Audits, Reviews and Compilations

Businesses are often required to have a financial statement audit, review or compilation completed at the request of their bank, creditors, stockholders or private investors. An Audit, Review or Compilation is essentially an assurance that the financial statements accurately represent the true financial position of a company. The main difference between the three services is the level of work performed by the CPA firm and the level of assurance the firm is giving that the company’s financial statements are free from material misstatements.

Audit – Highest level of Assurance

You get the highest level of assurance because we go outside your company to obtain more information. Typically, we'll have written communication with:

1. Your customers, to check outstanding receivable balances,
2. Your banks, to confirm cash or debt balances and terms,
3. Your vendors, to verify outstanding payable balances, and
4. 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 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 the Generally Accepted Accounting Principles (GAAP). Reviewed financial statements must include all required footnotes and other disclosures.

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.

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 us if you have questions about which type of report is right for you.

Call us today at 248-655-7040 to arrange a complimentary consultation.