Audit - Highest Level of Assurance
An audit provides the highest level of assurance. An audit is an objective and methodical review and analysis of your financial statements, including the verification of specific information and assertions they include. The auditor determines the nature, timing and extent of the specific procedures needed in accordance with established auditing standards.
Our work includes a review of your accounting procedures and internal controls, selection of transactions for testing, and verification of selected transactions with third parties. Based on our findings, we issue 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, investors, donors, customers, suppliers and pressure groups as to the credibility of your information.
- Improve the efficiency and effectiveness of your systems and controls, the accuracy of your information and the profitability of your operations.
- 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 we go outside your company to obtain more information. Typically, we'll have 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.
We also perform physical inspections by observing your inventory counting methods and perform test counts. We 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 documentation of the client's reported balances and results.
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, a review engagement consists primarily of gaining an understanding of your business and your operating procedures and applying analytical procedures to the financial statements your system has produced. If the financial statements or supporting information appear inconsistent or otherwise questionable, we perform additional procedures to resolve the inconsistencies.
A review doesn't require us to test the performance of 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 with less extensive testing and less expense than an audit.
Compilation - Lowest Level of Assurance
In compiling financial statements for a client, we present the "representations of management" in the form of a financial statement. We do not test the accuracy of the information nor do we perform an analysis of the financial statements. Instead, we rely on our knowledge of accounting principles and a general understanding of your business. Accordingly, our compilation report expresses no opinion or assurance on the statements. Banks often require compilations from an independent CPA as part of their lending covenants.
Which Report Should You Use?
Each type of financial statement report may suit specific circumstances, depending on requirements from your client's bank or other parties, 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.
