The New Compilation Engagements Standard – How are you managing?

CSRS 4200, Compilation Engagements became effective for compiled financial information for periods ending on or after December 14, 2021, and the previous standard – Section 9200, Compilation Engagements, is now finally phased out.

Inspiration for this blog article came out of discussions with provincial practice inspectors on what they are seeing in their inspections of compilation engagements over the last several months. Reflecting on these inspection insights, this article shares a few practical reminders that may help practitioners effectively and efficiently apply CSRS 4200 by highlighting the following topics:

• Applicability of the new compilation engagements standard
• Aspects of the compilation engagement where care is needed
• Further changes coming for your practice

Throughout the blog, reference is made to the Practitioner's Implementation Tool. CPA Canada developed this comprehensive guide with a task force of practitioners to help you perform compilation engagements under CSRS 4200. The tool includes frequently asked questions and useful examples. 

APPLICABILITY OF THE NEW COMPILATION ENGAGEMENTS STANDARD

While CSRS 4200 has been effective for some time, inspection findings noted that some practitioners still compile financial information under Section 9200.  

Using Section 9200 is no longer permitted. CSRS 4200 differs substantially from Section 9200, which had been in place for almost 35 years. CSRS 4200 includes all the requirements and application material to perform a compilation engagement, including a brand-new compilation engagement report that replaced the old Notice to Reader communication. 

CSRS 4200 may have had a substantial impact on your practice. For example, if your client only needs a bookkeeping service or a tax service, CSRS 4200 clarifies that as long as you are not issuing a communication associated with your work, you are not in the compilation engagements standard. 

See Appendix A of the Practitioner’s Implementation Tool for a description of the significant differences between CSRS 4200 and Section 9200 and how they may affect your practice. 

PRACTITIONERS SHOULD TAKE CARE IN THE FOLLOWING AREAS:

1. Documenting the engagement acceptance or continuance

CSRS 4200 requires you to apply engagement acceptance and continuance considerations. To determine whether you can accept or continue the engagement, you need to ask your client:

• The intended use of compiled financial information, including whether it is intended to be used by a third party;
• If the compiled financial information is intended to be used by a third party, whether the third party is in a position to request or obtain further information from the entity, or has agreed with management on the basis of accounting expected to be applied in preparing the compiled financial information; and
• To provide their acknowledgment of the basis of accounting expected to be applied.   

Documentation of the intended use of the compiled financial information (and the conditions for acceptance if there is a third party) could be a brief written communication (e.g., paper or electronic) or an oral communication documented by you. What your client has told you about the intended use of the compiled financial information will be subsequently acknowledged in the engagement letter (or another suitable form of a written agreement).

Documentation of management’s acknowledgment of the basis of accounting expected to be applied in the preparation of the compiled financial information could be a brief written communication (e.g., paper or electronic) or an oral communication documented by you. Some aspects of the basis of accounting expected to be applied may change while you perform the engagement. Therefore, you will also obtain management’s acknowledgment that it has taken responsibility for the final version of the compiled financial information once the engagement is completed.

See the Practitioner’s Implementation Tool for a decision tree of the engagement acceptance or continuance process. Appendix D of the tool includes guidance on how you may document your communication with management.

2. Documenting the practitioner’s knowledge about the client entity 

While practitioners often obtain sufficient knowledge about the entity to perform their engagements, documenting your knowledge is required in CSRS 4200. Some specific items requiring documentation include:

• A description of the entity’s business, operations, accounting system and accounting records
• The basis of accounting applied and, where applicable, the accounting policies used in the preparation of the compiled financial information
• A reconciliation of the entity’s accounting records to the compiled financial information, including any adjusting journal entries or other amendments to the compiled financial information that you have agreed to with management during the engagement.

See the Practitioner’s Implementation Tool for an example of possible documentation in practice related to business operations, accounting systems and records. 

3. Disclosing the basis of accounting 

CSRS 4200 requires that a note be included in the compiled financial information describing the basis of accounting applied in preparing the compiled financial information. This note disclosure aims to assist users in understanding how the compiled financial information was prepared.

Examples of bases of accounting commonly encountered in compilation engagements include: 

• Cash basis of accounting
• Cash basis of accounting with selected accruals and accounting estimates
• Basis of accounting prescribed by a contract or other agreement established by a creditor or a regulator

See Appendix C of the Practitioner’s Implementation Tool for examples of descriptions of the basis of accounting in the notes to the compiled financial information.  

Inspection findings highlighted that some basis of accounting notes were misleading because they referred to accounting standards for private enterprises (ASPE) when they did not comply with all the requirements of that framework. It is important to remember that the description of the basis of accounting cannot:

• Imply full compliance with ASPE unless all recognition, measurement, presentation, and disclosure requirements are met or
• Contain imprecise qualifying or limiting language (e.g., the financial information complies substantially with ASPE). 

The understanding is that most of the compiled financial information is prepared using a basis of accounting substantially different from ASPE, as the compiled financial information would typically exclude a cash flow statement and notes. 

In fact, in the rare circumstances that the compiled financial information is to be prepared in accordance with a general-purpose framework like ASPE, CSRS 4200 suggests that you ask management to consider whether an audit engagement or a review engagement would better address users' needs. 

OTHER RESOURCES FOR COMPILATION ENGAGEMENTS

CPA Canada and the AASB have developed a specific landing page on each of their websites to house resources, which you can find here:

• New compilation standard: Guidance resources
• Compilation engagements: Resources to help you get ready

Some key resources to note include:

• Practitioner’s Pulse Webinar: This 1-hour practitioner’s pulse webinar features a panel of practitioners discussing how CSRS 4200 may impact their work and answering common implementation questions.
• Management Briefing: This briefing helps you discuss CSRS 4200 with management.
• Third-Party Briefing: This briefing helps third parties understand compilation engagements and other services available and informs them of the changes resulting from CSRS 4200.
• Video: Only have 5 minutes to understand the basics of CSRS 4200? Watch this video. 

Keep in mind that some of this guidance was developed before CSRS 4200 was effective, so it is written in that context.

KEEP THE CONVERSATION GOING

What other topics are being raised in your practice related to applying professional standards that we could consider addressing in a future blog? Share them here.

Disclaimer

The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.