How to Prepare a Financial Statement Compilation
Financial statements are prepared by Certified Public Accountants (CPAs) at many different levels of service. Audited financial statements involve the most work on the part of the CPA as testing procedures are performed, the CPA needs an understanding of the company's internal control and there is a risk assessment performed. Reviewed financial statements have substantially less testing performed and do not require internal control or risk assessment procedures. Compiled financial statements simply require the CPA to take balance sheet and income statement information provided by management and prepare financial statements. No testing as to the accuracy of the information is performed or suggested by the CPA when compiling financial statements.
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Instructions
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1
Gather the information for balance sheet and income statement accounts as of the company's year end.
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2
Prepare the balance sheet. Report all assets and liabilities, and their respective values as of the last day of the company's year end. In the equity section of the balance sheet, report the value of common or preferred shares, any Treasury stock and last year's ending retained earnings.
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Prepare the income statement. Report all income earned. Itemize all expenses and record their respective values. Make sure all income and expenses reported include activity for the company's entire business year.
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4
Calculate the net income for the company's year end. Report this number on the income statement and in the equity section of the balance sheet. Total assets must equal the sum of total liabilities and total equity at year end. If they do not, check the current year's net income and the retained earnings for accuracy.
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Tips & Warnings
A statement of cash flow is not required for compiled financial statements.
This article was written under the assumption that the financial statements being compiled are being reported on the cash basis of accounting. If the accrual method of accounting is used by the company, adjustments may need to be made for items, such as accrued expenses and deferred taxes.
