Key Points to Help Determine the Best Service for Reviewing Your Business’ Financial Statements
If your business is in need of reviewing their financial statements, they will undergo one of three processes: a compilation, a review or an audit. Each service meets a different need, and there are several factors that a CPA takes into consideration when determining the most suitable option for their client. For a business owner, understanding the difference between compilation, a review and an audit is crucial in helping them identify which service will benefit their business best.
What is a Compilation?
A compilation engagement is the lowest level of service provided by a CPA. It is generally used for smaller, privately held companies which do not require extensive review from outside parties. A CPA’s objective when performing a compilation is to get a general understanding of the client’s business and format their statements to meet basic financial reporting standards. However, the information included in these statements is not reviewed in detail and the CPA will not express an opinion or assure the accuracy of the information reported. While the process is much less invasive than a review or an audit, it can still help ensure that the business displays their financial statements properly and free of any obvious errors.
What is a Review Engagement?
For financial statements that require more mid-level analytics, a review engagement is the most suitable option for a business. While the process involves limited assurance that the financial statements require any material modifications, a CPA is still required to review procedures such as:
- Receipt of all relevant information
- Knowledge of fraud
- Relationships between recorded amounts
The CPA will also review these, along with other information on the statement, to identify questionable trends in financial information that would require explanation. While still not an overly extensive process, it involves a higher level of observation than a compilation agreement, without overly scrutinizing business processes and testing information.
Understanding an Audit Agreement
Businesses that require an extensive review of their financial statements can turn to an audit agreement for the highest assurance. This service requires the auditor to observe, test and confirm various elements of the business and financial statement to form an opinion on whether the statement is free of questionable deficiencies—from both a formatting and procedural standpoint. Some areas of analysis include:
- Testing documents regarding account balances/transactions
- Analyzing variances in account balances
- Confirming accounts receivable and accounts with a third party
- A more extensive review of the business to gain understanding of the organization, including management inquiries and known fraud or error
Once the auditor completes their review, they must form an opinion on the validity of the business’ financial statements. An audit arrangement can aid a business in improving their processes by pinpointing weaknesses that may have otherwise been overlooked.
Contact a Business Accountant For Your Business Review
Whether you are looking for a basic review of your company’s financial statements or a more high-level analysis, it is important to know every option available to your business. A CPA can provide information on additional procedures covered under each agreement to determine the most beneficial service.
If you are seeking a compilation, review or an audit for your business please call Acosta Tax & Advisory, PA at 954-239-8365 to schedule a free consultation and discuss details with our accountant.
* This is not direct legal or tax advice – please consult with a CPA to discuss your specific situation.