Compilation Reporting A banker friend and you were discussing compiled financial statements. He said," When CPAs associate their name with compiled financial statements, their only responsibility is to the client and that is limited to the proper

summarization and presentation on the financial statement information provided by the client. The opinion clearly states that the auditor has not conducted an audit and does not express an opinion on this fair presentation. Therefore, if users rely on compiled financial statements, they do so at their own peril and can never hold the CPA responsible for inadequate performance. Users should interpret the financial statements as if they had been prepared by management.". REQUIRED: How would you respond to your friend?

The accountant is responsible for the care in the preparation of compiled financial statements. As such, the accountant must perform the following steps with due care:
< Know something about the accounting principles and practices of the client's industry.
< Know the client, the nature of its business transactions, accounting records and employees, and the basis, form, and content of the financial statements.
< Make inquiries to determine if the client's information is satisfactory.
< Read the compiled financial statements and be alert for any obvious omissions or errors in arithmetic and generally accepted accounting principles.
< Disclose in the report any omissions or departures from generally accepted accounting principles of which the accountant is aware. This requirement does not apply to a compilation that omits substantially all disclosures.
Therefore, the report must also be properly prepared and reflect the findings of the accountant. Users other than management are not prohibited from using compiled financial statements. They can expect the accountant to meet the standards set by the profession.
The courts have not established the responsibilities of accountants for compilations. Presumably, the responsibilities should be far less than for audits and somewhat less than for reviews. Responsibilities exist, but the level has yet to be finalized in the opinion of the courts.