A compilation report is a short written statement a CPA attaches to financial statements the CPA has formatted from records you provided. Here is a standard compilation report example, followed by what each part is doing and what the professional standards require it to contain.
Accountant’s Compilation Report
To the Management of [Company Name]:
Management is responsible for the accompanying financial statements of [Company Name], which comprise the balance sheet as of December 31, 20XX, and the related statements of income, retained earnings, and cash flows for the year then ended, and the related notes to the financial statements in accordance with accounting principles generally accepted in the United States of America.
We performed this compilation engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. We did not audit or review the financial statements nor were we required to perform any procedures to verify the accuracy or completeness of the information provided by management. We do not express an opinion, a conclusion, nor provide any form of assurance on these financial statements.
[Firm Signature]
[City, State]
[Date]
The report is intentionally short. Its job is to tell anyone reading the financial statements what level of work went into them and, by extension, what level of confidence to place in the numbers. The answer to that second question is none: a compilation involves no verification, no testing, and no opinion.
The Seven Required Elements
Compilation reports are governed by AR-C Section 80 of the Statements on Standards for Accounting and Review Services. Every compilation report must be in writing and must contain each of the following:1AICPA. AR-C Section 80 – Compilation Engagements
- A statement that management (or the owners) is responsible for the financial statements.
- Identification of the specific financial statements being compiled, such as the balance sheet and income statement.
- Identification of the entity whose financial statements are being compiled and the date or period the statements cover.
- A statement that the accountant performed the compilation engagement in accordance with Statements on Standards for Accounting and Review Services issued by the AICPA.
- A statement that the accountant did not audit or review the financial statements, was not required to perform any procedures to verify the accuracy or completeness of management’s information, and does not express an opinion, a conclusion, or any form of assurance on the financial statements.
- The signature of the accountant or the accountant’s firm.
- The city and state where the accountant practices, and the date the compilation procedures were completed.
The disclaimer paragraph is the one that matters most to a reader. It draws a clear line: a CPA’s name appears on the page, but no one should treat the underlying numbers as verified because of it.
When Disclosures Are Omitted
Full financial statements under U.S. GAAP include footnote disclosures on things like debt terms, lease commitments, related-party transactions, and accounting policies. Small businesses frequently skip these disclosures because the statements are for internal use or for a lender who already knows the company. The standards allow it, but the accountant must add a separate paragraph to the report alerting readers to what is missing.1AICPA. AR-C Section 80 – Compilation Engagements
The additional paragraph goes after the standard compilation language and reads along these lines:
Management has elected to omit substantially all the disclosures and the statement of cash flows required by accounting principles generally accepted in the United States of America. If the omitted disclosures and the statement of cash flows were included in the financial statements, they might influence the user’s conclusions about the company’s financial position, results of operations, and cash flows. Accordingly, the financial statements are not designed for those who are not informed about such matters.
This version is extremely common for owner-managed businesses. It keeps costs down and avoids producing footnotes that nobody involved needs. If the same statements later go to a new lender or potential investor who does not already know the business, the missing disclosures will likely be a problem.
When the Accountant Is Not Independent
Unlike a review or audit, a compilation does not require the CPA to be independent of the company. An accountant who is a part owner, a close relative of the owner, or the company’s regular bookkeeper can still issue a compilation report. The lack of independence has to be disclosed in a final paragraph.1AICPA. AR-C Section 80 – Compilation Engagements
The disclosure can be a single sentence at the end of the report:
We are not independent with respect to [Company Name].
The accountant is permitted to describe the specific reasons for the impairment but is not required to. Many accountants keep it to the one-line version. The point is transparency: a reader can see the relationship exists and weigh the report accordingly.
When the Accountant Finds a Departure From GAAP
A compilation is not designed to catch mistakes, but the accountant cannot ignore problems that surface. If the accountant becomes aware of a material departure from the applicable accounting framework, such as revenue recorded in the wrong period or a significant liability left off the balance sheet, the accountant will first ask you to correct the statements.
If you decline to correct the departure and it is not disclosed in the notes, the accountant must modify the compilation report to describe it. The report should include the dollar amount of the departure’s effect if that amount is known. If neither you nor the accountant has determined the dollar impact, the report must say so.
Modification has its limits. If the problems are severe enough that a modified report is not adequate to convey the deficiencies in the financial statements as a whole, the accountant must withdraw from the engagement. The accountant cannot add a statement that the financial statements are “not in conformity” with the framework, because that would amount to a negative opinion, and only an auditor can express an opinion.
How a Compilation Report Differs From Review, Audit, and Preparation
A compilation is the lowest of the three levels of CPA financial statement services that produce a report, and it is often confused with a preparation engagement, which produces no report at all. If a lender or third party is asking for something specific, the label matters.
- Compilation (no assurance): The accountant formats your data into proper statements and reads them for obvious issues. No verification is performed. The report explicitly disclaims any opinion or assurance.
- Review (limited assurance): The accountant performs analytical procedures and makes inquiries of management, examines supporting documents like bank statements, and asks about accounting practices. The report provides limited assurance, meaning the accountant is not aware of any material modifications needed.
- Audit (reasonable assurance): The accountant tests transactions, confirms balances with third parties, and evaluates internal controls. The report expresses a formal opinion on whether the statements are fairly presented.
- Preparation engagement (no report): The accountant organizes your data into statements but issues no report. The statements go out without the accountant’s name attached unless each page carries a “no assurance is provided” legend.
A compilation report is what most lenders and outside parties have in mind when they want to see a CPA’s name attached to financial statements without paying for a review or audit. If a loan agreement specifies reviewed or audited statements, a compilation will not satisfy it. If the statements are only for your own internal use, a preparation engagement is cheaper and produces the statements without a report.
Who Can Sign the Report
Compilation reports must be issued under the supervision of a licensed CPA. A non-CPA firm can perform the work, but a CPA must hold ultimate responsibility for the compilation services and must sign the report individually rather than in the firm’s name. If you are shopping on price, confirm that the person signing your report is a CPA accountable for meeting the professional standards.