Compilations

What a compilation is, and isn't

Accountants offer four levels of financial statement service, running from least to most scrutiny: preparation, compilation, review, and audit. A preparation carries no assurance, and the accountant cannot even attach a report to it. A compilation is one step up: the accountant still gives no assurance, but does attach a report saying the statements were compiled from management's own records. A review adds limited assurance, built on asking questions and comparing numbers to expectations rather than testing individual transactions. An audit is the only one of the four where the accountant tests the underlying records and states an opinion on whether the statements are fairly presented.

Audits, reviews, and compilations are three different products with three different price tags, not three names for the same report.

What the accountant checks, and what they don't

In a compilation, the accountant assembles and formats the numbers the board and management gave them. They do not confirm the bank balance directly with the bank, do not test whether a sample of transactions was recorded correctly, and do not ask the probing questions a review requires. If something in the underlying records is wrong, a compilation is not built to catch it.

If the board only needs a narrow question answered, for example, whether the property manager deposited every assessment collected, a full compilation, review, or audit can be overkill. An agreed-upon procedures engagement covers exactly that: the accountant runs only the specific checks the board asked for and reports the factual findings, with no opinion on the statements as a whole.

Why the basis of accounting matters when you read it

A compilation can be built on a cash basis, a modified accrual basis, or a full accrual basis, and the same transaction can look very different depending on which one produced the numbers. Because a compilation carries no assurance, nothing stops that basis from shifting between one year's statements and the next without anyone flagging it, which can make a healthy trend look alarming, or an alarming trend look healthy.

"Understanding your association's basis of accounting is necessary to provide readers of financial statements with a foundation of basic and useful knowledge."

Source: Your Association's Financial Statements: Basis of Accounting, CAI HOAresources

Ask which basis was used, and ask whether it was the same basis as last year, before you compare the two sets of numbers.