Illustrative Engagement Letter for a Compilation Engagement by ICAI
Engagement Letter for a Compilation Engagement
The following is an example of an engagement letter for a compilation engagement that illustrates the relevant requirements and guidance contained in this SRS. This letter is not authoritative but is intended only to be a guide that may be used in conjunction with the considerations outlined in this SRS. It will need to be adapted according to the requirements and circumstances of individual compilation engagements. It is drafted to refer to the compilation of financial statements for a single reporting period and would require adaptation if intended or expected to apply to a recurring engagement as described in this SRS. It may be appropriate to seek legal advice that any proposed letter is suitable.
This engagement letter illustrates the following circumstances:
• The financial statements are to be compiled for sole use by the management of a company (ABC Company), and use of the financial statements will be restricted to management. Use and distribution of the practitioner’s report is also restricted to management.
• The compiled financial statements will comprise only the balance sheet of the company as at March 31, 20XX and the Statement of Profit and Loss for the year then ended, without notes. Management has determined that the financial statements be prepared on an accrual basis as described.
*** To the Management22 of ABC Company:
[The objective and scope of the compilation engagement]
You have requested that we provide the following services:
On the basis of information that you will provide, we will assist you in the preparation and presentation of the following financial statements for ABC Company: the balance sheet of ABC Company as at March 31, 20XX and the Statement of Profit and Loss for the year then ended These financial statements will not include explanatory notes, other than a note describing the basis of accounting as set out in this engagement letter. The purpose for which the financial statements will be used is to provide full-year financial information showing the entity’s financial position at the financial reporting date of March 31, 20XX and financial performance for the year then ended. The financial statements will be solely for your use, and will not be distributed to other parties.
A compilation engagement involves applying expertise in accounting and financial reporting to assist you in the preparation and presentation of financial information. Since a compilation engagement is not an assurance engagement, we are not required to verify the accuracy or completeness of the information you provide to us for the compilation engagement, or otherwise to gather evidence to express an audit opinion or a review conclusion. Accordingly, we will not express an audit opinion or a review conclusion on whether the financial statements are prepared in accordance with the basis of accounting you have specified, as described above. We will perform the compilation engagement in accordance with the Standard on Related Services (SRS) 4410 (Revised), Compilation Engagements. SRS 4410 (Revised) requires that, in undertaking this engagement, we comply with relevant ethical requirements. For that purpose, we are required to comply with the ICAI’s Code of Ethics
The compilation engagement to be performed is conducted on the basis that you acknowledge and understand that our role is to assist you in the preparation and presentation of the financial statements in accordance with the financial reporting framework you have adopted for the financial statements. Accordingly, you have the following overall responsibilities that are fundamental to our undertaking the compilation engagement in accordance with SRS 4410 (Revised):
(a) Responsibility for the financial statements and the preparation and presentation thereof in accordance with a financial reporting framework that is acceptable in view of the intended use of the financial statements and the intended users.
(b) Responsibility for the design, implementation and maintenance of such internal control as you determine is necessary to enable the Annexure 4 : SRS 4410 A-65 preparation of financial statements that are free from material misstatement, whether due to fraud or error.
(c) Responsibility for the accuracy and completeness of the records, documents, explanations and other information you provide to us for the purpose of compiling the financial statements.
(d) Responsibility for the judgments needed in the preparation and presentation of the financial statements, including those for which we may provide assistance in the course of the compilation engagement.
Our Compilation Report
As part of our engagement, we will issue our report attached to the financial statements compiled by us, which will describe the financial statements, and the work we performed for this compilation engagement [see attached]. The report will also note that the use of the financial statements is restricted to the purpose set out in this engagement letter, and that use and distribution of our report provided for the compilation engagement is restricted to you, as the management of ABC Company. Please sign and return the attached copy of this letter to indicate your acknowledgement of, and agreement with, the arrangements for our engagement to compile the financial statements described herein, and our respective responsibilities. [Other relevant information] [Insert other information, such as fee arrangements, billings and other specific terms, as appropriate.] XYZ & Co. Acknowledged and agreed on behalf of the management of ABC Company by (signed) …………………. Name and Title Date