Compilation - 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. 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 an independent CPA as part of their lending covenants.
Our firm currently does not provide audits or review engagement services, but we can refer you to someone within our CPA network for those services only.
Review - Limited Assurance
Less extensive than an audit, but more involved than a compilation, a review engagement consists primarily of analytical procedures applied to the financial statements, and inquiries of your company's management team.
A review doesn't require a study and evaluation of 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 - 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.
An audit includes a review of internal controls, testing of selected transactions, and communication with third parties. Based on the findings, a report is issued on whether the financial statements are fairly stated and free of material misstatements.
Which Report Should You Use?
Each type of financial statement report suits a specific purpose, depending on the individual requirements from your client's bank or other parties.
Understanding each report's unique strengths and weaknesses can help you choose the most appropriate one. Please call if you have questions about which financial report is right for your business.
