Internal Financial Statements vs. Compilation Report

Internal financial statements are solely prepared based on the information provided by the company, such as transactions, bank statements and trial balances. Internal Financial Reporting is done on a more frequent basis compared to Compilation Reports with some companies compiling statements monthly to understand how the company is doing and to better inform management for decision-making. These statements are usually not seen by the public or any third parties but instead only created for the use by company employees and management. Since these are more private, the statements are generally more detailed and can include information that is confidential to the company. This also means that the appropriate accounting standards do not necessarily
need to be followed compared to a Compilation Report which requires the compliance with accounting standards for reporting.

A Compilation Report is a financial statement compilation engagement prepared by Chartered Professional Accountant (CPA) with the CPA license who must comply with the Chartered Professional Accounting professional standards set in Canada, even though there will be no assurance and no opinion provided. The accountant creates the Compilation Report and then compiles that with the financial statements. This is different to an audit or review report as there is only a single paragraph with no paragraph titles in the report.

CPA uses their professional judgement and considers the reasonability of the information provided by the client. This is a higher level of financial statements preparation than statements prepared by a bookkeeper’s software because, bookkeepers do not need to keep up with the tax and accounting standards to ensure that the accounts used to classify transactions are appropriate. In addition, bookkeepers don’t usually record transactions that are outside the daily business such as sales, business expenses or payments.

For a Compilation report, an accountant takes the prepared financial statements and reviews and finalizes the statements for the company and ensures that the appropriate accounting standards are followed and that the financial statements are reported in the correct format. The accountant is not required to verify any numbers or provide assurance on the accuracy of the content within the statements.

Compilations can provide users of the financial statements with many different types of information, but it has not been audited and therefore cannot provide the adequate assurance. These compiled statements can be released quickly to third parties since there is no auditing of the financial information, which some companies might see as an advantage.

For both internally prepared financial statements and the Compilation Report, there is no assurance given to the client on the accuracy of the statements provided. Financial statements that are produced by a company’s internal accounting system and not by a third party such as a CPA. These are considered the least reliable scope of financial statements.

A company can get a certified financial statement that provide more assurance compared to internally generated financial statements since these certified statements have been audited by an independent accountant with regards to accuracy.