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Financial statements provide businesses with critical insights into their operations. Business compilations also show lenders, investors, and other external parties how the business is doing. If your company needs formal financial statements, you should contact an accountant to prepare compiled financial statements.

To get help immediately, contact us at DHJJ now, or keep reading for an overview of financial statement compilation.

What Is a Financial Statement Compilation?

A financial statement compilation is when an outside accountant turns a business’s bookkeeping data into financial statements. The compiled financial statements vary based on the business’s needs, but they typically include profit and loss report (income statement), balance sheet, statement of equity or retained earnings and cash flow statement. While the core financial statements are comprised of the balance sheet, income statement and statement of retained earnings or equity, when your business hires an accountant to create compiled financial statements, you can tailor which statements you’ll need along with any supplemental schedules..

To prepare compiled financial statements, the accountant needs to have knowledge about your business and your industry, but they do not need to know about your internal controls or accounting processes. When an accountant prepares compiled financial statements, they are simply helping you to create financial statements. They are not auditing or reviewing the accuracy of the statements and providing no assurance on the financial statements

It’s important that the accountant preparing the compiled financial statements has accurate documents. If the accountant has reason to believe that the data being used is materially incorrect, they will reach out for additional information. If they are unable to obtain reasonably correct information, they will withdraw from the engagement.

What Are the Steps of a Compilation?

When a business needs compiled financial statements, it hires an outside CPA and requests the statements that it needs. The business, then, provides the accountant with its financial details in the form of journals, ledgers, entries, trial balances, etc. If the company has been using bookkeeping software (i.e. QuickBooks), it generally just provides the accountant with access to the software.

Once the accountant has all of the company’s financial information, they can put together (compile) a range of financial statements. Again, the accountant is simply writing up the financial statements based on the information provided by the company’s management team. They are not providing any auditing or assurance services. They also aren’t checking any controls.

By extension, if the company is overstating revenue, understating expenses, over-valuing assets, or introducing other errors, the compiled financial statements will reflect those issues. If the accountant notices any material errors, however,  they will notify the business’s managers and make the necessary adjustments to the financial statements, subject to management’s approval.

 Prior to the start of the process, the accountant will provide an engagement letter outlining the accountant’s responsibilities and procedures, along with management’s responsiblities. At the end of the process, the accountant will generate the requested financial statements and review any material misstatements with management. 

When Businesses Use Compiled Financial Statements

Generally, businesses use compiled financial statements when they need to provide financial information to an outside party. For instance, a lender may require a business to provide financial statements compiled by an accountant. Or an investor considering buying a business may also request compiled financial statements.

When an external party such as a lender or investor receives compiled financial statements, they know that an accountant has looked at the company’s financial information. They can rest assured that the information hasn’t simply been slung together by management. It has been extracted from organized financial records.

Smaller companies, in particular, tend to use compiled financial statements. As indicated above, these statements give external parties enhanced confidence about the company’s financial records, but compiled financial statements don’t cost as much as an audit or other assurance services. However, in some cases, external parties may require audited statements.

Here is a very basic example. Imagine a small restaurant with $400,000 in annual revenue and just under $80,000 in annual profit wants to obtain a loan from a local bank. The bank may require compiled financial statements, but typically will not require the restaurant to submit to the time and cost involved in an audit. 

In contrast, imagine a public company with $500 million in revenue. By law, this company, like all other public companies, must undergo an annual audit. However, even when audits aren’t statutorily required, lenders and investors will request them, especially as larger amounts of money are at stake.

Contact DHJJ to Talk About Compiled Financial Statements

At DHJJ, we offer financial statement compilations as well as full audits and other assurance services.. We can help you generate the financial statements you need for internal and external use. To learn more about compiled financial statements and to talk about how our services can help your business, contact us today.


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