Stockholders, creditors, and private investors often need assurance that the financial statements accurately represent the true financial position of a company. Your stockholders, creditors, or private investors have different levels of risk tolerance, so we provide three levels of assurance to meet your needs.
An audit provides the highest level of assurance. An audit is a methodical review and objective examination of the financial statements, including the verification of specific accounting documents and information as determined by the auditor or as established by AICPA professional standards.
Our work includes a review of internal controls, testing of selected transactions, and communication with third parties. Based on our findings and audit documentation, we issue a report on whether the financial statements are fairly stated and free of material misstatements.
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 the client's supporting work papers.
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.
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.
In compiling financial statements for a client, we present information that is the "representation of management" and expresses no opinion or assurance on the statements. Compilations don't require inquiries of management or analytical procedures. Instead, we rely on our knowledge of accounting principles and a general understanding of your business.
Banks often require compilations from an independent CPA as part of their lending covenants.
Each type of financial statement report may suit specific circumstances, depending on requirements from your 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.
Call us today at 516-868-4877 and ask for Douglas Mirman if you have questions about which type of report is right for you. We offer a FREE initial consultation for business owners.
Turman & Eimer, LLP is a Nassau County based CPA firm serving the Tri-State area. The accounting staff at Turman & Eimer, LLP specialize in individual tax returns, business tax returns, bookkeeping, QuickBooks, payroll, and financial management. Our experienced certified public accountants know the IRS Tax Code and how to make sure your company remains profitable and in compliance.