Many of you are quite happy with the compilation standards in place today.

The existing standard on compilation engagements was issued in 1987. While it might have been a revolutionary standard in its day, time has come to make this area of practice more relevant to the needs of users in the current day and age.

In October 2019, more than eight years after the project was initiated, the Auditing and Assurance Standards Board (AASB) approved a new standard: the Canadian Standard on Related Services (CSRS) 4200, Compilation Engagements. This replaced Section 9200 with the same name, as well as Assurance and Related Service Guideline (AuG) 5, Compilation Engagements – Financial Statement Disclosures. CSRS 4200 was included in the CPA Canada Handbook in February 2020 and is effective for compiled financial information for periods ending on or after Dec. 14, 2021, with early application permitted.

The new standard does not apply to future-oriented financial information, to which AuG-16 Compilation of a Financial Forecast or Projection continues to apply. Practically speaking, the standard would be first applied to clients with a year-end on Dec. 31, 2021, with the majority of the work being done in January to June 2022. While this is many months away, the potential impact of applying CSRS 4200 could be significant to your practice, so we need to start now.

Historically, we have attached a Notice to Reader (NTR) report to compiled financial information (usually as a part of our corporate tax services), even when management may not have requested it, sometimes without considering third-party users. Under CSRS 4200, this practice may change. Under the new standard, certain engagements may not meet the definition of a compilation engagement and will not require us to attach a Compilation Engagement Report (CER). Some examples of scope exclusions are when acting as a trustee or management, when providing bookkeeping or tax services and where another practitioner would perform an audit or review on the financial information. Having said that, there is always a choice to complete an engagement under CSRS 4200, even if the proposed engagement is listed as an exclusion. 

We have a strategic decision to make about the nature of our practice. In addition to engaging with our clients and finding out what services they need or want from us, we need to determine our own strategy for our NTR clients. It may be that we continue to provide multiple service lines to this important group of clients or we may try to make the services we offer more homogeneous. Maybe we will decide on an advisory practice that deals only with engagements excluded from CSRS 4200 or maybe our practice will also undertake compilation engagements. What we do not want to do, is ignore the opportunity to take stock of our clients’ needs, the external users’ needs and how we want to run our practice. Another consideration in your strategic plan may be the upcoming changes to the quality control standards – Canadian Standard on Quality Management (CSQM) (formerly Canadian Standard on Quality Control) 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements or Other Assurance or Related Services Engagements – which includes compilation engagements within its scope.  Our practices will need to be in compliance with the new standard by Dec. 15, 2022. Compilation-only practices will be permitted a delayed adoption of CSQM 1.

Wherever a compilation engagement is performed, we need a plan. To ensure a successful implementation, we need to start the transition efforts with our December 2020 year-ends. But before we discuss what a successful implementation may look like, let us look at the key changes.

Overview of changes

CSRS 4200 is a more evolved standard that includes requirements for accepting, conducting and reporting on compilation engagements, with guidance that is missing from the existing standard.

Clarified scope and engagement acceptance

The scope of the standard and the acceptance considerations have been clarified:

• Engagements excluded from the scope of CSRS 4200 do not require a communication attached to the financial information. If you or your client decide that the compilation engagement is still desired, you will need to comply with CSRS 4200.
   
• There are more engagement acceptance considerations that apply when the compiled financial information is intended to be used by a third party.

Required work effort and documentation

CSRS 4200 establishes the minimum work effort and minimum documentation requirements. How this will impact your working paper files will depend on your current practice, which often exceeds the minimum work effort and documentation requirements under the current standards. However, implementation of this new standard will likely result in a change in the work effort and documentation required for compliance with CSRS 4200.

Basis of accounting

A note describing the basis of accounting applied in preparation of the compiled information is an integral part of the financial information. Management must acknowledge this basis of accounting, and this can be tricky with some clients. What is the desired basis of accounting? The basis of accounting has rarely been discussed, and articulating this may be more complex than you realize. Budget some time for this discussion.

Reporting

In many ways, the new CER follows the layout and structure of the review engagement report. It is longer than our current NTR report, describing our role and that of management. Some feel it provides more insight into the nature of the engagement.

Implementation plan for CSRS 4200

While the plan laid out below can be reordered and restructured, the important thing is to have a plan. The plan is included in a table format (Appendix 1) for you to complete as you proceed through your implementation journey.

1. Reviewing the standard

The bad news is there’s no substitute for reading the standard. The good news is CSRS 4200 is quite condensed and well laid out. The best news possible is there’s a wealth of guidance available from CPA Canada. Resources available from CPA Canada are listed in Appendix 2.

2. Taking inventory

We will need to revisit our client lists and the services we currently provide, engaging our clients in up front discussions on what these engagements may look like in the CSRS 4200 world. We should reconsider the need to issue a CER where there are no external users of the compiled financial statements (i.e., banks, other lenders, bonding companies, minority shareholders, members of not-for-profit organizations, etc.). “This is what we have always done” will not be a good enough reason to continue issuing engagement reports on compiled financial information. 

3. Determining fee structure and discussing with your clients

An evaluation of service needed and the level of fees the client is willing to pay needs to be discussed. If you move your current NTR engagements to a CSRS 4200, will your current fee be sufficient to cover the additional work required? When your strategy for implementation is formulated and you approach clients, be organized and include possible changes to fee structure. Communication is key and it should take place at the outset.

4. Communication with clients

CPA Canada has issued a briefing intended for your clients. A customized letter addressed to your clients with a copy of the attached Client Briefing will surely initiate a discussion. This communication can be sent at any time, but some suggestions include:

• When sending information requests for December 2020 year-ends – This will allow sufficient time to understand and formulate the nature of the engagement for next year. If an engagement under CSRS 4200 is contemplated, the formulation of the basis of accounting can start.
• During your 2020 closing meetings or concurrent with issuance of the very last NTRs (nostalgia!) – This will allow you to be better prepared for the discussion, as the nature of the services currently provided will be fresh in your mind.
• Attached to your invoice for 2020 – This will surely catch your clients’ attention especially if it outlines the 2021 fee structure.
• At any time in between.

Sending a letter after you have reviewed your client list and revisited the fee structure will allow you to determine the engagement fee for December 2021 (and later) year-ends. This will give your clients an opportunity to understand – and come to terms with – these changes. You may also consider sending revised engagement letters to your clients for 2021 year-ends as part of your 2020 packages.

5. Communicating with others

While we should not contact the users of our clients’ financial information during our engagements – lest we be seen as advocating for them – it can be useful to send the third-party briefing published by CPA Canada to our clients, asking them to forward this to the users of the financial information. In addition, we could send this to our network of lenders and other third parties for information purposes, which will allow them to be aware of the upcoming changes. While there’s no time like ‘the present’, this communication can also be sent later in the year.

6. Determining the basis of accounting note

For clients who will require a CER, CSRS 4200 requires us to obtain an acknowledgement of the basis of accounting at the time of issuance of our engagement report. At the engagement acceptance stage, we are required to “obtain an acknowledgment from management of the basis of accounting expected to be applied in the preparation of the compiled financial information.” To avoid spending too much time at the engagement finalization stage, the discussion on basis of accounting can be brought forward when obtaining the engagement letter under CSRS 4200. Due to work done under your current NTR engagements, you may already be aware of the clients’ basis of accounting, but it can be sought:

• at the time of signing the 2021 engagement letter (this could be an additional page listed in the engagement letter that the client completes and sends to you, along with the signed engagement letter); or
• during your 2020 client discussions (you can subsequently assist them with rewording the note and have them sign it).

7. Updating templates, technology and databases

The summer of 2021 is a good time to ensure you have the most recent templates (PEG or customized) and, if necessary, the time and billing software in place to allow for any changes to billings. This may be the outcome of your strategic decision. In addition, having a database of possible “basis of accounting” notes (sorted by industry, if necessary) will help with client discussions and at crunch time in 2022 when issuing the CERs. 

8. Training

We can look to the PD portal of our respective provincial bodies for courses. Take the opportunity to join one or more of these trainings via a virtual option (live) or listen to on-demand sessions. These sessions will provide theoretical and practical application knowledge, as well as guidance on CSRS 4200.

9. Performing the compilation engagement

There are four cornerstones of performing a CSRS 4200 engagement:

• Ethical requirements
• Professional judgement
• Documentation
• Communication with management and those charged with governance (TCWG)

CPA Canada’s Practitioners’ Implementation tool (see Appendix 1 for a full list of CPA Canada resources) outlines several considerations related to each of these key areas in an easy to understand, easy to apply Q&A format. Even though we have always considered ethical requirements and applied professional judgement, CSRS 4200 has explicit documentation requirements related to these key areas.

The requirement related to documentation is open-ended: “prepare documentation that, in the practitioner’s judgment, is sufficient to enable an experienced practitioner, having no previous connection with the engagement, to understand how the requirements of this CSRS were met.” Therefore, it is a matter of professional judgment. Items listed within these requirements include the following minimum requirements:

• An engagement letter or other suitable equivalent (must be written)
• Description of the entity’s business, operations, accounting system, accounting records and the basis of accounting applied, and the accounting policies used, if applicable, in the preparation of the compiled financial information
• Reconciliation of accounting records to the compiled financial information
• Copy of the final version of compiled financial information approved (written or oral) by management or TCWG together with documentation of their approval
• Copy of the compilation engagement report
• Where applicable:
  • Discussions with management regarding significant judgments
  • Communication to management regarding matters causing the compiled financial information to appear misleading and their resolution
  • Communication to management of the reason for withdrawing from the engagement

Having done all you can do to prepare yourself, now is the time to see your effort bear results.

Appendix 1: CSRS 4200 implementation plan

Appendix 2: CPA Canada resources

CPA Canada landing page on compilation engagement has a wealth of information.

Practitioner’s Alert: Deals with a summary of the expected changes, significant differences between the previous and new standard, scope exclusions, description of the basis of accounting and outlines the new CER.

Practitioner’s Implementation Tool: A practical tool designed to assist practitioners to implement CSRS 4200, including engagement acceptance considerations, sample basis of accounting notes and sample CER outlining significant differences between CSRS 4200 and Section 9200, Compilation Engagements

Practitioner’s Pulse Webinar: A recorded webinar featuring a panel of practitioners who shared their thoughts on CSRS 4200, discussing significant changes and their impact on the work effort, while also addressing common implementation questions.

Management Briefing: A document that can be used to facilitate discussions between management and practitioners on the significant changes. This will help management understand how to meet requirements from third-party users with non-compilation engagements.

Third-Party Briefing: A document designed to support discussions between management, third parties and practitioners on the new compilation standard, as well as help third parties understand the nature of a compilation engagement and other services available.