Stockholders, creditors, and private investors often need assurance that the financial statements accurately represent the true financial position of a company. Stockholders, creditors, or private investors have different levels of risk tolerance, so there are three levels of assurance to meet their needs. An audit provides the highest level of assurance. However, it is also the most expensive. Since we specialize in working with closely-held businesses which rarely have a need for audits, we do not include audits in the services we provide.
Review - Limited AssuranceLess extensive than an audit, but 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 accounting principles generally accepted in the United States of America. 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. Banks sometimes require reviewed financial statements from a CPA as part of their lending covenants.
Compilation - Lowest Level of AssuranceIn compiling financial statements for a client, we present information that is the "representation of management" and express 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 a 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 bank, bonding company, or other parties, as well as your 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. |
