When CPAs prepare or assist in preparing financial statements, they are required under professional standards to issue a report on those financial statements. This report can be one of three types:
- Audit report
- Review report
- Compilation report
The type of report is determined by mutual agreement between the client and the CPA. This determination usually depends on many factors, such as the needs of the client, needs of creditors or investors, the size and complexity of the business, and other factors. All publicly-held enterprises are required by securities laws to provide annual audited financial statements, while privately-held companies often opt for reviewed or compiled statements. Or, credit agreements with lenders may require audited statements, even for private companies.
Regardless of the level of service performed by the CPA, the financial statements are the primary responsibility of the reporting entity.
We are experienced in performing audits, reviews, and compilations for entities of all kinds and sizes. This experience can be placed at your disposal.
Compiled financial statements represent the most basic level of service CPAs provide with respect to financial statements. In a compilation, the CPA must comply with certain basic requirements of professional standards, such as having a knowledge of the client's industry and applicable accounting principles, having a clear understanding with the client as to the services to be provided, and reading the financial statements to determine whether there are any obvious departures from generally accepted accounting principles (or, in some cases, another comprehensive basis of accounting used by the entity). It may be necessary for the CPA to perform "other accounting services" - such as creating your general ledger, or assisting you with adjusting entries for your books - before the financial statements can be prepared. Upon completion, a report on the financial statements is issued that states a compilation was performed in accordance with AICPA professional standards, but no assurance is expressed that the statements are in conformity with generally accepted accounting principles. This is known as the expression of "no assurance." Compiled financial statements are often prepared for privately-held entities that do not need a higher level of assurance expressed by the CPA.
Reviewed statements require that the CPA perform inquiry and analytical procedures in addition to the procedures described above for a compilation. Upon completion, a report is issued stating that a review has been performed in accordance with AICPA professional standards, that a review is less in scope than an audit, and that the CPA did not become aware of any material modifications that should be made in order for the statements to be in conformity with generally accepted accounting principles, or if applicable, another comprehensive basis of accounting. This is known as the expression of "limited assurance." Reviewed financial statements are often prepared for entities that have bank loans, outside investors, or trade creditors, but those third parties do not require audited statements.
Audited financial statements are the product of a CPA's highest level of assurance services. In an audit, the CPA performs all of the steps indicated above regarding compiled or reviewed statements, but also performs verification and substantiation procedures. These verification and substantiation procedures may include direct correspondence with creditors or debtors to verify details of amounts owed, physical inspection of inventories or investment securities, inspection of minutes and contracts, and other similar steps. Also, the CPA gains a knowledge and understanding of the entity's system of internal control. When the audit is completed, the CPA's standard audit report states that an audit was performed in accordance with generally accepted auditing standards, and expresses an opinion that the fiancial statements present fairly the entity's financial position and results of operations. This is known as the expression of "positive assurance."
As might be expected, compilations are the least expensive service, with reviews being more, and audits being the most expensive service. It is impossible to state costs with certainty, but as a general rule of thumb, a review can be expected to cost about 30% more than a compilation, and an audit can be expected to cost about 30-40% more than a review. Most firms charge for these services based on time expended, and obviously more time is expended as the level of service rises.
We will discuss with you fully all costs for accounting and auditing engagements, including the pros and cons of each level of service, and will assist you in choosing the level of assurance for your financial statements that is appropriate for you.
We want to perform the highest quality professional services available for a reasonable fee. In doing so, we will conform to the high professional standards imposed by the profession in which we practice.
That’s not easy. It takes a stringent system of quality control, and highly qualified and motivated people. It demands dedication and hard work. It means no cutting corners.
We feel a strong sense of duty to our clients - and ourselves - to be true to those our principles.
We speak the language!
For more information, please contact us at 401-942-6900