Preparation of financial statements
Compilation of financial statements
Preparation of the company's financial statements by an independent, professional accountant, involves the compilation of financial statements. Compilation of financial statements is often included in the list of services of an accounting firm and involves the processing of customer data by an independent accountant, the preparation of financial statements based on them without providing any degree of assurance and auditing services in any way.
The compilation report is attached to the financial statements and reflects management's responsibility for the information presented and also clearly indicates that the financial information presented has not been audited and the compilation report does not imply any form of expression of opinion by the auditor.
Compliant deal
A compilation deal helps companies that do not have an internal reporting system to receive financial statements prepared by an independent professional instead of a relatively expensive audit service.
Examples in which a company may use a compilation transaction:
The company has an accountant-operator who records daily business operations and conducts them in the accounting system and prepares monthly profit and loss statements for the management. However, based on the terms of the loan agreement signed with the bank, the company is obliged to submit annual financial statements to the bank. The Bank does not request a review or audit of the statement. In this case, it is ideal for the company to use a compilation transaction.
The company has a parent enterprise that wants to receive information prepared by an independent person about the subsidiary. At the same time, the parent company wants to be able to do this at lower costs.
In such a case, the ideal solution is the compilation of financial statements. In this way, it becomes possible to present information at a lower cost.
Financial statements prepared according to international standards
The company performs all accounting operations, but requires financial statements prepared according to international standards, which in turn include all annual adjustments, which cannot be reflected as a result of daily operations produced by the accountant. In such a case, the best option is a compilation, during which such annual adjustments as provided by the relevant international standard are reflected, such as: recalculation of depreciation, creation of reserves and others.
There are steps required to perform the compilation
- Search for detailed transactions and general ledger, loan agreements and schedules, fixed asset register, sales log. Finding the inventory document.
Disclosure of obvious errors in financial statements. - According to the international standard, the compilation transaction does not require the accountant to verify any information or compare it with the facts. An accountant is not responsible for verifying loans, cash balances, or accounts receivable, instead, an accountant is responsible for checking financial data for obvious errors and errors that are discovered during the compilation process.
- Performing corrective journal entries. If the independent accountant discovers obvious errors during the compilation process, he must perform appropriate corrective actions to correct the error. In the case of relevant financial statements compiled in accordance with generally accepted accounting principles, the content of corrective actions will depend on the principles according to which the financial statements were compiled.
What is the difference between an audit, a review, and a compilation?
In preparing financial statements, business owners and directors must agree on the method of preparing financial statements so that decisions can be made based on correct financial statements.
A compilation is a basic summary of a company's financial data, which is performed by a professional accountant. Unlike reviews and audits, compilation results do not constitute an opinion or any kind of assurance. During the compilation, the accountant uses the information received from the management and is not required to compare it with other additional documentation, since no opinion or conclusion is issued as a result of the compilation, independence is not mandatory. In addition, it is preferable that the financial statements are not prepared by the internal accountant of the company, because in such a case the chance of revealing obvious errors is greater.
Limited examination of financial statements
A review is a limited examination of financial statements by a professional. provides only limited assurance as to the material accuracy of the above financial statements. Analytical procedures are mainly used during the review.
An audit is an in-depth examination of financial statements and provides reasonable assurance in the form of an auditor's opinion.
Deciding which service is most suitable for a company comes down to identifying the company's needs. In addition, the issue related to costs is an important factor, although this should not be given a decisive role. An in-depth examination of the financial statements can help the management of the company to make the right decisions, since professional auditors have the knowledge and experience that is necessary for a complete examination of the financial statements.
The report prepared as a result of the compilation transaction should include the following information:
- It states that the company's management is responsible for financial reporting
- financial statements
- Information about the customer
- the reporting period
- Claims that the compilation has been performed according to the relevant standard
A statement that the professional practitioner has not audited or reviewed the financial statements and has not used procedures to verify the information provided to him. - signature of a professional practitioner
- The date of the report, which should coincide with the date when the professional completed work on the compilation
The result of a compilation transaction is a financial statement that serves the following purposes
- Preparation and declaration of tax information by management
- Creating a unified view of the financial situation and health of the company before making the appropriate decision by the management
- Providing a better picture of the company before financial institutions make lending decisions.
Accounting and compilation transaction
It is of great importance that the compilation transaction is conducted by an experienced accountant, as a result of his many years of practice and qualification, he will easily respond to obvious errors and effectively communicate this with the management. An inexperienced and unqualified accountant may miss many mistakes, as a result of which the financial statements will not contain valuable information, which is critically important for making the right decisions, for the correct tax declaration and for seeking additional funds.
It is important for the management of the company, for the banks, as well as for the state, that the presented information is informative, so that they can make decisions appropriate to the current economic situation in the country, and in the appropriate case, to the company's situation.
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