Financial Statement Review & Compilation
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Stockholders, creditors, and private investors often need assurance that the financial statements accurately represent the true financial position of a company. One effective way to provide this assurance is through a financial statement review.
Your stockholders, creditors, or private investors have different levels of risk tolerance, so we provide three levels of assurance to meet your needs, including the option of a financial statement review.
Here’s what you get…
You get the highest level of assurance because 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.
Review – Limited Assurance:
A financial statement review is more involved than a compilation but less extensive than an audit. It 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 financial statement 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 financial statement review? It can be a good middle ground, providing the advantages of a CPA’s technical expertise without the work and expense of an audit.
Compilation – Lowest Level of Assurance:
In compiling financial statements for a client, we present information that is the “representation of management” and express 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. Whether it’s a comprehensive audit, a moderate financial statement review, or a basic compilation, it depends on requirements from your client’s bank or other parties, as well as meeting budgetary needs.
Understanding each report’s unique strengths and weaknesses, including those of a financial statement review, can help you choose the most appropriate one. Please call if you have questions about which type of report is right for you.
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