by the client.

Moreover, the Auditing and Assurance Standard, in paragraph 24, unlike the International Standard on Auditing (ISA) 930, also requires that the financial statements should be approved by the client before compilation report is signed by the accountant. The AAS also requires the accountant to ensure that the users of the compiled financial statements are aware of the extent of his/ her involvement with the accounts so that the users do not derive any unwarranted assurance. The AAS, unlike the ISA, also prohibits the accountant from preparing the financial statements on his letter head or other stationery bearing his (or firm’s) name or address.

In addition, the AAS, unlike the ISA, does not require the accountant to send a form of expected report to the client alongwith the engagement letter. Also, the AAS requires the accountant to mention the place of signature in his report as compared to the ISA which requires the accountants to give his address.

Appendix I

Example of an Engagement Letter for a Compilation Engagement

The following letter is for use as a guide in conjunction with the considerations outlined in paragraph 11 of this Auditing and Assurance Standard. This example is for the compilation of financial statements of a company and will need to be varied according to individual requirements and circumstances.

(Date)

To the Board of Directors (or other appropriate representatives of senior management):

You have, vide your letter dated ________ requested that we compile the balance sheet of __________(name of the company) as at ______________(date) and the related profit and loss account and the (cash flow statement) for the year ended on that date. We are pleased to confirm our acceptance and understanding of the engagement by means of this letter.

As no audit or review engagement procedures would be carried out, no opinion on the financial statements will be expressed.

Further, our engagement cannot be relied upon to disclose whether frauds or defalcations, or illegal acts exist. However, we will inform you of any such matters which might come to our attention in the course of the engagement.

As management, you are responsible for:

(a) the accuracy and completeness of the information supplied to us, including maintenance of adequate accounting records and internal controls and selection and application of appropriate accounting policies.

(b) preparation and presentation of the financial statements of the entity, in accordance with the applicable laws and regulations, if any.

(c) safeguarding the assets of the entity and also establishing appropriate controls designed to prevent and detect fraud and other irregularities.

(d) ensuring that the activities of the entity are carried in accordance with applicable laws and regulations and that it institutes appropriate controls to prevent and detect any non-compliance.
You will confirm that events and transactions are recorded in accordance with the applicable Accounting Standard(s), issued by the Institute of Chartered Accountants of India and other recognised accounting principles and practices and inform us of any departures therefrom.
As part of our normal procedures, we may request you to provide written confirmations of any information or explanations given to us orally during the course of our work.

We understand that the intended use and distribution of the information we have compiled is _________________ (specify).

We look forward to full cooperation with your staff and we trust that they will make available to us whatever records, documentation and other information requested in connection with our engagement.

Our fees will be billed as the work progresses.

Please sign and return the attached copy of this letter to indicate that it is in accordance with your understanding of the arrangements for our compilation of your financial statements.

XYZ & Co.
Chartered Accountants
……………………………
Signature
(Name of the Member)
Designation

Address:
Date:

For ABC & Co.
Acknowledged on behalf of ______________
(name of the company)


—————-
Signature
Name and Designation
Date
Address
Appendix II

Examples of a Report of an Engagement to Compile Financial Statements

Illustration 1: Report on Compilation of Financial Statements

ACCOUNTANT’S REPORT ON COMPILATION OF UNAUDITED FINANCIAL STATEMENTS
To……. On the basis of the accounting records and other information and explanations provided to us by the management, we have compiled, the unaudited balance sheet of ………………..(name of the entity) as at March 31, XXXX and the related profit and loss account and the cash flow statement for the period then ended.

The management of the _________ (name of the entity) is responsible for:

(a) Completeness and accuracy of the underlying data and complete disclosure of all material and relevant information to the accountant.

(b) Maintaining adequate accounting and other records and internal controls and selecting and applying appropriate accounting policies;

(c) Preparation and presentation of financial statements in accordance with the applicable laws and regulations, if any.

(d) Establishing controls to safeguard the assets of the entity and preventing and detecting frauds or other irregularities.

(e) Establishing controls for ensuring that the activities of the entity are carried out in accordance with the applicable laws and regulations and preventing and detecting any non compliance.
The compilation engagement was carried out by us in accordance with the Auditing and Assurance Standard (AAS) 31, “Engagements to Compile Financial Information”, issued by the Institute of Chartered Accountants of India. The balance sheet and the profit and loss account are in agreement with the books of account. We have not audited or reviewed these financial statements and accordingly express no opinion thereon.

For ABC & Co.
Chartered Accountants
……………………………
Signature
(Name of the accountant and membership number)
Designation

Date:
Place:

Illustration : Compiled Financial Statements Where Such Financial Statements do not Comply with the Generally

Accepted Accounting Practices in India.
ACCOUNTANT’S REPORT ON COMPILATION OF UNAUDITED FINANCIAL STATEMENTS To………

On the basis of the accounting records and other information and explanations provided to us by the management, we have compiled the unaudited balance sheet of __________ (name of the entity) as of March 31, XXXX and the related profit and loss account and the cash flow statement[8] for the period then ended.

The management of the _________ (name of the entity) is responsible for:

(a) Completeness and accuracy of the underlying data and complete disclosure of all material and relevant information to the accountant.

(b) Maintaining adequate accounting and other records and internal controls and selecting and applying appropriate accounting policies;

(c) Preparation and presentation of financial statements in accordance with the applicable laws and regulations, if any.

(d) Establishing controls to safeguard the assets of the entity and preventing and detecting frauds or other irregularities.

(e) Establishing controls for ensuring that the activities of the entity are carried out in accordance with the applicable laws and regulations and preventing and detecting any non-compliance.
The compilation engagement was carried out by us in accordance with the Auditing and Assurance Standard (AAS) 31, “Engagements to Compile Financial Information”, issued by the Institute of Chartered Accountants of India.

Since the financial statements have been compiled for the Income Tax Department and have been drawn up on cash basis of accounting to reflect the necessary adjustments for computation of the income by the Department, these financial statements, accordingly, do not comply with the generally accepted accounting principles in India.

The balance sheet and the profit and loss account are in agreement with the books of account. We have not audited or reviewed these financial statements and accordingly express no opinion thereon.
Date:
Place:

For ABC & Co.
Chartered Accountants
……………………………
Signature
(Name of the accountant and membership number)
Designation

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