CPA Firm Shows How Audits, Reviews and Compilations Differ
As a business owner, your financial statements are key to the decisions that you make on a daily basis. Throughout the lifecycle of your business, you must provide your financial statements to other parties, such as financial institutions, shareholders, or investors. That said, your financial statements take on greater value when accompanied by a CPA report.
To be sure, there are several types of reports that your CPA firm can provide. However, the type that you’ll need from your accounting firm prepares usually depends upon who the financial report is being prepared for, along with the purpose.
There are three levels of CPA reporting services in relation to financial statements—audits, reviews, or compilations. Here are a few of the more common questions, as it relates to each:
When should you request an audit?
What is the value of presenting a CPA review, in lieu of an audit?
Will your investor(s) accept a compilation report?
The answer to each question lies in understanding the differences between each of the three options. Likewise, as a business owner it is incumbent upon you to deliver ensure that you select the most appropriate report for the circumstances.
What is a CPA Audit?
An audit of your financial statements generally represents the highest level of service that your CPA firm provides. The objective of an audit report is to give the person reading the financial statements an opinion on whether the statements were prepared in accordance with generally accepted accounting principles (GAAP).
An audit isn’t just about putting numbers on paper. It involves a rigorous and detailed procedure consisting of observations, testing, confirmation, comparisons, and the tracking of relevant information. An unqualified opinion is the best to be obtained, but even a qualified opinion carries significant weight and may be worth the investment.
A Review Versus a Compilation
A review or compilation is significantly different from an audit. They do not provide the reader of the financial statements with the level of confidence that comes with an audit. Additionally, neither of these CPA services involves the rigorous and analytical procedures employed in an audit.
In a review, the CPA firm provides a limited opinion as to the statements conformity with GAAP. The intensity of a review versus an audit does not allow the CPA to provide an opinion as to the fairness of the financial statements.
A compilation is the lesser of the three CPA reporting services. Essentially, such a procedure only involves assisting the business owner to present the financial statements and does not include any opinion on the statements. Hence, the reader of a financial statement that is accompanied by a CPA compilation report may express less confidence, than if the opinion was based on a review.
Which Type of CPA Report to Use
The following factors might impact whether you ask your CPA firm to provide an audit, review or compilation report:
Purpose of the Financial Statements – If the financial statements are needed to make internal decisions, then a compilation may suffice. On the other hand, where the purpose of the financials is to give a potential investor an idea of the financial state of the business, a review or audit may prove more appropriate.
The Stakeholder’s Needs – Lending institutions, shareholders, and investors are more inclined to place greater value on an audited financial statement, than they would on just a compilation.
Financial Costs – The detailed process associated with an audit involves specialized skills and many working hours. Accordingly, this type of CPA reporting service will cost more money that a review. On the other hand, a compilation service is the least expensive of the three.
It is imperative that you ascertain what is required by the person or entity requesting the financial statements. In some instances, your local laws and regulations will dictate what type of report is required.
Now that you know the differences between the three reporting services, you are in a better position to balance the financial cost versus your need to gain the confidence of the entity viewing your financial statements.
A CPA Firm for All of Your Auditing, Review and Compilation Needs
Whether your situation calls for an audit, review or compilation; you can count on Ash Wasilidas, CPA Firm to handle all of your accounting needs. Additionally, Ash CPA provides accounting services to both for-profit and nonprofit organizations. With over 20 years of bookkeeping and accounting experience, along with an A+ BBB rating, we are well-prepared to exceed your expectations.
Call Ash Wasilidas, CPA practice in Framingham, MA today at (617) 462-6651. Alternatively, you may make an appointment to visit us at:
Ash Wasilidas, CPA
945 Concord Street #100
Framingham, MA 01701