Accounting Compilation: A Comprehensive How-to Guide (+Free Checklist)

Now and again, your clients (like every other business) will need to present their financial statements to a lender or investor, which requires accounting compilation.

If they don’t have an in-house accountant to put their financial statements together, they’ll engage you to do it.

You don’t have to wait till then to master the ins and outs of accounting compilation and how it differs from a review and audit engagement, both of which require some assurance.

This article shows you how to manage your compilation engagements, including a checklist that the most junior member of your team can follow to ace compilation projects.

What is an Accounting Compilation?

Businesses use accounting compilation to organize and format their financial data into financial statements they can present to stakeholders (lenders and investors).

As the accountant, you are required to provide this structure with limited verification of accuracy or testing of the internal controls. These compilations are based mostly on information provided by your client.

Compilation vs. Review vs. Audit

Accounting compilation, review, and audit differ in the level of analysis, testing, and verification, which affects the assurance they give to the business owner and external stakeholders.

Checklist for Performing a Compilation

• Understand the Client’s Needs

Your success in completing any compilation work will depend on how well you understand the client’s needs (the purpose of the financial statements), the industry, and their unique reporting requirements.

This is where you familiarize yourself with the AICPA’s SSARS guidelines (in addition to learning the client’s business). You’ll also work with the client here to choose a reporting framework.

• Collect Financial Data from the Client

In this step, request the client’s financial information, like the general ledger, trial balance, and any other information necessary for the financial statements.

Your financial statements will depend on the information provided by the client, so if you can’t collect certain information, you can decide to withdraw from the engagement (if compliance is at stake) or state it in the report.

• Prepare Accounts Payable

Being an essential part of a company’s financial information, any amount owed to creditors or suppliers should be captured to present a more accurate picture of the client’s finances.

This helps the business owners or lenders to understand the company’s liabilities and accrued expenses.

• Review Accounts Receivable

Information about the amounts owed to the business is just as necessary (as every other information) as it helps the business owner and stakeholders understand the company’s assets and impacts the income statement.

Omitting this information (which includes the aging report, customer balances, and day sales outstanding) could constitute a significant misrepresentation of the financial statements.

• Categorize the Uncategorized Expenses (if any)

When transactions are not assigned to any account, they might end up in the miscellaneous accounts.

This is where you collaborate with the client to resolve these transactions by sending them all the transactions that need categorizing.

For Financial Cents users, you won’t have to export the transactions into spreadsheets. From the client’s profile, you can see the QBO transaction, and with the click of a button, you can share it with the client.

Once they provide the information you need to categorize them, you can push them back to QuickBooks to put them in their proper accounts.

• Reconcile Accounts

• Reconcile bank and credit card transactions.

Comparing a client’s internal financial records (e.g., general ledger or accounting software) with external statements (e.g., bank or credit card statements) ensures they match.

Ensuring that bank and credit card reconciliation makes the resulting financial statements more reliable.

• Reconcile sales & additional accounts.

Similarly, comparing the client’s revenues with bank deposits, point of sales reports, and sales invoices helps to ensure that the sales figures correspond with the actual transactions.

• Create the Financial Reports

Once all data collection and organization are complete, prepare the compilation report. The compilation report should not be more than one page of a document.

This report identifies the client, the period the compilation covers, and the resulting financial statements.

The report has a single paragraph without a title and states that the management is responsible for the accuracy of the financial statements since no review or verification was done.

Add your signature at the bottom of the report with your state, city, and completion date.

• Review the Reports for Errors

In this step, the reviewer looks at the files and reports for errors. Once all errors are corrected, the work proceeds to the next stage.

• Share the Report with the Client

At this stage, the work is completed. Share the report with the client using your secure file-sharing software.

Free Compilation Accounting Checklist

Created by Michael Case of Case CPA Professional Corporation, this checklist has helped at least 43 other accounting firm owners solve their biggest compilation workflow challenges.

The checklist template has 10 tasks, 3 client tasks, and automations that can change the tags on the project or send an email to update the client on work progress without manual intervention.

Click here to download this checklist to improve the accuracy of your compilation work today.

Compliance Requirements for Accounting Compilations

1. Follow SSARS Guidelines

Accounting compilations in the US are governed by AICPA’s Statement on Standards for Accounting and Review Services (SSARS). Getting familiar with its guidelines now will enable you to meet the performance and communication requirements for accounting compilation.

For example, some of the SSARS requirements include:

• Signing an engagement letter that outlines the objectives, scope, responsibilities, and limitations of the compilation.
• Having adequate knowledge of the industry and the reporting framework to be used.
• Disclosure of any material departure from the reporting framework in the compilation report.
• A compilation report stating compliance with SSARS and describing your responsibility.

The complete SSARS guidelines are available here.

2. Use an Appropriate Financial Reporting Framework

The three most common reporting frameworks for small businesses (that require compilation) are:

• Cash Basis, which focuses on when cash is received.
• Modified Cash Basis, which combines the cash basis and the accrual basis
• Income Tax Basis, which uses the accounting methods in your client’s federal income tax return.

Whichever one you use (based on the client’s preference), stick to it throughout the compilation to keep the results accurate.

3. Include a Proper Compilation Report

This report is important because it defines your role in the compilation engagement and the scope of work done. It helps to clarify expectations for anyone interested in the financial statements you have compiled.

4. Keep Proper Documentation & Workpapers

Retaining the documents and relevant information is another requirement of the SSARS guidelines.

These documents include:

• The engagement letter
• Financial statements
• Compilation report
• Communications with management
• Steps taken to address findings

5. Client Acknowledgment of Responsibility

The client’s acknowledgment of responsibility is usually contained in the engagement letter, which includes:

• Responsibility for preparing and presenting the financial statements in line with a financial reporting framework that fits the purpose of the compilation.
• Responsibility for the accuracy and completeness of the financial information that makes up the financial statements.

Best Practices for a Smooth Compilation Process

a. Use an Accounting Practice Management Software for Better Workflow

Compilation projects are fairly quick to complete, but a disorganized workflow system can cause unnecessary delays.

A good accounting practice management software centralizes all the information and resources you need to manage a compilation engagement, keeping you up to date on project updates.

This makes it easy to see which task is causing bottlenecks in your compilation projects (and every other client’s work) and how you can address them.

b.Ensure Clear Communication with Clients About Expectations

Don’t assume your client knows what to expect. You’ll be amazed that some of your clients don’t know the limitations of a compilation engagement versus a review or audit.

Clear and timely communication will enable you to put things in perspective for them.

Scope creep could also be a challenge when effective communication is lacking. With clear and timely communication, you can explain the scope of a compilation engagement and where your client might need to engage you separately.

c. Keep Detailed Documentation to Maintain Compliance and Accuracy

As mentioned above, having an audit trail of the documents and communication used in the audit work gives you something to fall back on if you need to show the accuracy of your work and adherence to applicable reporting frameworks and guidelines.

Moreover, you might be required by law to retain the engagement files for, say, 7 years (in the United States).

d. Automate Data Collection to Reduce Errors

Like every other client engagement, automation can be your superpower in accounting compilation.

First, automatic data collection makes it quicker to get client responses by automatically reminding them when they forget to send the information.

Secondly, it gives you the clearheadedness to focus on presenting your client’s financial information in the most accurate way possible while adhering to relevant regulatory guidelines like SSARS.

Manage Your Compilation Tasks with Financial Cents

All your knowledge of accounting compilation may not translate to efficient and accurate compilation projects until you learn to take advantage of technology.

Here are some crucial Financial Cents features and how they can improve your compilation process:

I. Workflow Automation and Management

• Workflow Dashboard: This dashboard presents all your projects and their important information, like due dates, progress reports, status, assignees, etc., so you can make decisions quickly.
• Workflow Filter: This allows you to find information on your dashboard faster using a search term or filtering criteria.
• Recurring Compilation: If you have clients with repetitive compilation (or other kinds of) projects, this feature helps you create them automatically.

II. Project Tracking and Collaboration

• Team Chat: This enables your team to collaborate inside each project, centralizing your team’s collaboration.
• Templates: With this feature, you can easily break down your compilation projects into smaller, actionable bits. You won’t have to create from scratch, which could increase the risk of forgetting an important step, in addition to the time and effort.
• Automated Task Assignment: This lets you assign responsibility for client projects to your team members, enhancing accountability in your firm.
• Progress Bar: An Automatic project report to show how much work each project needs to be completed.

III. Manage Uncategorized Transactions (ReCats)

• Automatic Uncategorized Transaction: From the client’s profile in Financial Cents, you can pull and share uncategorized QuickBooks transactions with the client without exporting to a spreadsheet first.
• Auto-Reminders: automatically notifies your clients about pending inquiries about uncategorized transactions.
• Notes, Description, and Documents: Collect all notes, descriptions, and documents necessary to clarify uncategorized transactions from your clients inside Financial Cents.
• Push Transactions to QuickBooks: categorize uncategorized transactions in QuickBooks with a click.

IV. Automated Client Requests

• Client Tasks: create and share a list of the files and information you need from clients in advance.
• Auto-Follow-Up: Financial Cents will automatically remind your clients when you send a client task.
• Client Collaboration: Financial Cents’ client portal allows you to discuss your files and information requests with your client.

V. Client Management (and Collaboration)

• Client Profile: The client profile in Financial Cents allows you to store and access client information in one place.
• Activity Feed: This lets you see who last spoke with a client, the mood of the conversation, and what they discussed.
• Client Vault: A vault that makes sensitive client information (like credit cards and passwords) inaccessible to unauthorized persons.
• Client Emails: Financial Cents auto-pulls your client emails from your Gmail and Outlook accounts to streamline your client communication.
• Client Portal: The portal is a passwordless (but even more secure) hub to share files and information with your clients. Passwordless means your client won’t need to create or provide a password to access it. It uses a more secure and convenient means of access.

VI. Billing and Invoicing

• One-Off or Recurring Billing: invoice for one-time projects and prevent missing recurring invoices by setting them up in advance.
• Multiple Payment Options: Your clients can pay you with ACH and Credit Cards.
• Automated Reminders: Choose a reminder frequency, and Financial Cents will remind your clients to make payments when they forget.
• User Permission: This enables control of who can access the client’s billing information.

Make Accounting Compilation Simpler and More Actionable for Your Team

Accounting compilation is a simpler engagement (than a review or an audit), but the simplest projects get difficult and overwhelming when they are not broken down into smaller, actionable tasks.

The Accounting Compilation checklist above outlines the steps that make up the compilation process.

Download it, edit it as you see fit, and empower your team to compile financial statements confidently.