Compilation Engagements (ISRS 4410) for ACCA Advanced Audit and Assurance

Understand Compilation Engagements (ISRS 4410)

Key rules to remember

Level of assurance

Compilation = no assurance; review = limited assurance; audit = reasonable assurance

Only an audit and a review give assurance. A compilation is not an assurance engagement, so its report expresses no opinion or conclusion and must not use assurance wording such as 'true and fair' or 'nothing has come to our attention'.

Responsibility split

Management: the information, the records and the judgements and assumptions. Practitioner: compiling in line with ISRS 4410 and ethics.

Management's responsibility for the completeness and accuracy of the records and for the final information should be stated in the engagement letter and the report.

Core activities of the practitioner

Understand the entity and framework, then collect, classify and summarise, then read the result, then discuss with management, then report

The practitioner's expertise is accounting and financial reporting knowledge applied to management's data.

Content of the compilation report

Title, addressee, statement of what was compiled, management responsibility, practitioner responsibility, description of the engagement, statement of no assurance, date, practitioner details

Also include the applicable financial reporting framework and the basis of the information. The report says the engagement was performed in accordance with ISRS 4410 (Revised). Use a 'no opinion or conclusion' statement, not assurance wording.

How to solve Compilation Engagements (ISRS 4410) questions

1. 1Read the requirement and the scenario. Decide whether you must explain the engagement, compare it with a review or audit, or advise on a problem.
2. 2State the nature of the engagement: the practitioner uses accounting expertise to collect, classify and summarise information for management.
3. 3Say clearly that no assurance is provided. Link this to the fact that no opinion or conclusion is expressed and that the practitioner does not obtain evidence to support the information or perform assurance procedures.
4. 4Apply the ethical requirements: the fundamental principles apply to every compilation and independence is not required. The report refers to independence only if the practitioner is required to be independent or chooses to be. Otherwise it states that ethical requirements were complied with.
5. 5Cover the practical points from the scenario: engagement letter, understanding of the entity, reading the compiled information, and what to do if the records are incomplete or misleading.
6. 6Cover management's responsibility for the records and the information, and the effect on the report.
7. 7Conclude with the report: what it must say and what it must avoid, such as assurance wording.
8. 8Add commercial or professional skills points, for example the risk that users misread the work as assurance and how to reduce that risk.

Quickest way: Four-line compilation answer

Common mistakes in Compilation Engagements (ISRS 4410)

• Saying a compilation gives limited assurance.

  Students mix up compilations with reviews because both are below an audit.

  Fix: Remember that only an audit and a review give assurance. A compilation is not an assurance engagement and gives none. The report states that the practitioner has only compiled the information and expresses no audit opinion or review conclusion.

• Writing that independence is compulsory for a compilation.

  Students carry over audit rules.

  Fix: Say the fundamental ethical principles apply, but independence is not required. The report refers to independence only if the practitioner is required to be independent or chooses to be. Otherwise it states that ethical requirements were complied with.

• Using assurance wording in the report, such as 'true and fair' or 'nothing has come to our attention'.

  Students copy the structure of an audit or review report.

  Fix: Use wording that says the engagement was performed in accordance with ISRS 4410 (Revised), the information was compiled, and no audit opinion or review conclusion is expressed.

• Assuming the practitioner carries out tests of evidence.

  Students link all engagements with evidence gathering.

  Fix: Explain that the practitioner does not obtain evidence to support the information or perform assurance procedures. The practitioner does obtain an understanding of the entity and its records, applies accounting expertise, reads the compiled information and considers whether it appears appropriate in form and free from obvious material misstatement, without testing the records. Concerns found must be raised with management.

• Ignoring what happens when management refuses to correct misleading information.

  Students stop after describing the normal process.

  Fix: Discuss the matter with management and ask for correction. If management does not correct it, withdraw where law or regulation permits. If withdrawal is not possible, determine your professional and legal responsibilities, which may include not issuing the report.

• Forgetting that management remains responsible.

  Students assume the accountant takes over the preparation duty.

  Fix: State that management is responsible for the records, the judgements and the final information. Put this in the engagement letter and the report.

Worked examples