July 25, 2016

Audits-Reviews-Compilations

Audit-skillsStockholders, creditors, and private investors often need assurance that the financial statements accurately represent the true financial position of a company.

Different users have different levels of risk tolerance, so we provide three levels of assurance to meet your needs:

Audit: The Highest Level of Assurance

An audit provides the highest level of assurance on the financial statements. Our work includes a review of internal controls, testing of all material records and communication with third parties such as customers, vendors, banks and your attorneys. The auditors’ report will state that "in our opinion, the financial statements are fairly stated in accordance with the method of accounting used by the company." Fairly stated implies that the statements are free of material misstatements. It would be cost-prohibitive to perform sufficient testing to state that the statements are error free.

An Audit allows you to...
  • Obtain bank and other external financing.
  • Help deter and detect material fraud and error.
  • Facilitate the purchase and sale of businesses.
  • Satisfy stakeholders such as employees, customers, suppliers and pressure groups, as well as the investing community, as to the credibility of published information.
Here's what you get...

You get the highest level of assurance because we test each material financial account for accuracy and reasonableness. By doing this, we understand how your business works, from bottom up, and can provide you with the best business advice we can. Also, we go outside your company to obtain more information. Typically, we'll have written communication with:

  • Your customers, to check outstanding receivable balances,
  • Your banks, to confirm cash or debt balances and terms,
  • Your vendors, to verify outstanding payable balances, and
  • Your attorneys, for information on pending or threatened legal action.

We also perform physical inspections by observing your inventory counting methods and perform test counts. We document and test each operating cycle, including sales and cash receipts, expenses and cash disbursements, and payroll. Our audit papers include a detailed work program to document the examinations and testing performed, as well as the client's supporting work papers.

Review: Limited Assurance

Less 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 perform additional procedures to understand why.

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.

In addition, banks often require reviews from independent CPAs as part of their lending covenants.

Compilation: The 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.

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.

Additional Audit & Attest services designed to evolutionize your business:

Labor Organizations

Employee Benefit and 401(k) Plans