Documentation of compilation – on one hand and then on the other

The discussion of documentation requirements for a compilation under SSARS 19 has an open-ended comment allowing wide lattitude on one hand and specific requirements on the other hand.

Paragraph 2.15 says the content and extent of documentation fora compilation depend on the specifics of the engagement, the technology used, the firm approach, and professional judgment.  That gives a lot of latitude.  That means you can determine the documentation based on your firm approach, the technology tools you choose, and what you believe is appropriate in the circumstances.

On the other hand…

SSARS 19 says the documentation should include a few specific items. Notice the use of that word should. Remember that says there is a presumptively mandatory requirement.

First, an engagement letter.  The purpose of an engagement letter is to document your understanding with your client. The goal is to make it clear what is going to be done and prevent misunderstandings.

So do you really, really have to get an engagement letter?  I talked about that here.   I still hear someone out there asking “do I really, really have to get an engagement letter for just a monthly comp?”  Okay, here’s the short answer: yeah, you gotta’ get one.  The only alternative is climbing a mountain to avoid a pond 2 inches deep .

Second, significant findings or issues should be in the documentation.  So what would be a significant finding or issue?  SSARS 19 indicates material adjustments to the financial statements would qualify along with what you did to address any such issues. 

Some specific examples that come to mind might be checking on the billings-in-excess/cost-in-excess calculation for a construction client when the trial balances show there are none, asking about temporarily restricted contributions and net assets for a nonprofit organization when the numbers haven’t changed since last quarter, or documenting why you believe you are still independent when you perform the depreciation calculations.

Third, communications about fraud or illegal acts that come to your attention should be documented.  SSARS 19 doesn’t say you have to look for such things. However, if fraud or illegal acts jump out at you, then you need to address them. 

What might jump out at you?  Oh, say after reading the financial statements you notice that there is no payroll tax expense or liability this quarter.  Asking a simple question about that anomaly produces the explanation that all of the office staff and managers were moved to independent contractor status this quarter. Oops. You may have an illegal act you need to talk about with the client and then document in your workpapers.  Again, you don’t have to go looking for fraud and illegal acts, but if something comes to your attention, you should document that in the workpapers.

On to the review requirements.

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.

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