NSA 29
NEPAL STANDARDS ON AUDITING
ENGAGEMENTS TO COMPILE FINANCIAL STATEMENTS
CONTENTS
Paragraphs
Introduction 1-5
Objective of a Compilation Engagement 6-7
General Principles of a Compilation Engagement 8-9
Defining the Terms of The Engagement 10-11
Planning 12
Documentation 13
Procedures 14-20
Reporting on a Compilation Engagement 21-22
Compliance with International Standards on Auditing 23
Effective Date 24
Appendix 1: Example of an Engagement Letter for a Compilation Engagement
Appendix 2: Examples of Compilation Reports
This NSA is applicable in all material respects to Public Sector also.
Introduction
1. The purpose of this Nepal Standard on Auditing (NSA) is to establish standards
and provide guidance on the accountant’s1 professional responsibilities when an
engagement to compile financial information is undertaken and the form and
content of the report the accountant issues in connection with such a compilation.
This Standard is applicable to Related Services.
2. This NSA is to be read in conjunction with the Preface to Nepal Standards on
Auditing.
3. This NSA contains the basic principles and essential procedures (identified in
bold type black lettering) together with related guidance in the form of
explanatory and other material.
1
For the purposes of this NSA and to distinguish between an audit and a compilation engagement the term
“accountant” (rather than “auditor”) has been used throughout to refer to a professional accountant in
public practice.
NSA 29/final 1
4. This NSA needs only be applied to material matters.
5. This NSA is directed toward the compilation of financial information. However, it
is to be applied to the extent practicable to engagements to compile non-financial
information, provided the accountant has adequate knowledge of the subject
matter in question. Engagements to provide limited assistance to a client in the
preparation of financial statements (for example, on the selection of an
appropriate accounting policy), do not constitute an engagement to compile
financial information.
Objective of a Compilation Engagement
6. The objective of a compilation engagement is for the accountant to use
accounting expertise, as opposed to auditing expertise, to collect, classify and
summarise financial information. This ordinarily entails reducing detailed data
to a manageable and understandable form without a requirement to test the
assertions underlying that information. The procedures employed are not designed
and do not enable the accountant to express any assurance on the financial
information. However, users of the compiled financial information derive some
benefit as a result of the accountant’s involvement because the service has been
performed with professional competence and due care.
7. A compilation engagement would ordinarily include the preparation of financial
statements (which may or may not be a complete set of financial statements) but
may also include the collection, classification and summarisation of other
financial information.
General Principles of a Compilation Engagement
8. The accountant should comply with the Code of Ethics for Professional
Accountants issued by the Institute of Chartered Accountants of Nepal.
Ethical principles governing the accountant’s professional responsibilities for this
type of engagement are:
(a) Integrity;
RELATED SERVICES
(b) Objectivity;
(c) Professional competence and due care;
(d) Confidentiality;
(e) Professional behaviour; and
(f) Technical standards.
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Independence is not a requirement for a compilation engagement. However,
where the accountant is not independent, a statement to that effect would be made
in the accountant’s report.
9. In all circumstances when an accountant’s name is associated with financial
information compiled by the accountant, the accountant should issue a
report.
Defining the Terms of the Engagement
10. The accountant should ensure that there is a clear understanding between
the client and the accountant regarding the terms of the engagement. Matters
to be considered include the following:
• Nature of the engagement including the fact that neither an audit nor a
review will be carried out and that accordingly no assurance will be
expressed.
• Fact that the engagement cannot be relied upon to disclose errors, illegal
acts or other irregularities, for example, fraud or defalcations that may
exist.
• Nature of the information to be supplied by the client.
• Fact that management is responsible for the accuracy and completeness of
the information supplied to the accountant for the completeness and
accuracy of the compiled financial information.
• Basis of accounting on which the financial information is to be compiled
and the fact that it, and any known departures therefrom, will be disclosed.
• Intended use and distribution of the information, once compiled.
• Form of report to be rendered regarding the financial information
compiled, when the accountant’s name is to be associated therewith.
11. An engagement letter will be of assistance in planning the compilation work. It is
in the interests of both the accountant and the entity that the accountant send an
engagement letter documenting the key terms of the appointment. An engagement
letter confirms the accountant’s acceptance of the appointment and helps avoid
misunderstanding regarding such matters as the objectives and scope of the
engagement, the extent of the accountant’s responsibilities and the form of reports
to be issued. An example of an engagement letter for a compilation engagement
appears in Appendix 1 to this NSA.
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Planning
12. The accountant should plan the work so that an effective engagement will be
performed.
Documentation
13. The accountant should document matters which are important in providing
evidence that the engagement was carried out in accordance with this NSA
and the terms of the engagement.
Procedures
14. The accountant should obtain a general knowledge of the business and
operations of the entity and should be familiar with the accounting principles
and practices of the industry in which the entity operates and with the form
and content of the financial information that is appropriate in the
circumstances.
15. To compile financial information, the accountant requires a general understanding
of the nature of the entity’s business transactions, the form of its accounting
records and the accounting basis on which the financial information is to be
presented. The accountant ordinarily obtains knowledge of these matters through
experience with the entity or inquiry of the entity’s personnel.
16. Other than as noted in this NSA, the accountant is not ordinarily required to:
(a) Make any inquiries of management to assess the reliability and
completeness of the information provided;
(b) Assess internal controls;
(c) Verify any matters; or
(d) Verify any explanations.
17. If the accountant becomes aware that information supplied by management
is incorrect, incomplete, or otherwise unsatisfactory, the accountant should
consider performing the above procedures and request management to
provide additional information. If management refuses to provide additional
information, the accountant should withdraw from the engagement,
informing the entity of the reasons for the withdrawal.
18. The accountant should read the compiled information and consider whether
it appears to be appropriate in form and free from obvious material
misstatements. In this sense, misstatements include the following:
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• Mistakes in the application of the identified financial reporting framework.
• Non-disclosure of the financial reporting framework and any known
departures therefrom.
• Non-disclosure of any other significant matters of which the accountant
has become aware.
The identified financial reporting framework and any known departures
therefrom should be disclosed within the financial information, though their
effects need not be quantified.
19. If the accountant becomes aware of material misstatements, the accountant
should try to agree appropriate amendments with the entity. If such
amendments are not made and the financial information is considered to be
misleading, the accountant should withdraw from the engagement.
Responsibility of Management
20. The accountant should obtain an acknowledgement from management of its
responsibility for the appropriate presentation of the financial information
and of its approval of the financial information. Such acknowledgement may
be provided by representations from management which cover the accuracy and
completeness of the underlying accounting data and the complete disclosure of all
material and relevant information to the accountant.
Reporting on a Compilation Engagement
21. Reports on compilation engagements should contain2 the following:
(a) Title;
(b) Addressee;
(c) A statement that the engagement was performed in accordance with
the Nepal Standard on Auditing or relevant practices applicable to
compilation engagements;
(d) When relevant, a statement that the accountant is not independent of
the entity;
2
It may also be appropriate for the accountant to refer to the special purpose for which or party for whom
the information has been prepared. Alternatively, or in addition, the accountant may add some form of
caution designed to ensure that it is not used for purposes other than those intended.
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(e) Identification of the financial information noting that it is based on
information provided by management;
(f) A statement that management is responsible for the financial
information compiled by the accountant;
(g) A statement that neither an audit nor a review has been carried out
and that accordingly no assurance is expressed on the financial
information;
(h) A paragraph, when considered necessary, drawing attention to the
disclosure of material departures from the identified financial
reporting framework;
(i) Date of the report;
(j) Accountant’s address; and
(k) Accountant’s signature.
Appendix 2 to this NSA contains examples of compilation reports.
22. The financial information compiled by the accountant should contain a
reference such as “Unaudited,” “Compiled Without Audit or Review” or
“Refer to Compilation Report” on each page of the financial information or
on the front of the complete set of financial statements.
Compliance with International Standards on Auditing
23. Compliance with this NSA ensures compliance in all material respects with ISRSs
4410 (Engagements to Compile Financial Statements).
Effective Date
24. This Nepal Standards on Auditing becomes operative for the audit commencing
on or after 01 Shrawan 2062 corresponding to 16 July 2005. Earlier application is
encouraged.
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Appendix 1
Example of an Engagement Letter for a Compilation Engagement
The following letter is for use as a guide in conjunction with the considerations outlined
in paragraph 10 of this NSA and will need to be varied according to individual
requirements and circumstances. This example is for the compilation of financial
statements.
To the Board of Directors or the appropriate representatives of senior management
This letter is to confirm our understanding of the terms of our engagement and the nature
and limitations of the services we will provide.
You have requested that we perform the following services:
On the basis of information you provide, we will compile, in accordance with the Nepal
Standard on Auditing applicable to compilation engagements, the balance sheet of ABC
Company as of Ashad 3X, 20XX and related statements of income and cash flows for the
year then ended. We will not carry out audit or review engagement procedures in relation
to such financial statements. Consequently, no assurance on the financial statements will
be expressed. Our report on the financial statements of ABC Company is presently
expected to read as follows:
(see Appendix 2 to this NSA)
Management is responsible for both the accuracy and completeness of the information
supplied to us and is responsible to users for the financial information compiled by us.
This includes the maintenance of adequate accounting records and internal controls and
the selection and application of appropriate accounting policies. Our engagement cannot
be relied upon to disclose whether fraud or errors, or illegal acts exist. However, we will
inform you of any such matters which come to our attention.
The information will be prepared in accordance with Nepal Accounting Standards or
relevant practices. Any known departures will be disclosed within the financial
statements and when considered necessary will be referred to in our compilation report.
We understand that the intended use and distribution of the information we have
compiled is [specify] and that should this change in a material respect, that you will
inform us.
We look forward to full cooperation with your staff and we trust that they will make
available to us whatever records, documentation and other information requested in
connection with our compilation.
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Our fees, which will be billed as work progresses, are based on the time required by the
individuals assigned to the engagement plus out-of-pocket expenses. Individual hourly
rates vary according to the degree of responsibility involved and the experience and skill
required.
This letter will be effective for future years unless it is terminated, amended or
superseded.
Please sign and return the attached copy of this letter to indicate that it is in accordance
with your understanding of the arrangements for our compilation of your financial
statements.
(For Auditee) (For Auditors)
XYZ & Co.
Acknowledged on behalf of Signature .................
ABC Company (client) by Name .......................
Chartered Accountants/ Registered
Signature ................. Auditors
Name ....................... Partner ...................
Title ......................... Date .......................
Date .........................
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Appendix 2
Examples of Compilation Reports
Example of a Report on an Engagement to Compile Financial Statements
COMPILATION REPORT TO .....
On the basis of information provided by management we have compiled, in accordance
with the Nepal Standard on Auditing applicable to compilation engagements, the balance
sheet of ABC Company as of Ashad 3X, 20XX and statements of income and cash flows
for the year then ended. Management is responsible for these financial statements. We
have not audited or reviewed these financial statements and accordingly express no
assurance thereon.3
ACCOUNTANT
Date
Address
Example of a Report on an Engagement to Compile Financial Statements With an Additional
Paragraph That Draws Attention to a Departure From the Identified Financial Reporting
Framework
COMPILATION REPORT TO .....
On the basis of information provided by management we have compiled, in accordance
with the Nepal Standard on Auditing applicable to compilation engagements, the balance
sheet of XYZ Company as of Ashad 3X, 20XX and the related statements of income and
cash flows for the year then ended. Management is responsible for these financial
statements. We have not audited or reviewed these financial statements and accordingly
express no assurance thereon.4
We draw attention to Note X to the financial statements because management has elected
not to provide depreciation on fixed assets (for example) which is a departure from the
identified financial reporting framework.
ACCOUNTANT
Date
Address RELAT
3
See footnote 2.
4
See footnote 2.
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