What Are Compiled Financial Statements?

A compiled financial statement is the result of a service where an external Certified Public Accountant (CPA) assists a company’s management in presenting its financial data in standardized financial statements. The CPA’s role is to organize the information provided by the business into a professional format. A characteristic of a compilation is that the CPA does not perform procedures to verify the accuracy of the underlying data, as it is a non-assurance service, meaning the accountant does not express an opinion or conclusion on the information’s reliability.

Understanding the Compilation Engagement

A compilation engagement is a distinct accounting service governed by professional standards, specifically the Statements on Standards for Accounting and Review Services (SSARS), issued by the American Institute of Certified Public Accountants (AICPA). In this engagement, the CPA applies accounting and financial reporting expertise to help management present its financial information in a recognized format, but the responsibility for the accuracy of that information remains with management.

A new standard on quality management will become effective for compilations of financial statements for periods beginning on or after December 15, 2025. This update introduces a greater focus on quality management for the engagement, emphasizing the engagement partner’s responsibility for its overall quality.

A CPA is not required to be independent of the client to perform a compilation. This differs from review and audit services, where independence is mandatory. If the CPA is not independent, this fact must be clearly disclosed in the compilation report.

The process begins when a client engages a CPA, which should be documented in an engagement letter. This letter outlines the objectives and limitations of the service. The CPA will then read the financial statements, considering whether they appear appropriate in form and are free from obvious material misstatements based on the accountant’s understanding of the industry and applicable financial reporting framework, such as U.S. Generally Accepted Accounting Principles (GAAP).

Components of a Compiled Financial Statement Report

The final deliverable from a compilation engagement consists of two main parts: the accountant’s compilation report and the financial statements themselves. These components present the company’s financial information and clarify the context of the CPA’s involvement.

The accountant’s compilation report is a brief letter that precedes the financial statements. This report identifies the entity and the financial statements that were compiled, states that management is responsible for the financial statements, and specifies the date or period covered. It also includes a statement that the engagement was performed in accordance with SSARS and explicitly states that the accountant did not audit or review the statements and provides no form of assurance.

The financial statements included in a compiled package are the same as those in an audited or reviewed set. This includes:

• A Balance Sheet, which shows the company’s assets, liabilities, and equity at a specific point in time.
• An Income Statement, detailing revenues and expenses over a period.
• A Statement of Cash Flows, which tracks the movement of cash from operating, investing, and financing activities.
• A Statement of Owner’s Equity or Retained Earnings may also be part of the package.

Additionally, the statements may be accompanied by notes. These notes provide further detail on the accounting policies used and other financial information. A required disclosure in a compilation is a description of the basis of accounting used, such as the cash basis or tax basis, if it is a special-purpose framework other than GAAP.

Information Required for a Compilation

To perform a compilation, the CPA relies entirely on financial data and records provided by the company’s management. The business must gather and organize specific documents that form the basis of the financial statements.

The foundational document required is the company’s trial balance, which lists all the account balances from the general ledger. The general ledger itself, containing a detailed record of all transactions for the period, is also necessary. Bank statements for all company accounts, along with corresponding bank reconciliations, are needed to ensure cash balances are correctly stated.

Details supporting balances on the trial balance are also required. This includes schedules for fixed assets, detailing acquisitions and disposals, and loan agreements or amortization schedules for liabilities. For businesses with customers and suppliers, accounts receivable and accounts payable aging reports are important. If the company holds inventory, a detailed inventory listing is necessary to establish its value.

The CPA may ask questions if the provided information appears incomplete or incorrect but is not required to verify it. Management is responsible for ensuring the accuracy of these underlying documents, and providing well-organized records allows the CPA to assemble the statements efficiently.

Common Uses for Compiled Statements

Compiled financial statements serve several purposes for businesses, particularly when a higher level of assurance is not required or is not cost-effective. They are often used for internal management purposes, providing owners and executives with a clear and professionally formatted overview of the company’s financial health. This can help in tracking performance and making strategic decisions.

These statements are frequently used to support applications for small business loans or lines of credit. While some lenders may require audited or reviewed statements for larger or riskier loans, many will accept compiled statements, especially when the loan is secured by collateral.

Compiled statements can also be useful in the preliminary stages of selling a business. They can provide prospective buyers with initial financial information to gauge their interest before they undertake their own detailed due diligence. This allows the seller to present financial data in a standardized format without incurring the significant cost of an audit early in the process.

Finally, some third parties, such as vendors, landlords, or surety bond agencies, may request financial statements to assess a company’s financial stability. In many of these situations, the requirement is for a formally presented set of financial statements, and a compilation prepared by a CPA fulfills this need efficiently.