As a business owner or manager, having accurate financial information is essential for making informed decisions. This is where the expertise of an accountant or CPA comes in. CPAs can provide various financial services such as audits, reviews, and compilations. Let’s take a look at compilation reports and why businesses require them.
What is a Compilation?
A compilation is a financial statement service that a CPA or accounting firm provides. The purpose is to assist a small business or organization with presenting financial information in a proper format without providing any assurance or opinion on the financial statements’ accuracy. The CPA collects and presents financial data from the organization’s books and records and puts them in a financial statement format, following Generally Accepted Accounting Principles (GAAP).
What Does A Compilation Report Include?
A compilation report is a formal letter from the CPA indicating that they have performed a compilation of the financial statements. The report outlines:
- The scope of the work performed
- The organization’s responsibilities
- The accountant’s responsibilities
A compilation also includes a statement by the accountant that they do not assure the accuracy of the financial statements.
How is a Compilation Different from an Audit?
A compilation differs from an audit in that an audit provides an independent opinion on the accuracy of the financial statements. In an audit, the CPA obtains evidence to support the amounts and disclosures in the financial statements. In contrast, a compilation does not involve obtaining evidence or performing procedures to support the amounts and disclosures in the financial statements. Instead, the CPA relies on information provided by the organization.
Why Businesses Use Compilation Reports
Any organization can use a compilation report to present financial information in a proper format. However, compilations are commonly used by small businesses and non-profit organizations when seeking business loans or funding.
An experienced CPA can help your organization prepare accurate and reliable statements, identify areas of improvement, and provide recommendations to strengthen your financial position. In particular, compilation can provide several benefits, such as:
- Meet reporting requirements – Lenders or investors may require a compilation report before approving a loan or investment.
- Improve financial credibility – A compilation report can enhance your organization’s financial credibility by demonstrating that the financial statements have been properly compiled and presented.
- Facilitate decision-making – Accurate financial information is crucial for making informed decisions. A compilation report can provide the financial information you need to make informed decisions.
The Takeaway
A compilation report can help organizations present financial information in a proper format, meet reporting requirements, and enhance financial credibility. While a compilation does not provide an independent opinion on the accuracy of the financial statements, it can still be beneficial for organizations that do not require an audit. The best way to ensure that your financial statements are accurate and reliable is to consult an experienced CPA.