Which statement about a compilation engagement is correct?

Which statement about a compilation engagement is correct?

• A. It provides assurance that the financial statements conform to GAAP.
• B. It provides limited assurance that the financial statements conform to GAAP.
• C. It cannot provide any assurance about conformity to GAAP.
• D. It requires the CPA to verify every transaction.

Answer: (C)

In a compilation, the CPA simply assembles financial statements from information provided by management and does not test or verify the underlying data. Because no procedures are performed to obtain evidence or confirm accuracy, the engagement provides no assurance about whether the statements conform to GAAP. That’s why the statement describing that a compilation cannot provide any assurance is the best fit. Think of the other descriptions as reflecting different kinds of engagements: providing assurance that GAAP is followed would require an audit; limited assurance is what a review provides; and verifying every transaction is something an audit would entail. A compilation does none of those, so it does not offer assurance.

In a compilation, the CPA simply assembles financial statements from information provided by management and does not test or verify the underlying data. Because no procedures are performed to obtain evidence or confirm accuracy, the engagement provides no assurance about whether the statements conform to GAAP. That’s why the statement describing that a compilation cannot provide any assurance is the best fit.

Think of the other descriptions as reflecting different kinds of engagements: providing assurance that GAAP is followed would require an audit; limited assurance is what a review provides; and verifying every transaction is something an audit would entail. A compilation does none of those, so it does not offer assurance.