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Stockholders, creditors, and private investors often need assurance that the financial statements accurately represent the true financial position of a company. Your stockholders, creditors, or private investors have different levels of risk tolerance. There are three levels of assurance to meet your needs. I provide compilation services and can assist you with obtaining and preparing for review and audit services.
Audit - Highest Level of AssuranceAn audit provides the highest level of assurance. An audit is a methodical review and objective examination of the financial statements, including the verification of specific information as determined by the auditor or as established by general practice. Audit work includes a review of internal controls, testing of selected transactions, and communication with third parties. Based on auditor findings, the audit firm issues a report on whether the financial statements are fairly stated and free of material misstatements. An Audit allows you to...
Here's what an audit provides... You get the highest level of assurance because the auditor goes outside your company to obtain more information. Typically, they'll have written communication with:
Auditors also perform physical inspections by observing your inventory counting methods and perform test counts. They document and test each operating cycle, including sales and cash receipts, expenses and cash disbursements, and payroll. Audit papers include a detailed work program based on risk assessment specific to your company and industry to document the auditors customized examinations and testing performed, as well as the client's supporting work papers. Audits Not Just for Public Entities All public companies are required to have an annual audit, but some nonpublic entities must undergo an annual audit as well. These include local governments, some not-for-profit agencies and other organizations receiving government grants. Moreover, some financial institutions require audits of nonpublic companies based on the financing amount and/or the bank's assessment of the company's risk. Also, companies with absentee ownership (such as those owned by investment firms, or individuals who no longer run the business) may order audits as checks of their management teams. While I do not perform audit services I can assist you in understanding and preparing for an audit. This may result in lower audit fees and provide a knowledgeable and experienced buffer between your staff and the independent audit firm.
Review - Limited Assurance Less extensive than an audit, but more involved than a compilation, a review engagement consists primarily of analytical procedures applied to the financial statements, and various inquiries of your company's management team. If the financial statements or supporting information appear inconsistent or otherwise questionable, the accountant may need to perform additional procedures. A review doesn't require studying and evaluating your company's internal controls or verifying data with third parties or physically inspecting assets. Rather, a review report expresses limited assurance in the form of the statement: "We are not aware of any material modifications" for the financial statements to be in conformity with the Generally Accepted Accounting Principles (GAAP). Reviewed financial statements must include all required footnotes and other disclosures. Why might a business request a review engagement? It can be a good middle ground, providing the advantages of a CPA's technical expertise without the same level of work and expense of an audit.
Compilation - Lowest Level of AssuranceIn compiling financial statements for a client, we present information that is the "representation of management" and expresses no opinion or assurance on the statements. Compilations don't require inquiries of management or analytical procedures. Instead, we rely on our knowledge of accounting principles and a general understanding of your business. Banks often require compilations from an independent CPA as part of their lending covenants. Which Report Should You Use? Each type of financial statement report may suit specific circumstances, depending on requirements from your client's bank or other parties, as well as meet budgetary needs. Understanding each report's unique strengths and weaknesses can help you choose the most appropriate one. Please call if you have questions about which type of report is right for you. |
