Compilation of financial information – Objective, scope, definition of responsibilities etc

Introduction

The objective of this document is to describe the objective, scope and performance of the engagement, and the definition of responsibilities of the Entity’s management (“Management”) respectively the Client and Deloitte Statsautoriseret Revisionspartnerselskab (“Deloitte”, “auditor(s)”, or “we”) with respect to the following services: 

• Assistance to compile financial statements of a company and additional assistance services (sections 1, 4, 5, 6 and 7)
• Assistance to compile financial statements of a sole proprietorship or a partnership and additional assistance services (sections 2, 4, 5 and 6)
• Assistance to compile a statement of personal assets and liabilities and statements of taxable income and additional assistance services (sections 3, 4 and 5).

In the event of inconsistencies between this document and the engagement letter, the engagement letter will prevail.

When referring to ”financial statements” in this document, similar provisions apply to “consolidated financial statements” if the engagement is to compile financial statements of a group.

1 Assistance to compile financial statements of a company

1.1 Objective of the assistance to compile financial statements
An annual report presented under the Danish Financial Statements Act will comprise two elements: a management commentary and a set of financial statements (income statement, balance sheet, cash flow statement, notes and summary of significant accounting policies). Our report will only cover assistance in preparing and presenting (hereinafter referred to as “compilation”) the financial statements.

The objective of our compilation service is to enhance the reliability of the financial statements as we apply our expertise in accounting and financial reporting during the engagement. The financial statements will be compiled based on the information provided by the Executive Board. 

The engagement to compile the financial statements will be planned and performed in accordance with the applicable International Standard on Compilation Engagements.

1.2 Distribution of responsibilities
The process of compiling the financial statements is based on the following distribution of responsibilities between Management and the auditor:

1.2.1 Management’s responsibilities
It will be the responsibility of the Executive Board to ensure that the Entity's books of account are kept in accordance with applicable legal provisions to this effect and that assets are managed in a satisfactory manner, one of the means being the establishment of a reliable internal control system consistent with the nature of the business.

It will be the responsibility of the Supreme Governing Body (Those Charged with Governance) to ensure that the Entity's accounting records and asset management are controlled satisfactorily. 

It will be the responsibility of the Supreme Governing Body to ensure, through appropriate business processes and recording and control systems, that intentional or unintentional errors or misstatements are prevented, detected and corrected, to the extent possible. Under the Danish Bookkeeping Act, Management is required to prepare a description of such business processes and recording systems that is adapted to the size and nature of the Entity.

The Supreme Governing Body and the Executive Board will also be responsible for the annual preparation of an annual report, which complies with applicable Danish law, the accounting provisions of the Articles of Association, and relevant accounting standards.

In our assistance to compile the financial statements, Management will be responsible for the accuracy and completeness of the recordings, documents, statements and other information provided by them to enable us to compile the financial statements.

Finally, Management will be responsible for making the assessments required when compiling and presenting financial statements, including any assessments with which we may assist as part of the compilation engagement.

1.2.2 Auditor’s responsibilities
Since a compilation engagement is not an assurance engagement, the auditor is not required in such engagement to verify the accuracy or completeness of the disclosures the Executive Board provided to us for the compilation or otherwise to obtain evidence enabling us to express assurance about the financial information compiled.

Even though the auditor will not verify the information in non-assurance reports, the auditor cannot issue a compilation report on the financial statements if the auditor becomes aware of the financial statements being materially misstated.

Under the Danish Public Accountants Act, the auditor is the representative of the general public in the issuance of assurance reports required by law, or which are not exclusively for the use of the assigner. This entails that, in connection with the issuance of our compilation report, we must also take into consideration financial statement users other than the Entity’s owners.

1.3 Scope of the engagement
The auditor must obtain an understanding of the Entity that is sufficient to enable the auditor to assist in compiling the financial statements. We must therefore obtain an understanding of:

• The Entity’s business activities and operations, including its financial reporting system and bookkeeping, and
• The relevant financial reporting framework and how such framework is used in the Entity’s industry.

The recordings, documents, explanations and other information obtained from the Executive Board as part of the engagement serve as a basis for compiling the financial statements. We therefore need to obtain an understanding of the Entity’s business activities and operations, including its financial reporting system and bookkeeping processes, line items and notes, who handles the Entity’s current bookkeeping, and how income and expenses are recognised and measured.

We must also obtain an understanding of the financial reporting framework and the Entity’s accounting policies. 

In compiling the financial statements, we will focus on any difficult or special matters, such as recognition of revenue, line items subject to considerable accounting judgement (including fair value) or special accounting provisions that may give rise to varying interpretations. 

Any misstatements in the financial statements that result from fraud and/or irregularities may not necessarily be detected when compiling the financial statements since misstatements of this nature are usually concealed or hidden. 

1.4 Basis provided by the Entity for compiling the financial statements
Management will be responsible for ensuring that accounting records exist to serve as a basis for compiling the Entity’s financial statements, see further details in section 1.2.1. 

In compiling the financial statements, the auditor may assist Management with significant accounting judgements, for example, with respect to the accounting rules and accounting estimates. The auditor must discuss these judgements with the relevant management level to ensure that Management understands and accepts its responsibility for the judgements included in the financial statements, refer to section 1.2.1 for more details. 

1.5 Performance of the engagement
Our compilation engagement will not be finalised until Management has made a final decision on the financial statements, and we have issued a compilation report on the financial statements.

The financial statements will be compiled using recordings, documents, explanations and other information, including significant judgements, provided by Management for the compilation. 

We must obtain an understanding of the individual line items of the financial statements, and this includes obtaining relevant specifications and checking that the relevant bookkeeping accounts are included in the line item. Based on these procedures, we are able to identify whether circumstances exist causing us to suspect that the financial statements are misstated.

If, based on our professional judgement, we have reason to believe that disclosures in the financial statements are misstated, we are required to propose to the Executive Board to make appropriate changes. 

During our work, we must be aware of any disclosure or specification requirements in the financial reporting framework, such as special items, accounting estimates (including fair values), uncertainties, various commitments and going concern. 

To conclude the compilation of the financial statements, Management will be requested to confirm in a representation letter the completeness of the information provided by them. The representation letter will include information about the relevance and fairness of bases for determined accounting estimates (including fair values), contingent liabilities by way of mortgages, guarantees, lawsuits and fraud, related party transactions, environmental issues, events after the balance sheet date, and financial statement items subject to particular risk or uncertainty.

1.6 Auditor's reporting

1.6.1 Compilation report
On conclusion of our compilation of the financial statements, we will provide the financial statements with a compilation report.

As a compilation engagement is not an assurance engagement, we will not in our report express an audit opinion or a review conclusion about whether the financial statements have been prepared in accordance with the Danish Financial Statements Act. 

1.6.2 Reporting to Management
During our compilation engagement, we must communicate timely with the Executive Board or, if relevant, the Supreme Governing Body about all the matters in the engagement that in our professional judgement are of sufficient importance to merit being communicated to the Executive Board or, where relevant, the Supreme Governing Body.