Do you lack independence in a compilation engagement? If yes, then here’s how to disclose the impairment in the compilation report.
An accountant can issue a compilation report even though independence is lacking. When independence is impaired, SSARS 21 requires that the CPA modify the compilation report. The cause of the impairment (e.g., you own a portion of the business) can be disclosed in the compilation report but is not required. You can–if you prefer–simply say you are not independent; this is what most CPAs do.
The accountant’s compilation report can disclose a lack of independence as follows:
We are not independent with respect to ABC Company.
Just add this sentence separately at the bottom of the compilation report.
If you were not independent in 2016 but you are independent in 2017 (and comparative statements are presented), the accountant’s report can read:
As of and for the year ended December 31, 2016, we were not independent with respect to ABC Company.
Alternatively, the report can read:
As of and for the year ended December 31, 2016, we were not independent with respect to ABC Company. We are currently independent with respect to ABC Company.
CPAs must be independent to perform review engagements or audits. There are no exceptions. See the AICPA Code of Professional Conduct for guidance on independence issues. Independence rules are found in section 1.200.
CPAs can perform a Preparation of Financial Statement engagement without being independent. No independence disclosure is required since this service is a nonattest engagement.
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Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.
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