Quite often people contact us asking for an audit, review, or compilation. The request is because either a third party is asking for one of these services or leadership may feel like a CPA firm is needed to examine their records.
Let’s walk through these three options and discuss the differences:
Compiled financial statements are prepared based on the financial information provided by the organization to the CPA firm. The CPA firm will produce financial statements, which can include footnotes, with a report that states no assurance is given regarding the completeness or accuracy of the information presented. This is most often a letter drafted by the CPA firm that accompanies the financial statements.
There is no preparation needed on the part of the organization for a compilation report. Compiled financial statements can be required when a business owner is applying for a personal loan or other banking matters. More often, a reviewed or audited financial statement is required.
Reviewed financial statements provide limited assurance that there are no material modifications needed for the financial statements to be in conformity with an applicable reporting framework.
The process includes:
Your CPA will need access to your trial balance, bank reconciliations and accrual schedule, deferred revenue, and more. Procedures performed include analytical procedures and inquiry and do not include an assessment of internal controls or the risk of fraud. Reviewed financial statements can be performed to satisfy lenders, investors, and buyers or when you are looking for a smaller loan or a line of credit. Discuss with your lender if a financial statement review is appropriate or if a full audit is required.
The auditor is required to obtain evidence through these processes to confirm that your financial statements are free from material error and/or fraud.
Audited financial statements may be required when raising equity, planning to sell, receiving funding from federal or state governments, or looking for extended credit or significant financing.
To decide which type of financial statement service is the best option for you, discuss your goals with a qualified CPA firm and select the type of service that best fits your needs. Understanding what level of assurance you need can save you time and money.
© 2021 SVA Certified Public Accountants