A compilation involves an accounting service in which an accountant prepares financial statements without expressing any assurance that the statements are accurate and complete or in conformity with Generally Accepted Accounting Principles. An accountant generally performs few, if any, procedures, and it is substantially less than a review service report. For this reason the accountant’s compilation report will include wording similar to the following: “A compilation is limited to presenting in the form of financial statements information that is representation of management. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any other form of assurance on them“.
The next level of service is a review, a level of service that results in an expression of limited assurance. The accountant communicates this assurance in a report by stating that he or she is not aware of any material modifications that should be made to the financial statements to bring them into conformity with Generally Accepted Accounting Principles. The accountant must perform sufficient inquiry and procedures to give a reasonable basis for that conclusion. These inquiries and procedures are the major difference between a review and the next lower level of service, which is compilation.
The highest level of service is an audit. An audit is a methodical and objective examination of accounts and items supporting the financial statements of the company. For smaller non-public companies, the cost of an audit may exceed the benefits derived. Generally, the purpose of an audit is to express an opinion on or reach a conclusion about what was audited. Since we are usually contracted to provide outsource accounting, we work with affiliate public accounting firms through CPAConnect to provide independent audited financial statements.