The compilation report: required elements, independence and omitted disclosures

In this lesson you will

Draft a compilation report with every AR-C 80.17 element
Disclose an independence impairment under AR-C 80.22 and 80.23
Write the omitted-disclosures paragraph required by AR-C 80
Report a known departure, quantified or not, under AR-C 80.29 through 80.33

Required report elements

AR-C 80.17 requires a written report that:

states that management (owners) is responsible for the financial statements
identifies the statements, the entity, and the date or period covered
states that you performed the compilation in accordance with SSARSs promulgated by the AICPA Accounting and Review Services Committee
states that you did not audit or review the statements, were not required to verify management's information, and do not express an opinion, a conclusion or any assurance
carries the firm's manual or printed signature and the city and state where you practice
is dated as of the date you completed the AR-C 80 procedures

There is no title requirement and no requirement to address the report. Many firms use "Accountant's Compilation Report," but do not put "independent" in the title, because a compilation does not require independence. The report shell template has the standard wording.

Reporting when you are not independent

AR-C 80.22 requires you to state your lack of independence in a final paragraph of the report. The application material gives the minimum wording: "We are not independent with respect to XYZ Company."

You may choose to describe why. AR-C 80.23 adds a condition: if you describe the reasons, you must include all of them. The application material gives examples: a team member's direct financial interest, an immediate family member employed by the client, or accounting services that impaired independence. A partial list ("because we performed bookkeeping") when a team member also holds stock is a violation.

Firms often omit reasons to avoid the all-reasons rule. That is permitted. Disclosing reasons can help users judge the relationship, so make it a deliberate choice, not a default.

Omitting substantially all disclosures

Management may elect to omit substantially all disclosures. AR-C 80.26 says you should not report on such statements if you judge they would mislead users. When you do report, AR-C 80 requires a separate paragraph that states:

management has elected to omit substantially all the disclosures (and the statement of cash flows, if applicable) required by the framework
if the omitted disclosures were included, they might influence the user's conclusions about financial position, results of operations and cash flows
accordingly, the statements are not designed for those who are not informed about such matters

Omitting one or a few notes while presenting the rest is not "omitting substantially all." AR-C 80 treats it as a departure from the framework.

Known departures

When you are aware of a material departure that management will not correct, AR-C 80 asks whether modifying the report is adequate. If it is, AR-C 80 requires a separate paragraph disclosing the departure and its effects if management determined them or they are readily known from your procedures. If neither, AR-C 80 says you need not determine the effects but must state that management has not determined them. AR-C 80 prohibits a statement that the financial statements are not in conformity with the framework. If modification is not adequate, AR-C 80 requires withdrawal.

Supplementary information

When supplementary information accompanies the statements, AR-C 80 requires you to state your degree of responsibility in a separate paragraph or separate report. AR-C 80 gives the wording depending on whether the information was subject to the compilation.

Common report errors

Title includes "Independent."
Independence paragraph not placed last, or reasons listed incompletely.
Omitted-disclosures paragraph missing the third statement.
Report says the statements "do not conform with GAAP," which AR-C 80 prohibits.

See the compilation report and independence guide for full illustrations.

Worked example

Report paragraphs for Silver Creek Outfitters, LLC

Your firm compiles Silver Creek Outfitters, LLC's December 31, 2026 statements on the tax basis. Facts:

Management omits substantially all disclosures. The lender agreed in writing.
Your firm records monthly adjusting entries and approves vendor payments, which impairs independence.
A staff accountant on the engagement also owns a 3% interest in the LLC.
Inventory of $212,000 is recorded at retail rather than cost. Management estimates cost at 62% of retail, so inventory and equity are overstated by $80,560 ($212,000 x 38%).

Report drafting decisions:

Omitted disclosures: add the AR-C 80 paragraph with all three statements.
Departure: add a separate paragraph stating that inventory is carried at retail prices rather than cost and that inventory and equity are overstated by $80,560. Management determined the effect, so you disclose it.
Independence: the firm decides to describe the reasons. AR-C 80.23 then requires both reasons: the accounting services (entries and payment approval) and the staff member's financial interest. The final paragraph reads: "We are not independent with respect to Silver Creek Outfitters, LLC as of and for the year ended December 31, 2026, because a member of the engagement team had a direct financial interest in the Company and because we performed certain accounting services that impaired our independence."

Self-check

Answer each question before you open the answer.

Where in the compilation report does the lack-of-independence statement go?
Show answer
In the final paragraph of the report (AR-C 80.22). The standard fixes the position so readers find it consistently.
You disclose that independence is impaired because of bookkeeping, but an engagement team member’s spouse also holds a key position at the client. Is the report compliant?
Show answer
No. AR-C 80.23 requires that if you describe the reasons, you include all of them. Either list both reasons or state only that you are not independent.
Can the report state that the financial statements are not in accordance with GAAP?
Show answer
No. AR-C 80 prohibits that statement. You disclose the specific departure and its effects in a separate paragraph, or withdraw if modification is not adequate.
Management presents all notes except the related party note. Do you use the omitted-disclosures paragraph?
Show answer
No. Omitting one note while presenting substantially all others is a departure, treated under AR-C 80 like any other departure and disclosed in a separate paragraph.

Sources

AICPA, AR-C sections (SSARSs currently effective, Professional Standards)

Back to the syllabus

Standards are paraphrased from the primary sources listed above; read the source before relying on a requirement. This lesson is training material, not professional advice. Report an error