Compilation
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. 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 to prepare your financial statements.
Business owners will often ask for compilations in order to get a more reliable picture of their financial situation than what a bookkeeper can provide. In addition, compiled financial statements can provide the basis for the preparation of your tax returns. Banks often require compilations from an independent CPA as part of their lending covenants.
Review
More involved than a compilation, a review engagement consists primarily of analytical procedures we apply to the financial statements, and various inquiries we make of your company's management team. If the financial statements or supporting information appear inconsistent or otherwise questionable, we may need to perform additional procedures.
A review doesn't require us to study and evaluate your company's internal controls or verify data with third parties or physically inspect 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.
Audit
An audit is the highest level of assurance that a CPA can provide on your financial statements. An audit is a methodical review and objective examination of the financial statements, including the verification of specific information as determined by the auditor. This includes a review of internal controls, testing of selected transactions, and communications with third parties. Based on our findings we issue a report on whether the financial statements are fairly stated and free of material misstatements.
Our firm does not currently provide audit services. We have a number of audit firms that we are allied with that do provide these services.
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.
