Compilation engagements under ISRS 4410
What a compilation under ISRS 4410 (Revised) involves, what the practitioner does and does not do, and what the compilation report tells its reader.
By Achekam · · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
A bank manager reads a set of annual financial statements with a report on the first page signed by a chartered accountant, and assumes someone has checked the numbers. If the engagement was a compilation, nobody has, and the report says so. The trouble is that many compilation reports in circulation do not say it clearly, and many engagement letters behind them do not either.
ISRS 4410 (Revised), Compilation Engagements, exists to make the practitioner's role plain to everyone: the client, the practitioner's own staff and the people who read the statements. It sits behind many of the statements small firms put their name to, and it rewards being read properly.
What a compilation is, and what it is not
In a compilation, the practitioner applies accounting and financial reporting expertise to help management prepare and present financial information in accordance with an applicable financial reporting framework, using the records, documents and explanations management provides. The practitioner then reports on that work.
A compilation is not an assurance engagement. The practitioner does not verify the information, does not test it and does not express an audit opinion or a review conclusion. That is the line the report must draw.
Two distinctions are worth making explicit with clients:
- Compilation versus review. An independent review under ISRE 2400 (Revised) gives limited assurance based on inquiry and analytical procedures. A compilation gives none.
- Compiled independently versus internally. In South Africa this can matter for the audit requirement itself: under Companies Regulation 28, a company with a public interest score of 350 or more must be audited, and so must one scoring 100 or more whose financial statements were compiled internally.
Agreeing terms in the engagement letter
ISRS 4410 (Revised) requires the terms to be agreed in an engagement letter or other suitable written agreement before work starts, covering:
- the intended use and distribution of the financial information, and any restrictions;
- the applicable financial reporting framework;
- the objective and scope of the engagement;
- the practitioner's responsibilities, including compliance with relevant ethical requirements;
- management's responsibilities for the financial information, for the accuracy and completeness of the records, documents and explanations it provides, and for the judgements needed in preparing the information;
- the expected form and content of the practitioner's report.
In Achekam, AI can draft an engagement letter's clauses, never its fees, and a person saves the draft. Achekam will not send a letter whose wording breaks the professional guardrails. Read the AI's draft against the list above; a letter that omits management's responsibility for the completeness of the records will cause trouble the first time a compiled balance turns out to be wrong.
Work the practitioner does, and does not do
The practitioner must understand the entity's business and operations, including its accounting system and records, and the framework and how it applies in the industry. The practitioner compiles the information, discusses with management the significant judgements the practitioner helped with, and, before finishing, reads the compiled information in the light of that understanding.
What the practitioner does not do is just as important. There is no requirement to confirm balances, inspect assets, count inventory or test controls. Doing some of that informally and then describing the engagement as a compilation confuses the reader and the file. If the client needs assurance, it needs a different engagement.
Significant matters to raise with management
A compilation still has teeth. If, during the work, the practitioner becomes aware that the records or information provided are incomplete, inaccurate or otherwise unsatisfactory, the practitioner brings this to management's attention and asks for more or corrected information. If management does not provide it and the engagement cannot be completed, the practitioner withdraws and tells management and those charged with governance why.
Likewise, if the compiled information does not adequately describe the framework, needs amendment so that it is not materially misstated, or is otherwise misleading, the practitioner proposes amendments. If management refuses, the practitioner withdraws.
A worked example in words: the client's trial balance shows a large loan from a director with no interest and no terms, and the client wants it presented as equity. The practitioner explains what the framework requires, proposes presenting it as a liability with the related-party disclosure, and records the discussion. If the client insists on a presentation the practitioner considers misleading, the standard points to withdrawal, not to a report with a quiet caveat.
Before the report is issued, management acknowledges that it has taken responsibility for the final version of the compiled information.
The compilation report and its wording
The compilation report states that the practitioner compiled the information based on information provided by management, describes management's responsibilities, identifies the framework and the information compiled, describes the practitioner's responsibilities and the engagement's performance under ISRS 4410 (Revised), and explains that because a compilation is not an assurance engagement, the practitioner is not required to verify the accuracy or completeness of the information and expresses no audit opinion or review conclusion.
In Achekam, staff choose the engagement type when creating an engagement, such as annual financial statements compilation, independent review or statutory audit, and a firm can add its own named types. From a mapped trial balance, the Studio builds a draft set of statements, and the practitioner's report follows the level chosen: audit, independent review, compilation or none. Where another firm's officer compiles the firm's prepared statements under ISRS 4410 (Revised), or acts as accounting officer and signs them, the statements are issued only in the version that officer released; see external officer sign-off. How the report changes with each level is set out in the practitioner's report by engagement level.
Working-paper packs for compilations
ISRS 4410 (Revised) requires documentation of significant matters and how they were resolved, a record of how the compiled information reconciles with the underlying records, and a copy of the final compiled information with management's acknowledgement and the report.
Achekam ships working-paper template packs written in its own words, including packs for ISRS 4410, which a firm adopts and approves. The catalogue is marked unapproved platform content until the firm adopts it, and whether it has been installed on a particular deployment should be confirmed in the Methodology Library. On each work item, a step is marked done only with a written response and its documents, or set aside with a reason; steps are never deleted. The reconciliation of the compiled statements to the trial balance belongs there, with the evidence.
IFAC's article on ISRS 4410 as the standard for today's compilation engagements explains why compilations matter to small practices as more small entities become exempt from audit, and how the standard is structured.
Before the next compilation season
Read your firm's standard compilation report and engagement letter side by side with the standard. If a bank manager could still mistake the report for assurance, change the wording before the first set goes out.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
