Preparing for the new standard on compilation engagements

The new Canadian Standard on Related Services (CSRS) 4200, Compilation Engagements, comes into effect this year, with potentially significant impacts for practitioners. Here are some resources to help you understand the changes and get started.

The much-anticipated new CSRS 4200, Compilation Engagements, was issued in February 2020, replacing Section 9200, Compilation Engagements. It updates and strengthens the requirements and guidance for accepting, conducting and reporting on compilation engagements.

Although the standard was issued a year ago, the COVID-19 pandemic forced many to pivot and re-prioritize to navigate challenges. However, with the new standard coming into effect this year, the time to act is now. The revisions will be a substantial change in practice for many practitioners, so it is important you take appropriate actions to prepare. You may be asking yourself, where do I begin? Below are some helpful tips on getting started and where you can find excellent resources to assist you with the implementation.

As you start familiarizing yourself with the new standard and considering how it may impact your current engagements, we want to hear from you. We are interested in questions that you may have about the application of the new standard as we consider whether additional implementation resources may need to be developed. Our contact information is included at the end of this blog.

Where to begin?

Since the new standard was issued, CPA Canada and the Auditing and Assurance Standards Board (AASB) have been hard at work in developing resources aimed at promoting awareness, understanding, and effective implementation of the new standard. Here is what you can start doing immediately:

1. Check out our free guidance materials:

Once you have familiarized yourself with the new standard, be sure to:

  • consider how the new standard impacts your current engagements
  • talk to your clients about the potential impact to them
  • start implementing the new standard and consider what questions practitioners have asked so far

To help you get started we have put together some key pieces of information below.

2. Consider how the new standard impacts your current engagements

Key features and changes in the standard to consider:

Effective date: Start planning in 2021

CSRS 4200 is effective for compiled financial information for periods ending on or after December 14, 2021. Earlier application of CSRS 4200 is permitted – so if you want to start implementing earlier, you can do so. Do not wait until the effective date to start considering the implications of the new standard on your current engagements – the time to act is now.

Engagement acceptance or continuance conditions: Inquire of management about the intended use of the compiled financial information

CSRS 4200 includes specific engagement acceptance or continuance conditions that apply when the compiled financial information is intended to be used by a third party. When the conditions are not met, the practitioner is required to not accept the engagement, unless the basis of accounting to be applied in the preparation of the compiled financial information is a general-purpose framework. Our Practitioner’s Implementation Tool includes a decision tree to help you in the engagement acceptance (or continuance) decision.

Scope: Revisit the services you currently provide

CSRS 4200 clarifies what services are compilation engagements. The services excluded from the new standard are more extensive than those in Section 9200. This means that some services you performed under Section 9200 may not need to be performed under CSRS 4200. For example, the new standard distinguishes a bookkeeping service from a compilation engagement. With the old standard, practitioners found it difficult to distinguish between the two services and may have provided a compilation engagement when the client only required a bookkeeping service. Such a service is excluded from the scope of the standard if no communication is included or attached to it. We have issued a Practitioner Alert and Practitioner’s Implementation Tool which will help you identify services that are not included in scope of CSRS 4200. Our Practitioner’s Pulse Webinar (July 2020) also includes a discussion on scope which you may find helpful.

Understanding whether your engagement falls within scope of CSRS 4200 is the key question for many practitioners. The implementation of the new standard provides a great opportunity for you to have a conversation with your client about their needs and the services you can provide (e.g. bookkeeping, tax, compilations). You may find out that your client needs bookkeeping and tax services, and not a compiled financial information with compilation engagement report.

Basis of accounting note: Work with your client to select the basis of accounting and the note

CSRS 4200 requires that the compiled financial information include a note describing the basis of accounting applied in the preparation of the compiled financial information. This may be one of the most significant changes in practice. The purpose of describing the basis of accounting is to help users understand how the compiled financial information was prepared. Our aforementioned Practitioner’s Implementation Tool includes examples of different bases of accounting notes. Since management may not have the necessary knowledge, you may help them select the basis of accounting; however, management is responsible for the compiled financial information and selection of the basis of accounting.

Work effort and documentation: Reassess your existing work effort and documentation practices

CSRS 4200 establishes the minimum work effort and documentation requirements. The change in practice will vary among practitioners, depending on your existing work effort and documentation. For some practitioners there may be little change as they are already preparing documentation that will meet the requirements of CSRS 4200. For others, the change may be significant as they may need to revise their work effort and documentation practices to comply with the new standard. This is why it is important to start considering how the new standard will impact your current engagements now. Our Practitioner’s Implementation Tool helps walk you through the process of compiling financial information and the related work effort and documentation requirements. It also provides an example extract of possible documentation related to business operations, accounting systems and records for a simple entity.

A new compilation engagement report: Understand the significant changes to the new report from the Notice to Reader

CSRS 4200 requires a new form of report that clearly describes the responsibilities of management and the practitioner as well as the nature and scope of the engagement. It is important to note that financial information excluded from the scope of the standard will have no practitioner’s communication included or attached. If the practitioner decides, or is requested, to issue a communication on such financial information, the only appropriate form of communication is a compilation engagement report, which means that all the requirements of CSRS 4200 will apply.

3. Talk to your clients about the potential impact to them

A question that practitioners have asked is: How will my existing compilation engagements change as a result of the scope of the new standard? This question can only be answered through discussions with your client and by understanding their needs. Our Management Briefing is meant to help facilitate your discussions with management when understanding their needs and help them understand the impact of the new standard on them.

Throughout the engagement, you will find many discussions points with management in the Management Briefing, including those related to the:

  • intended use of financial information and whether it is intended to be used by a third party
  • new compilation engagement report and the basis of accounting note included in the compiled financial information
  • acknowledgement from management for responsibility for the final financial information, at the end of the engagement

Your client may also need to have discussions with relevant third parties before they can understand what type of service they require. In such cases, We have also prepared a Third-Party Briefing to help facilitate discussions between management and third parties. Lastly, the Practitioner’s Implementation Tool also includes a useful appendix for reference that summarizes required communication with management and others.

4. Start implementing the new standard and consider what questions practitioners have asked so far

Our Practitioner’s Implementation Tool includes practical information that can help you as you begin to implement the new standard. For example, the implementation tool includes a one-page diagram summarizing the components of a compilation engagement. Along with detailed information on areas described above, and others such as differences between CSRS 4200 and Section 9200, the tool also includes many FAQs. The FAQs in the implementation tool are based on questions received from practitioners in developing the new standard and address such themes as:

  • how much knowledge you need in performing a compilation engagement
  • understanding what engagements are in scope of the new standard
  • practical questions on preparing the compilation engagement report

Make sure to check out the Implementation Tool for a full listing of FAQs.

5. Get additional resources on compilation engagements

Ready to dive into the details? CPA Canada and the AASB have webpages dedicated to compilation engagements resources. Check out our resource page and the AASB compilation engagements resource page, for more information.

We also provide additional resources such as templates, letters and reports, along with comprehensive step-by-step guidance in two of our publications: Professional Engagement Guide (PEG) and Practice management, advisory, compilations and tax guide (PACT). The PACT, new this year, also offers various tax templates and resources on advisory and practice management topics.

Lastly, practitioners can also find learning and development courses related to the new standard through their respective provincial bodies.

Keep the conversation going

Have you begun to implement the new compilation engagements standard? What other questions do you have about the standard and its implementation? We are very interested in hearing your questions and will consider addressing them in future guidance or updates to guidance. Post a comment below or email us directly.

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The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.

About the Author

Yasmine Hakimpour, CPA, CA

Principal, Audit & Assurance, Research, Guidance and Support
Yasmine Hakimpour, CPA, CA, is a Chartered Professional Accountant (CPA) and a Principal for Audit & Assurance within the Research, Guidance and Support Group at CPA Canada. Yasmine is responsible for conducting research, developing thought leadership, and delivering timely and relevant resources on current and emerging issues, including audit quality, audit and assurance standards, innovation and technology.