Accounting and Auditing
Auditing Services - Guide to Financial Statement Services (Compilation, Review and Audit)
If you want to have your finances reviewed by a professional, hiring an auditing firm is the first step. For years, MyCPA LLP’s auditing team has been helping individuals and business owners assess their financial statements, documents, accounting entries, tax returns, and income records. Our evaluations help you make the most of your money while meeting your financial obligations and targets.
You’ve worked hard to get your business off the ground. Business is good— so good that you’re ready to trade up from your leased space and build your own building. You’ve met with the bank and they’ve given you preliminary approval on a loan package. But the bank representative says she needs to see your financial statements before she can finalize your loan.
You know that timely, accurate and understandable financial statements are necessary to gauge how well your business has performed and to assess the strength of its financial position. You know that they are the foundation upon which you make important business decisions.
You can prepare your financial statements in house, but if you’re like many small business owners, you may prefer to have an outside professional to prepare your financial statements in accordance with an accounting framework that is appropriate for your business.
Oftentimes, the certified public accountant (CPA) who performs your general accounting and/or bookkeeping and prepares your annual tax return can also prepare your financial statements and, in addition, perform the appropriate service in order to meet your bank’s requirements. Keep in mind that not all accountants are CPAs. In most states, only a licensed CPA can perform certain services.
Financial Statement Services a CPA can Provide
Basic Financial Statement Preparation
- Intended for business owner’s use to manage the business (similar to what an in-house controller or CFO would provide for management in a larger company)
- May fulfill some lenders’ documentation requirements for small loans
- No formal report issued on the financial statements
If you decide to have a CPA prepare your financial statements, he can do so in any frequency that is most useful for you. Typically, this service is performed in conjunction with bookkeeping or transaction processing services and can be monthly, quarterly or annually. The financial statements are prepared in accordance with an acceptable financial reporting framework. If you’re not sure which reporting framework to use, your CPA can explain the pros and cons of each and the best fit for your business.
The financial statement preparation service is primarily intended for your own use to have current information on the financial standing of your business and to make decisions accordingly. In essence this service is no different from what an in-house controller or CFO would provide to management in a larger company.
You can share your financial statements with outside parties but on each page, your CPA will include a notice that “no assurance is provided” on the financial statements.
Because your CPA will prepare your financial statements directly from the records you provide, the CPA will not verify the accuracy or completeness of the information and is not required to issue a formal report on the financial statements.
Compilation
- Intended for use by lenders and other outside parties who may appreciate the business’s association with a CPA without requiring a level of assurance on the accuracy of financial statements
- Typically appropriate when initial or lower amounts of financing or credit are sought or significant collateral is in place
- CPA issues compilation report
Compilation of financial statements is a service where the role of the CPA is more apparent to outside parties, and as such, the requirements for performing this service are more explicit. For example, if the CPA is not independent from ownership, management and other circumstances in their relationship to you and your business, she is required to disclose the impairment to her independence in her compilation report. The compilation report is the first page before the actual financial statements and is written by the CPA on her firm’s letterhead.
The CPA is also required to read the financial statements in light of the financial reporting framework being used and consider whether the financial statements appear appropriate in form and are free from obvious material misstatements.
However, the CPA does not obtain any assurance for a compilation because she is not required to verify the accuracy or completeness of the information provided or otherwise gather evidence for the purposes of expressing an audit opinion or a review conclusion.
The compilation report states that the CPA did not audit or review the financial statements and accordingly does not express an opinion, a conclusion or provide any assurance on them.
A compilation is typically appropriate when initial or lower amounts of financing or credit are sought or there is significant collateral in place. Though no assurance is provided, outside parties may appreciate your association with a CPA, which is readily apparent in the formal compilation report.
Review
- Intended to provide lenders and other outside parties with a basic level of assurance on the accuracy of financial statements
- Typically appropriate as a business grows and is seeking larger and more complex levels of financing and credit
- CPA issues review report
The review service is one in which the CPA performs analytical procedures, inquiries and other procedures to obtain “limited assurance” on the financial statements and is intended to provide a user with a level of comfort on their accuracy. The review is the base level of CPA assurance services.
Similar to a compilation, the CPA is required to determine whether he is truly independent. If he determines that he is not independent, the CPA cannot perform the review engagement.
In a review engagement, your CPA is required to understand the industry in which you operate — including the accounting principles and practices generally used in the industry. Your CPA is also required to obtain knowledge about you — including your business and the accounting principles and practices that you use — sufficient to identify areas in the financial statements where it is more likely that material misstatements may arise.
A review is substantially narrower in scope than an audit. A review does not contemplate obtaining an understanding of your business’s internal control; assessing fraud risk; testing accounting records through inspection, observation, outside confirmation or the examination of source documents or other procedures ordinarily performed in an audit.
In a review engagement, the CPA will issue a formal report that includes a conclusion as to whether, based on the review, he is aware of any material modifications that should be made to the financial statements in order for them to be in accordance with the applicable financial reporting framework.
A review typically is appropriate as a business grows and is seeking larger and more complex levels of financing and credit. It is also useful when you, as the business owner, are seeking greater confidence in your financial statements for the purpose of evaluating results and making key business decisions.
Audit
- Intended to provide creditors, investors and other outside parties with a high level of comfort on the accuracy of financial statements
- CPA issues a formal report that expresses an opinion on whether the financial statements are presented fairly, in all material aspects, in accordance with the applicable financial reporting framework
- Typically appropriate and often required when seeking high levels of financing or outside investors, or when selling a business
The audit is the highest level of assurance service that a CPA performs and is intended to provide a user comfort on the accuracy of the financial statements. The CPA performs procedures in order to obtain “reasonable assurance” (defined as a high but not absolute level of assurance) about whether the financial statements are free from material misstatement.
In an audit, your CPA is required to obtain an understanding of your business’s internal control and assess fraud risk. Your CPA is also required to corroborate the amounts and disclosures included in your financial statements by obtaining audit evidence through inquiry, physical inspection, observation, third-party confirmations, examination, analytical procedures and other procedures.
When performing an audit engagement, the CPA is required to determine whether her independence has been impaired. Similar to a review, if her independence has been impaired, the CPA cannot perform the audit engagement.
The CPA will issue a formal report that expresses an opinion on whether the financial statements are presented fairly, in all material aspects, in accordance with the applicable financial reporting framework. In addition, the CPA is required to report to you any significant or material weaknesses in your system of internal control that are identified during the audit. By becoming aware of internal control weaknesses and discussing these with your CPA, you might be able to improve the way you do business.
As the highest level of assurance, an audit typically is appropriate and often required when you’re seeking complex or high levels of financing and credit. An audit also is appropriate if you’re seeking outside investors or preparing to sell or merge with another business.
Consult the following chart for a comparison of financial statement preparation, compilation, review and audit services.
If you’d like to learn more about the financial auditing services offered by our team, give us a call at (818) 783-3577. We look forward to working with you!
Helping You Prepare Accurate Financial Statements
Our auditing services are designed to help you understand your financial situation in detail. Our team will review your finances and assess your accounting strategies to see if any improvements and changes need to be made. We’ll ensure that every dollar you spend and earn is accounted for and that your taxes are being filed correctly and on time.
Our experts will pay close attention to the details and let you know if we recommend making any changes to your approach. We don’t only suggest these changes, we’re also prepared to help you make them. We provide a full range of accounting services to help you reach financial success.
To learn more about our many accounting and financial services, don’t hesitate to contact us today.
Ensure Accurate Records with Our Professional Auditing Services
When it comes to growing your wealth and protecting your finances, ensuring that your records are accurate is essential. Understanding and documenting your money flow can help you:
- Reduce errors in financial record-keeping
- Reduce your tax burden
- Plan for your financial future
- Avoid penalties from revenue agencies
If you’d like to learn more about what our auditors can do for you, please connect with our experts directly.
Improve Your Financial Processes with an Audit from MyCPA LLP
There are always improvements to be made to your financial processing, whether you’re working with a sophisticated bookkeeping system or a simple record-keeping process. Our team will take the time to assess the ins and outs of your current strategy, understand what approaches are holding your business back, and how we can improve your processes to reduce costs and avoid errors in the future.
Superior Auditing Services You Can Count On
Our experts have years of extensive experience working with individuals and institutions. We have the knowledge to assess your financial strategies and understand a better way forward. Our experts will provide you with personalized recommendations and we’ll be happy to answer your questions and address your concerns.
To get started on your professional financial audit, give us a call or send an email to our firm at your convenience.
Contact MyCPA LLP Today!
MyCPA LLP knows how important it is to keep track of your finances. If you want to have your financial strategies audited by an expert or if you’re being audited by the national revenue service, be sure to give us a call. We’ll bring you up to date on what changes should be made, what obligations you’ve yet to meet, and how to grow your wealth into the future.
For auditing services from an established local professional, call (818) 783-3577 to reach our team.