A small construction company hands its CPA a year-end trial balance and asks for "a clean set of financials we can give the bank." The CPA is not engaged to audit, not engaged to review, not even engaged to confirm the receivables. The bank just wants statements assembled by a CPA with a report attached. That is a compilation engagement under AR-C 80. Get the report wording wrong, omit the lack-of-independence paragraph when it applies, or quietly correct a framework departure, and the practitioner has performed the wrong service.
HIGH-FREQUENCY: Statements on Standards for Accounting and Review Services No. 21 (SSARS 21), codified in AR-C 80, governs compilation engagements. The engagement applies when the practitioner is engaged to assist management in presenting financial statements and to issue a compilation report. The work can look mechanical. The practitioner takes management's records, formats them as financial statements, and attaches a report. What distinguishes compilation from preparation under AR-C 70 is the existence of the report.
Common mistakes
- Confusing compilation with review. A review under AR-C 90 requires inquiries and analytical procedures and provides limited (negative) assurance. A compilation under AR-C 80 requires no procedures designed to obtain evidence and provides no assurance. Answer choices that say the practitioner "performs limited inquiries" in a compilation are describing a review, not a compilation.
- Forgetting to disclose lack of independence. In a compilation, lack of independence must be disclosed in the report. Students confuse this with the AR-C 70 rule, where lack of independence is not disclosed. The directionality matters: preparation hides nothing because there is no report; compilation has a report and uses it to disclose.
- Correcting framework departures silently. A practitioner who quietly fixes a misstatement to make the statements conform to the framework has stepped outside AR-C 80. The required response is disclosure (in the notes or in a modified compilation report), not correction. If management refuses disclosure, withdrawal is the answer.
Bottom line
- AR-C 80 (SSARS 21) governs compilation engagements; the practitioner assists management in presenting financial statements without providing any assurance.
- Compilation is a nonattest service: no inquiries, no analytical procedures, no audit procedures, no opinion, no conclusion, no assurance.
- A signed engagement letter is required before work begins, addressing management's responsibility, the framework, the report commitment, and the no-assurance language.
- Independence is not required to compile, but if the practitioner is not independent, that fact must be disclosed in the compilation report.
Exam shortcut
When a fact pattern says the practitioner is engaged to "compile" financial statements and issue a report, you are in AR-C 80. When the fact pattern says "prepare" or "put together" with no report, you are in AR-C 70. Both are nonattest and provide no assurance. The report is the dividing line.
The full lesson (about 2,341 words, 16 min read) adds 1 worked example, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- IV.C2
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