Definition
Under AR-C 80, a compilation may omit substantially all the disclosures the framework requires, if management elects that and the omission is not, to the accountant's knowledge, undertaken with the intention of misleading users. The compilation report then includes a paragraph stating that management has elected to omit substantially all disclosures and that, if the omitted disclosures were included, they might influence users' conclusions about the entity's financial position, and that the financial statements are not designed for those who are not informed about such matters.
Why it matters in an audit or review
Omitted disclosures can hide debt terms, related party dealings, and subsequent events. Lenders, bonding companies and other users may require full disclosures. The accountant still must consider whether the financial statements are materially misstated or misleading, and omitting substantially all disclosures is a compilation option. In an audit, leaving out required disclosures leads to a modified opinion.
Example
Illustrative: a family business asks for statements without notes to save time. The accountant checks that the omission is not designed to mislead, includes the required paragraph in the report, and tells the client that the bank may ask for full disclosures.
Common mistakes
Omitting disclosures but failing to label the statements and report accordingly.
FAQ
Can an audit omit disclosures?
No. An audit opinion covers the statements including their notes. Leaving out required disclosures is a departure from the framework, and the opinion is modified.
Sources
- AICPA, AR-C Section 80, Compilation Engagements
- AICPA, AU-C Section 705, Modifications to the Opinion in the Independent Auditor’s Report
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error