The new compilation engagements standard: key themes

Compilation engagements are one of the most frequent services offered by practitioners across Canada

Practitioners who perform compilation engagements will want to familiarize themselves with a new standard issued by the Auditing and Assurance Standards Board (AASB).

Canadian Standard on Related Services (CSRS) 4200 updates the requirements for accepting, conducting and reporting on compilation engagements. It differs from the previous standard in several respects; for example, it clarifies the scope of a compilation engagement (service rendered) and includes more specifics about the required work effort and documentation. The new standard is effective for compiled financial information for periods ending on or after December 14, 2021.

“For some practitioners, this will be a big change, so it’s important that they understand how the new standard impacts their current engagements,” says Svetlana Berger, CPA, an associate director for the Auditing and Assurance Standards Board (AASB) and lead behind the CSRS 4200 standard project. 

Here, experts explain the reasoning behind the new CSRS 4200 and some of the main differences when compared with the previous standard. (Plus, see our sidebar below about the new quality management standards coming into effect for related services engagements as of December 15, 2023.)

WHY UPDATES WERE NEEDED

As Berger points out, the previous section 9200 had been in place for almost 35 years, so there was naturally a need to reassess its relevance. And after consulting extensively with stakeholders, including practitioners, and end users such as loan officers, the AASB determined that the standard was outdated for the current environment. 

“It didn’t entirely meet the needs of stakeholders,” says Berger. “That was the driver for us.”

• Resources: Compilation engagements: Resources to help you get ready
• Resources: New compilation standard: Guidance resources 

KNOWING WHEN A COMPILATION ENGAGEMENT IS REQUIRED

Under the new standard, determining whether a compilation engagement is required will depend on your client’s needs and the service rendered. 

“Compilation engagements are one of the most frequent services offered by practitioners across Canada. We have a lot of smaller practices and sole practitioners who spend a great portion of their time dealing with this type of engagement,” says Michael Frankel, FCPA, auditor, former chair of the AASB’s compilation engagements task force and former AASB member.

“If you provide a great amount of assistance to a client, there's always the chance that the scope or nature of services could expand,” Frankel says. “In these cases, you need to talk about the relationship and identify the individual services being provided, even if they are provided as a bundle.” 

Communication with management is ongoing throughout the engagement, adds Berger, starting with some questions about whether the compiled financial information is intended to be used by a third party to determine that conditions for accepting or continuing the engagement are met.

• Resources: New compilation standard: Practitioner alert

If, as a practitioner, you haven’t done so already, Berger notes, you should consider how the new standard impacts you. You should identify your current and potential compilation engagement clients and determine whether their engagements fall within the scope of the standard. Discuss with your clients why they require a compilation. If a compilation engagement is what they need, discuss aspects of the engagement that are new, such as the basis of accounting note that will be included in the compiled financial information and the new compilation engagement report. 

“When in discussion with your client, you may discover that they may not need a compilation engagement and would be happy with only a bookkeeping service or a tax service,” she says. “In that case, you don’t need to be in the compilation engagements standard as long as you are not issuing a communication.”

HOW REPORTING REQUIREMENTS HAVE CHANGED 

The well-known notice to reader (NTR) used for many years under the previous standard has been replaced by a new communication: a compilation engagement report.

The new compilation engagements report, explains Berger, has a similar message to an NTR in that the practitioner is expressing no assurance on the compiled financial information. However, the new report is different in that it provides more transparency about the respective responsibilities of the practitioner and management, and the nature and limitations of the engagement. 

“The report is more informative and insightful, providing the transparency users need to understand what a compilation engagement entails,” she says.

• Resources: Implementation tool for practitioners: Compilation engagements 

THIRD PARTY USE OF COMPILED FINANCIAL INFORMATION 

When the compiled financial information is intended to be used by a third party, such as current or potential lenders for borrowing purposes, a practitioner can accept or continue the engagement only when certain conditions are met. The third party must either be in a position to request and obtain further information from the entity or have agreed with management on the basis of accounting to be applied. If neither of these conditions are met, CSRS 4200 provides further conditions that must be met for the practitioner to accept or continue the engagement. 

• Resources: New compilation standard: Third-party briefing 

“Because most compiled financial information is prepared using a basis of accounting that is not GAAP, it may not be appropriate for all uses,” says Berger. “The new standard includes conditions for accepting or continuing an engagement when the compiled financial information is intended for third-party use. Practitioners would need to ask their clients some questions to determine whether these conditions are met.” 

Frankel adds that it all comes down to professional ethics. In other words, rather than turning a blind eye to third-party involvement, practitioners should proceed, ensuring that they have clearly communicated that the financial information presented has not been reviewed, audited and no form of assurance has been provided.

“Ethical requirements include professional judgement and skepticism and the overarching aspect of non-association with something that might be misleading,” he says. “The readers are cautioned with a communication that says we’ve presented the information in accordance with the standard [CSRS 4200].”