Audits, Reviews and Compilations

Audit - Highest Level of Assurance

An audit provides the highest level of assurance. An audit is a statistical review and objective examination of the financial statements, including the verification of certain specific information as determined by the auditor or as established by general practice.

This work includes a review of internal controls, testing of selected transactions, and corroboration from third parties of certain balances. Based on audit findings, the auditor issues a report on whether the financial statements are fairly stated and free of material misstatements.

An Audit allows you to...

• Satisfy stakeholders such as employees, customers, suppliers and pressure groups, as well as the investing community, as to the credibility of published information.
   
• Facilitate the payment of corporate tax, goods and services tax, and other taxes on-time and accurately, thereby avoiding interest, penalties, and investigations.
   
• Comply with banking covenants.
   
• Help deter and detect material fraud and error.
   
• Facilitate the purchase and sale of businesses.
   

Here's what you get...

You get the highest level of assurance because the auditor goes outside your company to obtain more information. Typically, the auditor makes 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.

Auditors also perform physical inspections by observing your inventory counting methods and perform test counts. They document and test each operating cycle, including sales and cash receipts, expenses and cash disbursements, and payroll. Our audit papers include a detailed work program to document the examinations and testing performed, as well as the client's supporting work papers.

Audits Not Just for Public Entities

All public companies are required to have an annual audit, but some nonpublic entities must undergo an annual audit as well. These include local governments, not-for-profit agencies and other organizations receiving government grants.

Moreover, some financial institutions require audits of nonpublic companies based on the financing amount and/or the bank's assessment of the company's risk. Also, companies with absentee ownership (such as those owned by investment firms, or individuals who no longer run the business) may order audits as checks of their management teams.

Review - Limited Assurance

Less extensive than an audit, but more involved than a compilation, a review engagement 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 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 review engagement? 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 based on the "representation of management" and express no opinion or even limited assurance on the statements being presented. Compilations don't require inquiries of management or analytical procedures. Instead, we rely on our knowledge of accounting principles and a good general understanding of your business and industry.

Banks often require compilations from an independent CPA as part of their lending practices.

Which Report Should You Use?

Each type of financial statement report may suit specific circumstances, depending on requirements from your bank or other parties (lenders or shareholders), as well as meet budgetary needs.

Understanding each report's unique strengths and weaknesses can help you choose the most appropriate one. Please call if you have questions about which type of report is right for you or complete the form below for a Free Consultation.