What is happening?
The existing accounting standards for compilations were issued in 1987. For the past several years, the Auditing and Assurance Standards Board has been working on an update to these standards. The intention is to address potential misunderstandings by users of compiled notice to reader financial information as to the extent of work performed.
When will these new standards apply?
These new standards are applicable to fiscal period-ends falling on or after December 14, 2021.
What is changing?
Some of the key changes are:
- The Notice to Reader that you are familiar with will be changing to a new Compilation Engagement Report. The wording will better reflect the nature of the engagement and reference the new note disclosures that will be required.
- There will be a discussion with us on the basis of accounting that is being applied to the financials and we are required to document this in our files.
- We are required to document an understanding of your business. This will involve a questionnaire we will ask you to complete along with a discussion for us to document in our files.
- We will ask you and need to document whether the compiled financial information is intended to be used by a third party (e.g., your lender). When compiled ﬁnancial information is to be used by a third party, we will ask you to acknowledge that the third party is able to request and obtain further information from you or has agreed with you on the basis of accounting, before we can prepare the financial statements.
- There will be a new engagement letter with updated wording at the start of our engagement. This engagement letter will include the objective and scope of the compilation engagement, the intended use of the financial information, our responsibilities as the practitioner, and your responsibilities and acknowledgments as specified in the new standard.
More work. More Discussion, Inquiry and Documentation. If we were still preparing our files using paper and not electronically, those paper files would be getting thicker once again.
With an update to the standards, as there is an increase in the work and documentation required to compile the financial statements, we anticipate an increase in our fees. The amount of any increase can be minimized if we are provided with complete and accurate documentation on a timely basis. We can discuss this with you when planning for the compilation engagement.
Please feel free to reach out to us with any questions you may have.
More info can also be found here:
New compilation standard: Third-party briefing (cpacanada.ca)