What is the difference between Audits, Reviews & Compilations?
Allday CPA’s can provide reports that contain different levels of assurance regarding the information in our client’s financial statements. Depending of the type of service our client’s lenders, investors, shareholders, or other financial information users experience varied levels of comfort.
In order to identify the type of service that your company needs it is important for your organization to understand the significant differences between the CPA reports.
Audit, review and compilation are the three main levels of financial statement reports.
|| What is a Compilation?
A compilation is the lowest level of service that a CPA can provide for our client’s financial statement. The objective of a compilation is to present the information, consistent with management’s representation in the form of financial statements without expressing any assurance that there are no material modifications that should be made to the financial statements. The CPA’s report will not express an opinion or provide any assurance regarding the financial statements. If Allday CPA’s notice that the information that is supplied by the client is incorrect or misleading, the information must be revised or additional information must be obtained.
Allday CPA’s do not have to be independent of your organization to perform a compilation. The compilation report must state that the CPA is not independent.
Who needs a compilation report?
Compilations are a useful tool for small business owners wanting to understand the financial health of their company. It is recommended that small business owners consider an annual compilation at minimum if they are growing or have concerns about their financial performance.
|| What is a Review?
A review engagement provides limited level of assurance that the financial statements are not materially misstated in conformance with generally accepted accounting principles (GAAP).
A Review requires an accountant to perform more procedures than is required with a compilation. A review does not involve verifying or testing financial data. It determines if the information appears reasonable using analytical procedures on financial data and interviews with management related to the amounts and disclosures in the financial statement.
The scope of a review is substantially less intensive than an audit. Review engagements provide less assurance to the financial statement user because Allday CPA’s does not perform many audit procedures. Allday CPA’s cannot express an opinion on the fairness of the financial statements taken as a whole.
Allday CPA’s perform some of the following procedures to complete a review:
- Accounting principles inquiries
- Procedures for recording financial information
- Records from owners’ or directors’ board meetings
- Written representations from management regarding the accuracy of all information given to the CPA
- Management’s responsibility for internal control
- Management’s responsibility to prevent and detect fraud
- Information related to any significant subsequent events
- Analytical procedures regarding comparisons
- Ratio Analysis on financial statement accounts
Who needs a review?
For small business owners and nonprofits who need to submit financial information to third party creditors and regulatory agencies, but are not required to undergo an audit Allday CPA’s can provide a review. Additionally, if you are a small business owner who is not actively involved in the day-to-day management of the company and need to see the financial performance of the business.
|| What is a Audit?
An audit is the highest level of assurance offered by CPA’s. The objective is to provide a reasonable basis for expressing an opinion regarding the financial statements taken as a whole. The preparation for a financial statement audit involves evaluation of accounting methods and financial reporting processes. Allday CPA’s provides consulting services to assist small business owners challenged with meeting their financial reporting and regulatory obligations.
Allday CPA’s gains knowledge and understanding of your internal control systems. The audit report states that an audit was performed in accordance with generally accepted auditing standards, and it expresses an opinion that the financial statements present fairly your financial position and results of operations.
Allday CPA’s auditors remain independent from the small business so that the audit opinion is objective.
Some of the more important auditing procedures include:
- Understand the company’s operations and financial reporting
- Fair presentation of financial statements that are free from material misstatement whether due to fraud or error
- Evaluate and understand the internal control system
- Perform analytical procedures
- Test supporting documents account balances or classes of transactions
- Observe physical inventory
- Confirm accounts receivable and other accounts with a third party
Who needs an audit?
Audit reports are primarily for small businesses who have investors, lenders or creditors which may require an audit to know the state of your current financial condition. They may base their financial decisions after reviewing your business audit. During succession planning business owners request to have an audit. Some companies have regulatory reasons to prepare an audit.
With a clear understanding of what is needed, a small business owner can select between an audit, a review or a compilation. Contact us at 504-835-4213 to provide you with one of the reports.