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 that can meet these needs. We can provide you with prepared financial statements. If you need a higher level of assurance, we can recommend some CPA firms that perform audits and reviews.
Audit - Highest Level of Assurance
An 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.
While our firm does not perform audits, we can provide the accounting services necessary to prepare financial statements that can then be audited. We can also provide you with referrals to local firms that we partner with on audited financial statements.
An Audit allows you to...
Here's what you an audit provides...
You receive the highest level of assurance because auditors go outside your company to obtain more information. Typically, auditors will have written communication with:
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, 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.
Review - Limited Assurance
Less extensive than an audit, a review engagement consists primarily of analytical procedures that are applied to the financial statements, and various inquiries made of your company's management team. If the financial statements or supporting information appear inconsistent or otherwise questionable, an auditor may need to perform additional procedures.
A review doesn't require a study and evaluation of your company's internal controls or verification of data with third parties or a physical inspection of 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 work and expense of an audit.
Prepared Financial Statements (formerly known as a compliation) - Lowest Level of Assurance
In compiling financial statements for a client, we present information that is the "representation of management" and expresses no opinion or assurance on the statements. Prepared financial statements 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 to provide financial statements for your own use.
Banks may or may not rely on prepared financials statements from an independent CPA as part of their lending covenants. Please check with your lender.
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.