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Complilation or Review or Audit, Which Do I Need?

There are three levels of financial statement services that a CPA can provide.  Each is differentiated by the extent of work required by our professional standards and naturally the more work required (and the larger the third party legal exposure), the higher the fee amount.  These levels are as follows:

 

Compilation without disclosures (ie: notes to the financial statements) and a statement of cash flows which involves taking the financial results that are generated from your accounting system, reading your financial statements, insuring that the bank accounts have been successfully reconciled, adequately documenting all material assets and liabilities to the financial statements and utilizing my professional judgment, analyzing selected balance sheet and/or income statement accounts.  My report will state that I have not audited or reviewed the accompanying financial statements and, accordingly do not express an opinion or provide any assurance about whether in accordance with accounting principles generally accepted in the United States of America.  My report will also state that the additional financial statements and disclosures which are required in accordance with accounting principles generally accepted in the United States of America are not presented.

 

Compilation with disclosures (ie: notes to the financial statements) and a statement of cash flows which involves taking the financial results that are generated from your accounting system, reading your financial statements, insuring that the bank accounts have been successfully reconciled, adequately documenting all material assets and liabilities to the financial statements and utilizing my professional judgment, analyzing selected balance sheet and/or income statement accounts.  There is no study and evaluation of internal control and no vouching of transactions contemplated.  My report will state that I have not audited or reviewed the accompanying financial statements and, accordingly do not express an opinion or provide any assurance about whether in accordance with accounting principles generally accepted in the United States of America.

 

Review which involves taking the financial results that are generated from your accounting system, reading your financial statements, insuring that the bank accounts have been successfully reconciled, adequately documenting all material assets & liabilities to the financial statements and utilizing my professional judgment, analyzing selected balance sheet  and/or income statement accounts.  In addition, I will also apply analytical procedures such as trend analysis (this year compared to last year and this year’s budget) to identify materially differences from expectations for which I would interview that appropriate members of finance committee and/or accounting staff in order to obtain reasonable explanations.  There is no study and evaluation of internal control and no vouching of transactions contemplated.  My report will state that a review is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole and accordingly, that I do not express such an opinion.

 

Audit (Examination) which involves all of the above along with a study and evaluation of internal control, vouching of transactions and outside third party account balance confirmations.  This services is highest level of work required by our professional standards and the largest the third party legal exposure.  It is quite costly and most entities engage CPAs for this service only when required by law, debt agreement or absentee ownership interests.