A organization can engage a Certified Public Accountant (CPA) to prepare financial statements. There are three levels of financial statement services: Audits, Reviews and Compilations. The level you require is often determined by the needs of a third party, such as a lending institution or the government.
Here's a short explaination of each:
This is the highest level of assurance on an organization's financial statements. (Assurance is defined as an independent and professional opinion that reduces risk that can arise from incorrect information).
With an audit, the CPA provides assurance that the financial statements are free of material misstatement and are fairly presented based on the application of generally accepted accounting principles (GAAP). An audit includes:
- confirmation with outside parties
- testing selected transactions by examining supporting documents
- risk assessment of the internal control system of the organization
A review is provides a limited level assurance. Often thought of as "a second pair of eyes", a review uses inquiries and analytical procedures to confirm the data for financial statements are accurately compiled and no material modifications are necessary, and presents it in a format to meet GAAP standards. This "second pair of eyes" analysis is helpful when an organization needs some assurance about their financial statements, but not at the in-depth level of an audit.
A compilation provides NO assurance on the organization's financial statements. The CPA takes the financial data provided by the client, presenting the information in a format that meets GAAP standards, but does not test or use analytical procedures on the data.
As mentioned before, a organization is required to choose one level over another, depending on the need. For details and guidance for your needs and circumstances, please contact us.