Page 155 - Encyclopedia of Business and Finance

eobf_C 7/5/06 2:57 PM Page 132

Competitive Pricing

COMPETITIVE PRICING publications, financial statements of other entities in the
industry, textbooks, periodicals, and relevant Web sites.
SEE Pricing
To compile financial statements, the accountant must
have an understanding of the nature of the entity’s busi-
ness transactions, the form of its accounting records, the
COMPILATION AND stated qualifications of its accounting personnel, the
accounting basis on which the financial statements are to
REVIEW SERVICES be presented, and the form and content for the financial
Public accountants are qualified to provide a range of serv- statements. Such knowledge is obtained through experi-
ices related to financial statements. Among the services are ence with the entity or through inquiry of the entity’s per-
reviews and compilations. These services are less compre- sonnel. There are instances when the accountant
hensive than audits, which are required for publicly recognizes that other accounting services are needed, such
owned companies. Statements on Standards for Account- as assistance in adjusting the books of accounting or in
ing and Review Services are issued by the Accounting and assuring proper classification of transactions in the
Review Services Committee, which is the senior technical accounting system. Such additional services can be pro-
committee of the American Institute of Certified Public vided by the accountant engaged to compile the financial
Accountants (AICPA) designated to issue pronounce- statements.
ments in connection with unaudited financial statements If any evidence or information comes to the accoun-
or other unaudited financial information of a nonpublic tant’s attention regarding fraud or an illegal act that may
entity. have occurred, the accountant should request that man-
agement consider the effect of the matter on the financial
NATURE OF ENGAGEMENTS statements. Additionally, the accountant should consider
PROVIDED the effect of the matter on the accountant’s compilation
The most common engagements that are provided by report. The accountant may have to resign from an
public accountants for nonpublic entities are the compila- engagement if there is any question about fraud or illegal
acts and the client refuses to provide additional or revised
tion and review. Neither of these is as extensive as an
information.
audit. An audit requires that the public accountant obtain
an understanding of internal control, assess internal con- The report provided states that a compilation is lim-
trol, assess fraud risk, and obtain corroborating evidence ited to presenting in the form of financial statements
to support the figures shown in the included set of finan- information that is the representation of management (or
cial statements. Compilations and reviews do not have owners). Also, stated is that the financial statements have
such requirements. While there are specified procedures not been audited or reviewed and that the accountant is
for compilations and reviews to support the nature of not expressing an opinion or any other form of assurance
report provided, such procedures are less rigorous and less on them. There are circumstances that permit the
extensive than those required for an audit. accountant to limit the distribution of the report. The
guidance is provided in the Statements on Standards for
Accounting and Review Services.
COMPILATIONS
An accountant is not precluded from issuing a report
Compilations is an appropriate description of what the for a compilation of financial statements for an entity
accountant actually does when engaged to provide this
when the accountant is not independent in respect to that
type of service. The certified public accountant (CPA)
entity. When the accountant is not independent, however,
prepares—compiles—financial statements based on infor-
there must be disclosure of the lack of independence. In
mation supplied by the company’s management. CPAs are the last paragraph of the report in such an instance is the
expected to be familiar with the accounting principles and need to state: “I am (we are) not independent with respect
practices of the industry in which the entity operates so
to [company name] company.”
that the financial statements are compiled in appropriate
An accountant may be engaged to provide compila-
form for that industry. This standard does not prevent an
tions for financial statements for more than one year.
accountant from accepting a compilation engagement for
an entity in an industry with which the accountant has no
previous experience. It does, however, impose on the REVIEWS
accountant responsibility for obtaining the level of under- Reviews require that the accountant possesses a level of
standing expected for such an engagement. Such under- knowledge of the accounting principles and practices of
standing is available in AICPA guides, industry the industry in which the entity operates and an under-

132 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION