When you are running a business, there are times when you need to show your finances, maybe to a bank, an investor, or even for licensing purposes. But what if you don’t need a full audit or in-depth review? That’s where compiled financial statements come in.
Compiled statements offer a simple, professional snapshot of your company’s finances, prepared by a certified public accountant (CPA), but without any deep analysis or verification. They’re a great fit for businesses that need financial statements quickly, without the high cost or complexity of an audit.
What Are Compiled Financial Statements?
Compiled financial statements are exactly what they sound like: they’re financial reports put together (or compiled) by a certified public accountant (CPA) using data provided by your business. But here’s the key thing: these statements are not audited or reviewed. That means the CPA doesn’t dig into your books or verify your numbers; they just organize the information you provide into a formal financial report.
Think of it like this: you bring the ingredients, and the CPA bakes the cake but they don’t taste it or check if everything was measured correctly.
This service is often used by small businesses that need professional-looking financials but don’t require a full-blown audit. For example, you might need compiled statements for:
- Loan applications
- Investor presentations
- Business planning
- Regulatory requirements
Compiled financial statements include the essentials like your income statement, balance sheet, and cash flow statement but without the assurance that everything is accurate. Still, they’re prepared by a licensed CPA under professional standards (specifically, the Statements on Standards for Accounting and Review Services, or SSARS, issued by the AICPA), so they carry more weight than something you’d draft in-house.
What’s Included in a Compiled Financial Statement
When you are handed a compiled financial statement, you might wonder what exactly you are looking at. Think of it as a well-organized snapshot of your business finances prepared by a CPA, but without digging into the details like an audit would.
1. Income Statement (Profit and Loss Statement)
This shows your company’s revenue, expenses, and whether you ended up with a profit or a loss over a specific period. It’s one of the clearest indicators of how your business is performing.
2. Balance Sheet
This outlines what your company owns (assets) and what it owes (liabilities), along with the owner equity. It gives readers a snapshot of your business’s financial position at a single point in time.
3. Cash Flow Statement
Here is where your money movement gets real. This statement shows how cash is flowing in and out of your business from operations, investing, and financing activities.
4. Statement of Retained Earnings
This part tracks changes in the business equity of how much of the company is truly “owned” by you or your investors after profits are reinvested or dividends are paid.
5. Optional Footnotes or Disclosures
These are not always included, but they can provide important context. If requested, a CPA can add footnotes that explain your accounting methods or highlight specific details that matter to lenders or investors.
Key Characteristics of a Compilation Engagement
If you are wondering what really sets a compilation engagement apart, you are not alone. It’s one of the most cost-effective and low-effort ways for a CPA to organize your finances, especially when you don’t need deep analysis or formal assurance.
No Assurance Provided
This is probably the biggest thing to understand. The CPA is not giving any opinion or guarantee about whether the numbers are right or wrong. They use the data you provide and organize it into standard financial statements.
Based on Management’s Information
The CPA doesn’t dig into your books or verify your balances. Instead, they rely entirely on what you, the business owner or management team, provide. That means it’s your responsibility to ensure the numbers are accurate and complete.
Follows SSARS Guidelines
Even though there is no assurance, the CPA still follows professional standards, specifically the Statements on Standards for Accounting and Review Services (SSARS) issued by the AICPA. This ensures that the compilation is done with consistency and integrity.
CPA Must Be Familiar With Your Industry
To prepare meaningful financial statements, the CPA needs to understand your business and the accounting principles used in your industry. They won’t audit, but they’ll make sure the statements are in line with generally accepted practices.
Why Businesses Use Compiled Financial Statements
You might be wondering if I really need compiled financial statements. The answer depends on who is asking and what you need them for.
1. Applying for Loans or Credit
Banks and lenders often want to see your financial statements before approving a business loan or line of credit. While some may request audited financials, many are fine with compiled statements especially for small to mid-sized businesses. They help prove your business is organized and financially responsible, without the higher cost of an audit.
2. Meeting Investor or Shareholder Requirements
If you are seeking investment or have existing shareholders, they may want a clear view of your company’s performance. A compiled financial statement, though not reviewed or audited, still offers a professional overview of your income, assets, and liabilities.
3. Fulfilling Regulatory or Licensing Requirements
Some government programs or state boards require compiled financials. For example, certain contractors need them to maintain licensure, and programs like the SBA’s 8(a) initiative may also ask for CPA-prepared statements. In these cases, a licensed CPA signature makes all the difference.
4. Internal Business Planning
Even if no one asking for them, compiled statements are a smart tool for business owners. They help you track financial trends, set realistic budgets, and make data-backed decisions without the time and expense of a full audit.
In short, compiled financial statements are often a practical, cost-effective solution when you need a reliable financial report that’s prepared by a CPA, but doesn’t require deeper assurance. If your business is growing or needs to prove its financial health, this could be the tool that gets you to the next level.
Compilation vs. Review vs. Audit: Key Differences
Not sure when to use compiled financial statements? Here are the most common situations where they make perfect sense:
- Applying for loans or lines of credit
Many lenders, especially community banks or credit unions will accept compiled statements for smaller loan amounts. - Meeting regulatory or licensing requirements
Some government agencies (like the SBA 8(a) program) or state licensing boards require compiled statements to demonstrate financial responsibility. - Keeping investors or board members informed
Compiled financials are a great way to share reliable data with stakeholders without the higher costs of an audit or review. - Supporting internal planning and budgeting
Clean and organized financial statements help business owners make smart decisions, growth plan, and track performance over time. - Preparing for future audits or reviews
Think of compilations as a foundation they get your financials in order so you are ready for more formal financial reporting down the road.
CPA Role and Professional Standards
Unlike audits or reviews, the CPA does not verify every detail or offer assurance. But that does not mean the role is casual; there are still professional standards in place to ensure the process is done right.
What the CPA Does
In a compilation, the Certified Public Accountant takes your financial data usually provided by your internal bookkeeping and transforms it into properly formatted financial statements. This includes:
- Income statements
- Balance sheets
- Cash flow statements
- Statements of equity or retained earnings
They do not audit or review the information. Instead, they rely on the data provided by management without verifying its accuracy. That’s why compiled statements are considered the lowest level of financial statement service but they’re still professional-grade documents.
Adherence to SSARS Guidelines
Even though a compilation does not involve assurance, it must follow strict professional standards. CPAs conducting compiled financial statements are required to comply with the Statements on Standards for Accounting and Review Services (SSARS), issued by the American Institute of Certified Public Accountants (AICPA).
- Is licensed and independent
- Has a basic understanding of your industry
- Prepares the statements according to GAAP or another applicable framework
- Includes a compilation report stating that no assurance is provided
Ethical and Legal Responsibility
While CPAs aren’t responsible for verifying your numbers, they do have ethical obligations. If something in your records seems incorrect or misleading, they are expected to raise the issue with management or even withdraw from the engagement if necessary.
Limitations and Considerations
While compiled financial statements are useful and affordable, it’s important to understand what they don’t offer so you can decide if they’re the right fit for your business or situation.
No Assurance Provided
This is the big one. A compiled financial statement does not come with any assurance from the CPA. That means the CPA is not confirming the numbers are accurate; they are simply putting your financial data into a structured format. So if you are hoping for verification or validation, a review or audit would be more appropriate.
Data Comes Directly From Management
The numbers in a compilation are based solely on what your internal team provides. The CPA does not investigate or analyze your records for errors, fraud, or compliance. If there are mistakes in your books, they may carry over into the final statements unnoticed.
Risk of Misinterpretation
There is a small risk that third parties might misinterpret a compilation as having the same credibility as an audit. That’s why it’s essential to include a clear disclosure stating that the financial statements have not been reviewed or audited.
Doesn’t Evaluate Internal Controls
A compilation also would not uncover internal issues, like weak accounting systems or inefficiencies in financial processes. It’s purely a presentation of numbers not an analysis or diagnosis of how your business is functioning financially.
When You Might Be Required to Submit Compiled Statements
There are many situations where you might need to submit compiled financial statements, even though they do not offer assurance. For small and mid-sized businesses, it’s quite common especially when dealing with third-party requirements.
For example, some lenders, investors, or business partners may ask for compiled statements to get a basic overview of your financial position before moving forward with funding or contracts. Certain licensing boards, such as those for contractors, or programs like the Small Business Administration (SBA) 8(a) program, might also require them as part of their documentation process.
In these cases, having your numbers compiled by an independent CPA adds a layer of formality and credibility that self-prepared statements simply cannot match. It’s a cost-effective way to meet compliance without going through the more rigorous and more expensive audit or review processes.
Benefits of Compiled Financial Statements
- Cost-effective solution: Compared to audits or reviews, compilations are much more affordable while still providing a structured financial overview.
- Faster turnaround: Since no assurance is required, the process is quicker, helping you meet tight deadlines or requests from lenders or partners.
- Professional presentation: Statements are prepared by a licensed CPA, which gives your numbers more credibility than if you prepared them in-house.
- Useful for external parties: Whether it’s for banks, investors, or licensing agencies, compiled statements can satisfy basic financial reporting requirements.
- Flexibility: Compilations can be tailored to your needs and still follow accounting principles like GAAP or IFRS.
- Supports business transparency: Even without assurance, providing formal statements shows you are committed to openness and financial responsibility.
Frequently Asked Questions About Compiled Financial Statements
1. What is a compiled financial statement?
A compiled financial statement is a set of financial reports like income statements, balance sheets, and cash flow statements prepared by a CPA using information provided by a company’s management. Unlike audited or reviewed statements, compilations do not include assurance that the numbers are accurate.
2. Who can prepare compiled financial statements?
Only a licensed Certified Public Accountant (CPA) can officially prepare and issue compiled financial statements. They must follow the Statements on Standards for Accounting and Review Services (SSARS) issued by the AICPA.
3. Do compiled financial statements include footnotes?
They can. While footnotes aren’t required, management may request them to provide more context or clarity, especially if the statements will be shown to third parties like lenders or investors.
4. Are compiled financial statements GAAP-compliant?
They are generally expected to follow Generally Accepted Accounting Principles (GAAP) unless stated otherwise. The CPA will disclose any known departures from GAAP.
Conclusion:
Compiled financial statements offer a practical way for businesses to present their financial position without the complexity or cost of a full audit. While they don’t provide assurance, they still hold value for lenders, investors, and regulatory bodies especially when prepared by a qualified CPA.
If you are looking for a cost-effective, timely, and professionally presented way to share your finances, a compilation might be the right fit. Just remember: understanding your goals and the requirements of the requesting party will help you decide whether a compiled, reviewed, or audited statement is best.