ISRS 4410 (Revised)

Compilation Engagements

1Objective and scope

ISRS 4410 (Revised) deals with the practitioner's responsibilities when engaged to assist management with the preparation and presentation of historical financial information without obtaining any assurance on it, and to report on the engagement. It applies to compilation engagements for historical financial information (a complete set of financial statements, a single statement, or other financial information such as a schedule) and may be applied, adapted as necessary, to the compilation of non-historical financial information (a budget or forecast) or non-financial information. A compilation engagement is not an assurance engagement: the practitioner does not verify the accuracy or completeness of the information management provides or gather evidence to express an opinion or conclusion. Its value lies in the practitioner's accounting and financial reporting expertise and in the professional standards applied, and in the compilation report that clearly tells users what was and was not done. In Kenya this is the bread-and-butter work of small and medium practices preparing accounts for companies below the audit threshold, for sole traders, partnerships and self-help groups, and for tax filings.

The objectives are to apply accounting and financial reporting expertise to assist management in the preparation and presentation of financial information in accordance with an applicable financial reporting framework based on information provided by management; and to report in accordance with the standard.

2Key definitions

3Requirements

Ethics, quality, acceptance and terms

• Comply with relevant ethical requirements: the IESBA Code's fundamental principles apply, though independence is not required for a compilation (the report states that the practitioner is not required to be independent, unless law, regulation or the terms require it). Threats to compliance with the fundamental principles are still evaluated: a compilation for a client whose statements the practitioner also audits creates a self-review threat that must be addressed under the Code.
• Apply ISQM 1 and take responsibility for quality; the engagement partner has competence in the framework and in compilation.
• Accept only if the practitioner has no reason to believe ethical requirements will not be satisfied, the framework is acceptable, management acknowledges its responsibilities for the financial information (for its preparation and presentation, for the accuracy and completeness of the records and information provided, and for the judgements needed), and the engagement has a rational purpose. Do not accept if the practitioner is not satisfied about the framework or management will not acknowledge its responsibilities.
• Agree the terms in an engagement letter: the intended use and distribution of the financial information and any restrictions, the framework, the objective and scope of the compilation, the responsibilities of management and of the practitioner, a statement that the engagement is not an assurance engagement and that the practitioner will not express an opinion or a conclusion, and the expected form and content of the report.

Performing the engagement

• Obtain an understanding of the entity's business and operations, its accounting system and records, and the framework and its application in the industry, sufficient to perform the compilation (a practitioner who does not know how the business earns its money cannot judge whether the draft accounts make sense).
• Compile the financial information using the records, documents, explanations and other information provided by management, applying professional judgement in the selection and application of accounting policies and in the classification, aggregation and presentation of the information.
• Read the compiled financial information in the light of the practitioner's understanding of the business and the framework, and consider whether it appears appropriate in form and content and free from obvious misstatement (an arithmetical error, a receivable balance that is clearly a fixed asset, a missing disclosure the framework requires).
• If during the engagement the practitioner becomes aware that the records, documents, explanations or other information, including significant judgements, provided by management are incomplete, inaccurate or otherwise unsatisfactory, bring it to management's attention and request the additional or corrected information; if management fails to provide it, withdraw and inform management and those charged with governance of the reasons.
• If the practitioner becomes aware that the compiled information does not adequately refer to or describe the framework, that amendments are required for it not to be materially misstated, or that it is otherwise misleading, propose the appropriate amendments to management; if management declines or does not permit them, withdraw, having informed management and those charged with governance of the reasons. A practitioner does not issue a compilation report on information the practitioner knows to be misleading.
• Obtain an acknowledgement from management or those charged with governance that they have taken responsibility for the final version of the compiled financial information (a signed approval of the financial statements) before the report is dated; the compiled information and the compilation report are then issued together.

What a compilation is not

4Documentation and reporting

The compilation report is in writing and contains: the title 'Practitioner's Compilation Report' or similar; the addressee; a statement that the practitioner has compiled the financial information based on information provided by management; a description of the responsibilities of management for the financial information and for the accuracy and completeness of the information provided; identification of the applicable financial reporting framework and, for a special purpose framework, a description or reference to the description of the framework in the financial information; identification of the compiled financial information, including the title of each statement and the date or period; a description of the practitioner's responsibilities in compiling the financial information, including that the engagement was performed in accordance with ISRS 4410 (Revised), that the practitioner has complied with relevant ethical requirements, and, where applicable, that the practitioner is not required to be independent; a description of what a compilation engagement entails; explanations that, since a compilation is not an assurance engagement, the practitioner is not required to verify the accuracy or completeness of the information provided by management, and that the practitioner does not express an audit opinion or a review conclusion on whether the financial information is prepared in accordance with the framework; where the information is prepared under a special purpose framework, a paragraph that draws attention to the purpose and the intended users and states that the information may not be suitable for other purposes, with a restriction on use where appropriate; the date of the report; the practitioner's signature; and the address. Each page of the compiled information may carry a reference to the report ('see practitioner's compilation report', 'unaudited'). The practitioner documents significant matters arising and how they were addressed, a record of how the compiled information reconciles to the records and information provided by management, and a copy of the final version of the compiled information with management's acknowledgement of responsibility and the report.

5Examinable focus