Definition of Compilation
A compilation is usually part of an accounting firm's write-up service. With compilations, or compiled financial statements, the outside accountant converts the client's data into financial statements without providing any assurances or auditing services.
A compilation report should accompany the compiled financial statements to indicate that the financial statements 1) are the representation of the company's management, and 2) have not been reviewed or audited and therefore the accountant does not offer an opinion or any assurances on the financial statements.
Compilations allow companies without an accountant to have financial statements prepared by an outside professional without the higher cost of reviewed or audited financial statements.
Example of a Compilation
A company prepares its own monthly financial statements by using popular accounting software. However, as part of the company's loan agreement with its bank, the company must provide the bank with annual financial statements that have been compiled by a certified public accountant. (The bank does not require the borrower to incur the expense of a CPA's review or audit.)