Changes to the Rules of Financial Information Compilation Engagements

The IAASB on October 28, 2010 released for public comment the exposure draft of Proposed International Standard on Related Services (ISRS) 4410, Compilation Engagements as the revision of the extant ISRS 4410, Engagements to Compile Financial Statements.

Within the Explanatory Memorandum of the ED, the IAASB noted that it believes the proposed ISRS will help practitioners performing compilation engagements around the world converge on use of a globally accepted benchmark for such engagements.

There are several key principles within the revision of ISRS 4410 which underlying the financial information compilation engagement :

1. Clearly distinguishable from audits and reviews of financial statements (that is, assurance engagements)
2. Meaningful for users, in context of the benefit delivered from application of professional expertise in accounting and financial reporting, and compliance with relevant professional standards and ethical principles
3. Able to be performed on a cost-effective basis

The proposed ISRS 4410 makes clear that the procedures employed in a compilation engagement are not designed, and do not enable the practitioner, to express any assurance on the financial information. It explains, however, that users of the compiled financial information derive benefit from application of the practitioner’s expertise in accounting and financial reporting and compliance with professional standards, including delivering the service in accordance with the ethical principles of integrity, objectivity, professional competence and due care.

The proposed engagement standard has also been developed to be capable of being used on a stand-alone basis for engagement performance purposes, without the need for practitioners to refer to the International Standards on Auditing (ISAs) or the review engagement standards. This recognizes that practitioners who regularly undertake compilations in their professional practices may not necessarily perform assurance engagements, and therefore may not maintain up-to-date familiarity with developments in assurance standards.

Within the Scope of Proposed ISRS 4410, the IAASB emphasized the importance to obtain respondents’ views on the intended scope of proposed ISRS 4410, which is different from the scope of extant ISRS 4410.

It said that the practitioners can have many different forms of involvement in compiling information in different situations to meet various types of needs. Practitioners may also provide a variety of communications in the course of providing various types of services commonly referred to as “accounting services.” The IAASB determined that the focus of proposed ISRS 4410, however should be on where the practitioner compiles historical financial information using the applicable financial reporting framework specified in the terms of the compilation engagement. This is the most common context for compilation engagements encountered in practice, and is the most relevant to a broad range of users of historical financial information, in particular in the SME sector.

Accordingly, the IAASB determined that proposed ISRS should be focused to apply in the following circumstances :

1. When the practitioner is engaged to compile historical financial information in accordance with the proposal ISRS; and
2. Where the practitioner provides a report for the engagement in accordance with the requirements of the proposed ISRS.

Proposed ISRS 4410 is premised on the basis that a firm providing compilation engagements under the standard is required to apply, or has applied, ISQC 1 or requirement that are at least as demanding.

The proposed ISRS also requires the practitioner to determine, at the time of accepting the engagement, that the applicable financial reporting framework to be used for the compilation is acceptable, in the practitioner’s judgment, in view of the intended use of the financial information and the intended users. The practitioner cannot accept an engagement under the proposed ISRS if this overall test is not met (see Proposed ISRS 4400 (revised), paragraph 23(b)).

Read further the publication of ED ISRS 4410 from the IFAC Press Center : IAASB Addresses Compilation Engagements; Exposes Enhanced Standard