When an accountant prepares statutory accounts for a company that is exempt from audit, the professional bodies expect a short report explaining that the accounts were compiled from the company’s records and the directors’ explanations, that the accountant follows their body’s ethical rules, and that no audit or review was carried out. It is a compilation (accounts preparation) report, not an audit report, and it gives no opinion on whether the accounts are true and fair.

What is a compilation engagement?

ICAEW describes the most common compilation engagement as one in which the practitioner receives financial data and information from a client and rearranges it into a set of financial statements. The procedures do not involve verifying that data, and the practitioner does not express a conclusion on the compiled information, so the work is not an assurance engagement. Users still get some comfort, because the practitioner brings knowledge of the subject and the reporting framework to the job.

ACCA puts the objective in similar terms: the accountant uses accounting expertise, as opposed to auditing expertise, to collect, classify and summarise financial information, without a requirement to test the assertions underlying it. The starting point can be anything from incomplete records to a trial balance from bookkeeping software. The end product is a finished set of accounts that meets the applicable framework and disclosure law.

A compilation is therefore different from a review, which does give limited assurance, and from a statutory audit. See review engagements and audit opinions for those.

Which guidance applies to the report?

  • ICAEW members follow TECH 07/16 AAF, Chartered Accountants’ Reports on the Compilation of Financial Information of Incorporated Entities, issued on 28 March 2016. It covers financial statements prepared in accordance with the Companies Act 2006. A companion release, TECH 08/16 AAF, covers unincorporated entities and replaced the earlier AUDIT 03/10.
  • ACCA members follow the technical factsheet Audit exempt companies: ACCA accounts preparation report, updated in January 2024. ACCA describes its report as a cross profession report agreed by the Consultative Committee of Accountancy Bodies, so the structure is common to the main UK bodies, with each body’s own name and requirements referred to in its version.
  • The international standard behind both is ISRS 4410, Compilation Engagements, issued by the IAASB. ICAEW notes that ISRS 4410 requires compliance with the ethical principles of the IESBA Code, and that independence is not a requirement for a compilation engagement unless the terms of the engagement require it.

What does the report actually say?

The ACCA example report is titled Report to the directors on the preparation of the unaudited statutory accounts of XYZ Limited for the year ended … and has three core paragraphs that should appear in every report:

  1. “In order to assist you to fulfil your duties under the Companies Act 2006, we have prepared for your approval the accounts of XYZ Limited for the year ended [date] … from the Company’s accounting records and from information and explanations you have given us.”
  2. A statement that, as a practising member of the body, the accountant is subject to its ethical and other professional requirements, with a web reference to them.
  3. A statement that the work has been undertaken in accordance with the body’s requirements, again with a web reference to the guidance.

Optional paragraphs, used at the practitioner’s judgement, add that the report is made solely to the board as a body under the engagement letter, with a disclaimer of responsibility to anyone else; that it is the directors’ duty to keep adequate accounting records and prepare accounts giving a true and fair view, and that the directors consider the company exempt from audit; and that the accountant has not been instructed to carry out an audit or a review, has not verified the accuracy or completeness of the records or explanations, and does not express any opinion on the accounts. An explanatory paragraph can be added, for example to describe a departure from generally accepted accounting practice.

The report is signed in the name of the accountant or the firm, with the professional designation, address and date. ACCA notes that where accounts are filed electronically at Companies House, the copy of the report filed with them can carry the typed name of the accountant or firm instead of a physical signature.

What does the accountant do, and not do?

According to the ACCA factsheet, the accountant is not ordinarily required to make enquiries to assess the reliability and completeness of the information, assess controls, verify any matter or explanation, consider whether the directors have assessed going concern properly, or search for undisclosed related parties. Professional scepticism may still lead the accountant to do some of these things, particularly where information looks incorrect or incomplete.

The engagement letter should record that the directors are responsible for the completeness and accuracy of the information supplied and of the accounts, that neither an audit nor a review will be carried out, and that the engagement cannot be relied on to disclose errors, fraud or other irregularities. ACCA also suggests obtaining a board minute or letter acknowledging the directors’ responsibilities and confirming significant judgements such as stock values. See engagement letters for accountants.

What if the accounts look misleading?

The key professional principle is that members should not prepare accounts, or allow their name to be associated with accounts, that they consider misleading. ACCA’s guidance is to raise concerns with management, preferably in writing asking for a written reply and revised information, and to consider further enquiry. If the directors refuse to correct a material misstatement or provide the information needed, the accountant should consider withdrawing from the engagement.

Going concern follows the same pattern. The accountant does not have to look for going concern evidence, but if they become aware the company may not be able to continue, they should raise it with the directors, explain the consequences of continuing to trade while unable to pay debts, and discuss the disclosures needed. If adequate disclosure is refused, withdrawal should be considered.

How does the report fit with the directors’ statements?

The accountants’ report sits alongside, not in place of, the statements company law requires from the directors. Under section 475(2) and (3) of the Companies Act 2006, a company can only claim audit exemption if the balance sheet carries the directors’ statements about the exemption, about members not having required an audit under section 476, and acknowledging the directors’ responsibilities for accounting records and accounts. Section 475(4) requires those statements above the director’s signature on the balance sheet, and section 414 requires the board to approve the accounts and a director to sign. See approving and signing company accounts and audit exemption for small companies.

The accountants’ report is not one of the documents that section 444 requires a small company to deliver to Companies House. ACCA nonetheless strongly recommends filing it, including with filleted accounts, to show that a member of a CCAB body prepared them. For what goes on the public record, see small company accounts filing options.

How might this work in practice?

Illustration only. A firm prepares accounts for a company with one director. The trial balance comes from cloud bookkeeping software, and the firm makes year end adjustments for accruals, depreciation and corporation tax. While preparing the directors’ loan note, the firm sees that the director’s loan account is overdrawn by £20,000 at the year end. The director says the balance will be cleared by dividend and wants no disclosure.

The firm writes to the director explaining that section 413 of the Companies Act 2006 requires advances to directors to be disclosed in the notes, asks for written confirmation of the repayment arrangements and for the board’s approval of the disclosure. Once the note is added, the firm issues its report with the core paragraphs and the optional paragraph stating that no audit or review has been carried out. Had the director refused the disclosure, the firm would consider withdrawing rather than issue a report attached to misleading accounts.

What mistakes come up most often?

  • Giving an opinion. ICAEW has reported finding firms that include an opinion on the truth and fairness of accounts even though they are not registered auditors, and warned that this may lead to disciplinary action. Only a statutory auditor eligible under section 1212 can give an audit opinion; see registered auditors.
  • Calling it an audit or review. Phrases such as “we have examined” or “we have reviewed” suggest assurance that has not been given.
  • Out of date wording. Older reports referred to guidance that has since been replaced, such as the ICAEW AAF 02/10 release that TECH 07/16 AAF updated.
  • Missing balance sheet statements. Without the section 475 statements the company is not entitled to audit exemption, whatever the accountants’ report says.
  • No engagement letter. Without one it is harder to show what was agreed and harder to recover fees after withdrawing.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.