What is a Compilation Report?
Compilation Reports replace what some business owners and non-profit directors called their “Year End”, or “Notice to Reader”. It affects all year ends with a report date ending on or after December 14, 2021. The report is created by a Chartered Professional Accountant to assist an organization in compiling its financial information. It does not provide assurance (for example, it is not an audit).
What Does the New Standard Mean for Business Owners and Directors?
The Compilation Report requires a few things that Notice to Readers did not. Most notably:
Declared Basis of Accounting
The management of the organization is now required to declare a basis of accounting. What is that?! The basis of accounting refers to the method used to determine which revenues and expenses are recognized in the financial statements of an organization. For example, if the organization is a farm, it may only recognize cash when it spends or receives it, or if it is a not for profit organization that is preparing for an audit in a future year, it may recognize income and expenses under a specific set of rules such as ASNPO.
Information on the Intended Users of the Compilation Report
You will be asked to declare whether the financial information compiled is intended to be used by a third party (for example, your bank or another lender) and whether the third party has access to additional information. Additionally, if the information is to be used by a third party you must acknowledge that the third party is “in a position to request and obtain further information from you or has agreed with you on the basis of accounting before the practitioner can accept or continue their work on the report. For example, if you use cash accounting (record cash when received and spent instead of when you receive a bill, or issue an invoice), then you want to confirm with the user of the report (for example, your bank), that they will accept a report that uses this basis before you provide information to the report preparer.
Adequate Understanding of your Enterprise
The CPA preparing the report now needs an adequate understanding of the nature of the organization’s business and operations, accounting system, and accounting records. This means you will likely need to provide more information at year end than you may have in prior periods. Have patience! This ensures the statements are not misleading and most importantly, provides information that users of the Report can use to make properly informed decisions.
More questions? Contact your CPA as you prepare for your year end activities and ask what resources they have available to assist you.
Cedar Creek CPA 