 Hello, and welcome to this session in which we would look at a CPA simulation or an exercise that deals with compilation and reviews. Now many non-public companies, what they do is they have their financial statements either reviewed or compiled and reviews and compilations are under the statements on standard for accounting and review services, SARS. And this topic is heavily tested on the CPA exam. And the reason is simple. When you work in a CPA firm, you're gonna be dealing with many small and medium-sized companies, mom and pop stores. They don't require an audit. They either require a compilation or a review. Therefore, the topic is heavily tested on the exam. What we'll do in this session is go over 10 procedures to determine whether this procedure is required for a compilation, required for review, required for both, or it's not required. Before we proceed any further, I have a public announcement about my company, farhatlectures.com. Farhat Accounting Lectures is a supplemental educational tool that's gonna help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses, broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions, as well as exercises. Go ahead. Start your free trial today. No obligation, no credit card required. Starting with a written engagement letter. Is it required to have a written engagement letter for a compilation and review? And the answer is both. You need a written engagement letter for a compilation, a written engagement letter for a review. Simply put, having a written communication letter is a good practice for, if not for anything, you want to establish an understanding with the client. What is the objective of what we are doing? What are the limitations? So this way you understand what's expected of you and the client understand what is, what are they going to get at the end of the engagement. So engagement letter is necessary. And of course, it's necessary for an audit, but also for compilation and review. What about read the financial statement? Do you think you need to read the financial statements? What do you think? I would say, of course, read the financial statements for obvious errors, something that does not make any sense. I mean, just, I mean, of course, you're going to be preparing the financial statements. But at the end, go ahead and read them. Make sure everything makes sense. So it's required for both compilation and review. Understand the client industry and the client business. Do you need to understand the client industry and the client business? I would say you need to understand the client industry and the client business for both compilation and reviews. Now I'm going to say both. Okay. However, you will need to know more about the client industry in a review. You need to know both, but in a review, you would need to know more. For a compilation, you would need to know less because you are not providing any limited assurance for a compilation. And when it comes to an audit, definitely you would need to know the most about the client industry and the client business, but both for compilations and review, but to a different degree. Make inquiries of client management. Of course, you're going to be asking questions, whether you are doing a compilation interview. You want to learn a little bit more, because if you want to learn about the business, you're going to ask questions. If you're going to understand the client industry and the client business, one way to do so is to make inquiries. Again, you will do so for compilation. You will do so for review, but for review, you might do more of the inquiries. And of course, you do inquiries of client management when you perform an audit. Design and perform analytical procedures. Well, if you don't understand what analytical procedures are, it's testing numbers, looking at ratios, looking at financial versus non-financial information to make sure things make sense. Do you need to do so for compilations? And the answer is no. You don't need to do so for compilations. Do you need to perform analytical procedures for reviews? And the answer is yes, you do. One of the major things when you perform reviews is inquiries and analytical procedures. So analytical procedures is definitely part of your review. Perform test of control. Do you need to perform any test of control if you are performing compilation or review? And the answer is no for compilation and no for review. Audit, it's a different story, but not compilations and review. You don't need to go this far. Do you need to assess fraud risk for compilation or review? Not at all. Compilation, you're putting the financial statements together. Same thing as review, but review, you're going to provide limited assurance. No need to assess the fraud risk. There's no need for that. Obtain a representation letter from management. Basically what we are saying here is telling management to give me a letter stating in that letter everything that you gave me is indeed what you gave me and nothing else is missing. Do you need to do so for a compilation? Now, compilation is basically all that the compilation is they're giving you data and you're putting the financial statements based on the data. No assurance, nothing at all, just basically they're giving you information and you're giving it back to them in a different format. So there's no reason to have a representation letter. How about a review? For a review, you need to obtain a representation letter. Just they need to spell out exactly what they told you what they presented to you. Prepare documentation to show the work performed. Do you think you need to do so for a compilation or a review? It's always a good practice to have proper documentation, whether you are performing a compilation or performing a review. It doesn't really matter. It's needed for both. How about a sure report of limited, limited assurance? Do you need to do so for a compilation or a review? For a compilation, you are not providing any assurance whatsoever. Not limited, not positive, not negative, nothing. There's no assurance being given. How about a review? Yes, under a review, you are giving a what we called a limited assurance and because you are giving a limited assurance, you need to obtain a representation letter. So knowing the difference between a compilation and reviews, what procedures, what tasks you need to perform is extremely important on the CPA exam. What should you do now? Go to Farhat Lectures and look at additional multiple choice resources. This topic is heavily, heavily tested. Easy points. Good luck. Invest in yourself and stay safe.