At Klausner & Company, we can provide our for-profit and non-profit business clients with compiled or reviewed financial statements. It is a common misconception that businesses require audited financial statements. Most of the time, small to medium sized businesses would satisfy any requirements with either compiled or reviewed financial statements.
Why does a business or organization need CPA compiled or reviewed financial statements?
To satisfy third party requirements relating to bonding, bank line of credit or loan covenants, or non-profit grants
To provide potential buyers, investors, or business owners with information measuring the performance of business operations
What is a compilation?
Compiled financial statements represent the most basic level of service CPAs provide with respect to financial statements. In a compilation engagement, the accountant assists management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements. In a compilation, the CPA must comply with Statements on Standards for Accounting and Review Services (SSARSs), which require the accountant to have an understanding of the industry in which the client operates, obtain knowledge about the client, and read the financial statements and consider whether such financial statements appear appropriate in form and free from obvious material errors. A compilation does not contemplate performing inquiry, analytical procedures, or other procedures ordinarily performed in a review; or obtaining an understanding of the entity’s internal control; assessing fraud risk; or testing of accounting records; or other procedures ordinarily performed in an audit. The CPA issues a report stating the compilation was performed in accordance with Statements on Standards for Accounting and Review Services; and that the accountant has not audited or reviewed the financial statements and accordingly does not express an opinion or provide any assurance about whether the financial statements are in accordance with the applicable financial reporting framework.
What is a review?
Reviewed financial statements provide the user with comfort that, based on the accountant’s review, the accountant is not aware of any material modifications that should be made to the financial statements for the statements to be in conformity with the applicable financial reporting framework. A review engagement involves the CPA performing procedures (primarily analytical procedures and inquiries) that will provide a reasonable basis for obtaining limited assurance that there are no material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework. In a review, the CPA designs and performs analytical procedures, inquiries and other procedures, as appropriate, based on the accountant’s understanding of the industry, knowledge of the client, and awareness of the risk that he or she may unknowingly fail to modify the accountant’s review report on financial statements that are materially misstated.
A review does not contemplate obtaining an understanding of the entity’s internal control; assessing fraud risk; testing accounting records; or other procedures ordinarily performed in an audit. The CPA issues a report stating the review was performed in accordance with Statements on Standards for Accounting and Review Services; that management is responsible for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework and for designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements; that a review includes primarily applying analytical procedures to management’s financial data and making inquiries of management; that a review is substantially less in scope than an audit and that the CPA is not aware of any material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework.
To learn more about what appropriate level of financial statements that best fit your business needs, please contact us.
