Compilation

A compilation, sometimes called write-up work, is a set of financial statements an accountant prepares from a client's own figures, organizing them into standard income statement and balance sheet format, without auditing or reviewing the underlying amounts in any way. It is the lowest level of accountant involvement among the three main levels of accounting service: a full audit, a review providing limited assurance, and a compilation providing no assurance at all.

In a compilation engagement, the accountant essentially takes the client's own numbers, often drawn directly from the client's bookkeeping records, and presents them in proper financial statement format, applying accounting knowledge to the presentation but not independently testing, verifying, or even analytically reviewing whether the underlying figures are reasonable. The accountant's report accompanying a compilation explicitly states that no assurance is being provided on the statements.

Smaller businesses without significant outside lenders, investors, or regulatory requirements sometimes choose a compilation specifically because it is far less expensive and time-consuming than a review or full audit, while still producing properly formatted financial statements an accountant has had some hand in preparing. A compilation can be sufficient for internal management use or for a lender that does not require a higher level of assurance.

A review involves the accountant performing analytical procedures and making inquiries of management, providing limited assurance that nothing has come to the accountant's attention suggesting the statements are materially misstated. A full audit goes much further, involving detailed testing of transactions, confirmation with outside parties, and an opinion on whether the statements are fairly presented. A compilation sits below both, offering organized presentation without any of the testing or inquiry procedures that would let the accountant offer even limited assurance.

Lenders, investors, and other outside parties relying on a set of financial statements need to know which of these three levels of service was performed, since the accountant's involvement, and therefore the degree of reliability a reader can reasonably place on the figures, differs enormously between a bare compilation and a full audit, even though both might look similar on the surface as neatly formatted financial statements.

A small retail business might ask its outside accountant to compile quarterly financial statements from its own bookkeeping records purely for internal management review, with the accountant's report clearly stating no assurance is provided, since the business has no bank covenant or investor requirement that would call for a higher level of accountant involvement.

Accountants can provide financial statements at three increasing levels of rigor: a compilation, which provides no assurance at all and simply presents management's own figures in proper financial statement format; a review, which involves analytical procedures and inquiries that provide limited assurance that nothing material appears to need correction; and a full audit, which provides the highest level of assurance through detailed testing of transactions and controls. Lenders and investors typically specify in advance which level they require before extending credit or making an investment, since each level costs progressively more and takes progressively longer, but also gives the reader progressively more confidence in the numbers.