Earlier this year, the Auditing and Assurance Standards Board (AASB) announced a new Canadian Standard on Related Services (CSRS). Known as CSRS 4200 compilation engagements, this new CSRS replaces:

• Compilation Engagements, Section 9200 or Notice to Reader
• Assurance and Related Services Guideline AuG-5, Compilation Engagements – Financial Statement Disclosures

CSRS 4200 includes new performance and reporting requirements.

When Does CSRS 4200 Come into Effect?

CSRS 4200 is effective for periods ending on or after December 14, 2021. This new standard replaces the Notice to Reader communications under Section 9200 Compilations Engagements. As of December 14, there will be a minimum level of documentation required from accountants.

Why is it Changing?

This change is needed because it hasn’t been revised for over 30 years. There are several issues that the AASB identified, including:

• Confusion on when to use Section 9200
• Lack of transparency about the responsibilities your accounting firm and the extent of the work performed
• Difficulty determining how the compiled financial information was prepared
• Lack of consistency when providing documentation with financial information
• No clarity about the basis of accounting applied in the prepared documentation

What is Changing?

Previously, under the Notice to Reader, a note was attached to financial statements stating that you have not conducted an audit on the enclosed information. Now, under the new CSRS 4200 Compilations of Engagement, a letter must be attached outlining which accounting basis you used and descriptions of your responsibilities alongside management’s responsibilities.

Let’s take a look at a more detailed breakdown of the changes:

Scope

The New CSRS 4200 clarifies which services are part of compilation engagements. There are new exclusions from the scope and adds clarification about when they apply.

Also, you are not required to complete a compilation of engagement report if asked to provide services that are not in the scope of CSRS 4200. For example, if you are performing bookkeeping services and preparing corporate tax returns, you do not have to complete a compilation engagement under CSRS 4200.

Engagement acceptance

Another change is before you accept a compilation engagement, you must understand the intended use of the financial information by management, and whether it is intended to be used by a third party. You must also get acknowledgement from management that it agrees with the basis of accounting that you plan on using in the preparation of the financial documents.

If the documentation is being used by a third party, management must find out if the third party:

• Is in a position to request and obtain further information
• Has agreed with management on the basis of accounting applied

A new engagement letter is needed, to outline acknowledgement from management as well as a description of the basis of accounting used in the financial compilation documents.

Description of basis of accounting

Under the new system it is required that the compiled financial information includes a note describing the basis of accounting applied in the preparation of the financial documentation. This will help the reader, or users, understand how the information was prepared. Common basis of accounting used in compilation engagements are:

• Cash
• Cash with selected accruals and accounting estimates
• Agreed upon basis in contract or other form of agreement established

If accruals and accounting estimates are used, the note needs to stipulate the accounting policies used to recognize and measure items in the financial documentation. The type of accounting used is decided by management.

Performing the engagement and documentation

Once all the terms are agreed to, and the engagement letter is written, the following needs to be completed:

• Collect Data: Obtain the necessary information related to your client’s business and operations, accounting systems, records, as well as the basis of accounting used.
• Sit Down with Management: Be sure that you have a discussion with management about accounting estimates and selecting an accounting policy so that they understand enough to accept responsibility.
• Prepare the Financial Information: Compile all the financial data from management, include the note that describes the basis of accounting and the various responsibilities associated with the documentation.
• Read Over Your Work: This is a good time to go over all the documentation you’ve compiled and consider whether or not the information does not appear misleading.
• Check-in With Management: Have discussions with management regarding any information that appears to be misleading and request any additional information.
• Obtain Acknowledgement of Responsibility: It is imperative that you get management to sign-off on responsibility for the information in the financial documents. CSRS doesn’t require that you do this through a letter, but through a new reporting system.
• Write a Note: Write a note outlining the work effort and how the requirements of CSRS 4200 have been met.

Reporting

With the introduction of the CSRS 4200 comes the introduction of a new form of report. This new report describes the responsibilities of management and yourself, as well as the nature of the scope of the documentation.

The Compilation of Engagement Report should begin addressing management. The first paragraph should include a reference to the note that discusses the basis of accounting used to prepare the financial documentation. And then go on to describe the responsibilities of management and your accounting firm.

You will also outline the level of assurance, like you did in the Notice to Reader, and conclude with the date you completed the engagement, including management’s acknowledgement of its responsibility for the final documentation.

Click here for CPA resources are the new compilation standard.

How QuickBooks is Helping You

During this transition to the Engagement Compilation, QuickBooks is providing a letter template for Compilation Engagement Report as well as a template for Notes to the Financial Statements for its professional accountants.

With Workpapers built-in to your QuickBooks Online Accountant software, there is no need to transfer files between tools to complete a compilation engagement. It’s a handy set of tools for streamlining your year-end. Your client’s data is already in QuickBooks so you are one click away from your year-end workflow. You can make adjustments, add attachments, notes, gifi mappings, and create custom financial statements, all without leaving QuickBooks Online Accountant.