When you are running a business, keeping your finances in order is crucial not just for internal decisions, but for banks, investors, and even licensing authorities. One way to present your financial data without the heavy cost or formality of an audit is through the compilation of financial statements. Let’s walk through what they are, how they work, and when you might need them.
Running a business means staying on top of your finances but let’s be real, not every situation calls for a full-blown audit. That’s where compilation financial statements come in. They are a simple, cost-effective way to present your financial data, prepared by a licensed CPA, without the time or expense of deeper financial reporting. Whether you need to show numbers to a bank, investor, or licensing board, a compilation can get the job done with confidence and credibility. Let’s break down how it works and when it’s the right move for your business.
What Are Compilation Financial Statements?
Compilation financial statements are prepared by a Certified Public Accountant (CPA) using the financial data you provide. Think of it as your numbers, professionally formatted into standard financial statements like:
- Balance sheet
- Income statement (Profit & Loss)
- Cash flow statement
- Statement of retained earnings
The key thing? The CPA does not audit or review your data. They simply organize and present it. So, while it doesn’t come with assurance that the information is accurate, it still gives your finances a polished, credible look.
Key Features of Compilation Financial Statements
What exactly sets compilation statements apart from other financial reporting services?
- No assurance provided: CPAs do not verify your numbers.
- Based on client data: All info comes directly from your business.
- Low cost: It’s much more affordable than a review or audit.
- Useful format: The statements follow standard formats like GAAP or IFRS if needed.
- CPA letter included: You get a cover letter from the CPA stating that no assurance was given.
CPA Role and Professional Standards
Even though the CPA does not audit or review the information, they still have to follow professional guidelines. These statements must be prepared in line with Statements on Standards for Accounting and Review Services (SSARS) issued by the AICPA.
The CPA must also understand your industry and be alert for any obvious errors or inconsistencies. If they see something that looks off, they’re ethically obligated to either discuss it with you or withdraw from the engagement.
Limitations and Considerations
While the compilation of financial statements is helpful, they are not for every situation. Here are a few limitations to keep in mind:
- They do not provide any assurance of accuracy or completeness.
- They’re not a substitute for audits when assurance is required.
- Some third parties (like major lenders or regulators) may require audited or reviewed statements instead.
So, if you need your numbers to be verified or validated, a compilation may not be enough.
When You Might Be Required to Submit Compiled Statements
Even though these statements do not provide assurance, there are times when third parties may still request them. You might need compilation financial statements for:
- Bank loan applications
- State contractor licenses
- Business visas or immigration filings
- Investor relations
- SBA 8(a) certification
In these cases, the CPA letter and format provide enough structure to satisfy basic reporting needs without the added cost of an audit.
Benefits of Compiled Financial Statements
Here are a few reasons why many small and mid-sized businesses choose compilations:
- Cost-effective financial reporting solution
- Enhances credibility with external parties
- Faster turnaround compared to audits or reviews
- Helps maintain organized financial records
- Can be tailored to GAAP or other reporting frameworks
- Meets basic requirements for non-audit third-party requests
