As a business grows, the need to show its finances becomes all the more important. Basic bookkeeping may be sufficient when you’re just starting out, but as your sales, expenses and financial responsibilities increase, simple records may become less reliable for others to use when evaluating your business numbers.
And when your business needs professionally prepared financial statements, a compilation engagement can be a practical next step. When you need to do formal reporting, a CPA can take the financial information you already have and put it into statements that will give lenders, partners, banks or other stakeholders a better picture of your finances.
But when is it really necessary? It is contingent upon the size of your business, the complexity of your financials, the stakeholders you have, and the reporting requirements you face. It also depends on the level of assurance required, a compilation engagement is different to a review and audit engagement.
How a Compilation Engagement Differs From Bookkeeping
Bookkeeping means recording your business’s financial activity. This includes entering sales, expenses, receipts, payments and bank transactions etc. The goal is to help you maintain your records complete and up-to-date, so you have reliable information to work with in the operation of your business.
The CPA does not track transactions but works with the available financial data and provides it in the form of financial statements for reporting purposes. This could be a balance sheet, income statement and related notes depending on the engagement. Compilation engagements are performed under Canadian Standard on Related Services (CSRS) 4200, which became effective for periods ending on or after December 14, 2021.
Both are necessary because they address different aspects of your financial reporting process. Your bookkeeping creates the supporting documentation and the compilation engagement uses that information to generate the statements you need for a specific reporting purpose.
5 Signs Your Business May Need a Compilation Engagement
Not every small business needs to produce formal financial statements immediately. But as your business grows or your financial responsibilities evolve, you may find that you need or even require professionally prepared statements. Here are five common signs that may indicate your business has reached that point:
- Your business is growing and your financial activity is increasing.
- You need professionally prepared financial statements.
- You’re applying for business binancing or credit.
- You’re planning a major business investment or expansion.
- Your financial reporting needs are becoming more complex.
Compilation Engagements for Growing Small Businesses
Startups often rely on basic bookkeeping while building their operations. As they progress to the next stage of their growth, their financial needs may change. To attract investors or funding, clearer financial statements showing the state of the business and where it stands may be required.
The same transition can occur with established small companies as the business becomes more complex. As the business grows, the financial statements give a clearer picture of income, expenses, cash flow and overall performance for owner-run companies that previously kept their money with simple records.
That clearer picture is particularly useful as you look to expand your business or seek financing. The financial reporting can be planned ahead of these changes so that owners can prepare their information, not be rushed at the last minute and provide the financial information lenders or investors require.
How a Compilation Engagement Can Support Business Decision-Making
Financial statements can do more than meet a bank’s or lender’s requirements. They can also help you make informed choices by showing how different parts of your business are performing. A compilation engagement gathers this information together, so you can focus on the areas that can affect your next decision:
- Understanding revenue and expenses: This is your income and spending each month so you can see where your money is going.
- Reviewing profitability: It tells you whether your business is really making a profit after all expenses.
- Monitoring assets and liabilities: This keeps track of what you own and what you owe to show your financial position.
- Identifying financial trends: This lets you see trends in income or spending over time.
- Supporting budgeting and business planning: This uses past data to assist you in planning budgets and future growth.
Compilation Engagement vs Review vs Audit: Which Is Right for Your Business?
| Aspect | Compilation Engagement | Review Engagement | Audit |
| Level of assurance | No assurance provided | Limited assurance | Reasonable assurance |
| Typical cost | Lowest | Moderate | Highest |
| Time required | Shortest | Moderate | Longest |
| Common use case | Internal use, financing, tax filing | Stakeholder or lender requests | Public companies, regulatory or bylaw requirements |
| Standard followed | CSRS 4200 | Canadian Standard on Review Engagements | Canadian Auditing Standards |
5 Things to Expect During a Compilation Engagement
When you decide to move forward, the compilation process is quite simple, from gathering your records to getting your final statements. Knowing what to expect can make the process easier and help you prepare the information your CPA will need at each step of the way. To give you a better idea of how it works, the process generally involves:
- Providing financial information to the CPA: You provide the CPA your bookkeeping records, bank statements and any other financial documents that are needed for the engagement.
- Reviewing and organizing financial data: Your CPA reviews the information you provide and organizes it into a format that can be used to prepare the statements.
- Preparing financial statements: Your CPA will use the financial information on hand to prepare the necessary financial statements and their accompanying notes.
- Addressing questions or missing information: Your CPA may contact you for clarification or to fill in missing information before finalizing statements.
- Finalizing the financial statements: Once all the necessary information has been addressed, your CPA will finalize the statements so they are ready for their intended reporting purpose.
When Should You Talk to a CPA About a Compilation Engagement?
Timing matters, and getting in touch with a CPA early gives you more time to prepare. It might be time to have a conversation with a CPA when your business is moving into a new stage or your financial reporting needs are evolving, such as:
- You are seeking business funding.
- You’re planning a major business expansion.
- Stakeholders are requesting financial statements.
- Your business is becoming financially more complex.
- You’re unsure which reporting service you need.
In any of these situations, talking to a CPA early can help you understand what your business needs and whether a compilation engagement is the right fit, without having to rush the process later.
Explore Professional Compilation Engagement Services Today!
A compilation engagement provides professional financial statements for your business for clarity and accuracy. Having your financial information organized can help you get financing, expand, or make important business decisions without stress or delays.
That’s where Robertson CPA Professional can come to your aid. We prepare compilation engagements in accordance with the CSRS 4200 standard for small and medium-sized businesses throughout Ontario. Every engagement is customized to your reporting needs to help lenders, partners and stakeholders understand your financial information clearly.
If your next business decision needs to be based on reliable financial statements, don’t wait until you’re under pressure to get them ready. Check out our compilation engagement services and schedule your consultation today. Gain the clarity and confidence to take your next step.
Frequently Asked Questions (FAQs)
Q1. What is the difference between a compilation engagement and a Notice to Reader?
A Notice to Reader was the previous term for this type of service. Since December 14, 2021, compilation engagements have been governed by CSRS 4200.
Q2. Does a compilation engagement provide assurance?
No. A compilation engagement provides no assurance. The CPA uses information provided by management to prepare the financial statements.
Q3. How long does a compilation engagement take?
Timelines vary based on the business’s size, complexity and how organized its financial records are.
Q4. Can compiled financial statements be used for a business loan?
Sometimes. Lender requirements vary, so it’s best to confirm whether compiled financial statements meet the lender’s requirements.