Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Q: Are engagement letters absolutely, positively required for a compilation or review?

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Three answers, take your choice: short, smart alack, or technical. 

Short answer:  Yes. 

Smart alack answer:  Well, not absolutely positively.  However, if you don’t get an engagement letter for a compilation or review you had better:

  • have a really, really, really good reason for not having one, and
  • have that reason documented in writing in your workpapers, and
  • document in the workpapers your understanding with the client for the services to be provided in the engagement, and
  • documents in the workpapers why you are sure there’s no misunderstanding between you and your client.

Did you see how high a hurdle you have to clear in order to not have an engagement letter? If you’re going to do all that, you may as well get an engagement letter. 

Technical answer:  Under SSARS 19 the documentation for a compilation and review should include an engagement letter. Notice the word should? That is a loaded term in the SSARS literature. See my post on unconditional and presumptively mandatory requirements.

When the word should appears, it identifies a presumptively mandatory requirement. That means compliance is required anytime the situation exists which is covered by that requirement. The only exception is when the workpapers document the reason for the departure and how alternative procedures have accomplished the same objective. The purpose of an engagement letter is to make it clear what services will be provided during the engagement and to make sure that there is no misunderstanding with the client.  A written engagement letter accomplishes that purpose quite nicely.

If the CPA chooses to not get an engagement letter, then what is absolutely, positively required? My answer at the beginning of this post is only slightly tongue-in-cheek. Without a written engagement letter a CPA must document in the workpapers the reason for not doing so. The workpapers must also address how the objectives of that requirement were met. Specifically, the workpapers would need to explain what the understanding was with the client and how the CPA is sure that the client understands.

On a very practical basis, it would take less paper, less of the accountant’s time, less of  the client’s time, and less travel time to the client’s office (for that in-person meeting to explain the engagement and to make sure you were heard correctly), than it would to get the engagement letter. So I guess we are back to the short answer: yes, an engagement letter is required.

Update:  I have written a 3-hour online CPE course called Compilation and Review: Practice Issues (Third Edition) available at the CCH Learning Center website. From the course description:

This course was prepared to enable participants who are experienced accountants to improve their knowledge of the issues affecting their compilation and review practices.

Course discussed in more detail at this post.

Written by Jim Ulvog

January 18, 2011, 17:09 pm at 5:09 pm

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