Review and Compilation Services
Which financial statement service best suits your
purpose?
In the course of doing business,
lenders, suppliers and others may request a
financial statement from you. This seemingly simple
request can be expensive and time consuming if you
are not aware of the various services available.
Just as your physician has many
options when examining your physical health, your
CPA has a number of options for determining your
fiscal health.
In a social situation, your doctor
may give you a quick, but not very reliable,
assessment of a health matter based on your
description of your symptoms. The doctor's quick
assessment may give you sufficient assurance about
your condition.
For more worrisome symptoms, you
may undergo extensive testing before your doctor
issues a diagnosis. Each option differs in the time
and money involved, as well as the quality of the
assessment.
Similarly, your CPA can give you a
quick financial report with little time involved. Of
course, the corresponding assurance that accompanies
the report is also minimal.
With considerably more time,
effort and expense, your CPA can audit your
organization and issue a professional opinion on
your financial statements. Between these two
extremes, other levels of financial statement
services are available, depending on your needs.
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What are the levels of service?
The three general levels of
financial statement service your CPA can provide are
compilation, review and audit. Other types of
special services that can be considered hybrids of
the three general service levels are also available.
A separate, distinct service,
known as agreed-upon procedures, illustrates the
range of options. In this service, the client and
the user agree with the CPA on the specific
procedures that will be employed.
Your CPA will present the results
of those procedures instead of supplying a full set
of financial statements. This service may satisfy a
creditor needing assurance that the inventory and
accounts receivable are accurately stated but not
requiring assurance as to the rest of the financial
information.
This solution satisfies the one
making the request for certain financial
information, while saving you much effort and
expense, resulting in a win-win situation.
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Which service do I need?
Many different terms are used to
identify financial statement services. Users may not
always define these terms as you or your CPA would
define them.
To determine the right level of
service, you must precisely ascertain the user's
real need for the financial statement. A clear
understanding can enable you to meet that need
appropriately without wasting resources.
Just as a physician normally does
not use a scalpel to remove a splinter, you should
not contract for an audit when a lower level of
assurance – and professional fees – would be
sufficient. Your company benefits when you discover
and use the right tool for the job.
Your CPA can help you
determine the appropriate level of service
needed when someone requests a financial
statement from you.
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What is a compilation?
A compilation is a rough
equivalent to your doctor's assessment based only on
your description of your symptoms. It is the lowest
level of service your CPA can use to work with your
financial statements.
A compilation involves gaining a
general understanding of your business and
bookkeeping system and presenting your financial
information in the accepted format of proper
financial statements. Your CPA expresses no
assurance about the accuracy of the numbers
presented. The report attached to the financial
statement emphasizes that the service is a
compilation.
While independence is required at
the other levels of service, your CPA does not have
to be independent of your organization to perform a
compilation.
Further options lie within the
compilation level of service. The compilation report
may be a full disclosure report with complete
footnote explanations of certain amounts and
policies contained in the financial statements. Or,
you may opt to omit substantially all of these
otherwise required disclosures. Omission of this
information is not permissible under the other
levels of service.
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What is a review?
A review is conducted when a lower
degree of assurance than an audit is acceptable, yet
the user wants to know that a professional has
performed some analysis of the statements.
Frequently, clients or users think
they need an audit when a review or even a
compilation may satisfy their needs. A review is
significantly smaller in scope than an audit and
thus much less expensive.
During a review, your CPA will
inquire about your business, your accounting
policies and procedures, your industry, operations
and personnel. The CPA will also ask about any
changes in these items and request other pertinent
information.
In addition, your CPA will conduct
a battery of analytical procedures, such as ratio
analysis, comparison of your operating statistics to
prior periods or perhaps to industry averages, as
well as other financial analyses deemed appropriate.
Your CPA's analyses provide a
better understanding of key relationships among
certain numbers. This understanding gives more
assurance about the reasonableness of your financial
condition as presented in your financial statements.
We will be glad to discuss your
needs with you and the user of the financial
statements to decide whether a review will be
sufficient.
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What is an audit?
An audit involves performing
procedures that provide your CPA with enough
assurance to offer an opinion as to whether your
financial statements are fairly presented and are in
conformity with generally accepted accounting
principles.
The auditor's goal is to determine
whether the financial statements are free of
material misstatement. An audit requires extensive
inquiry and study of the organization's policies,
procedures, systems, operations and financial
management.
Items are observed, tested,
confirmed, compared or traced based on the auditor's
judgment of their importance and risk. After
gathering sufficient evidence through this process,
an auditor can issue an opinion about the fairness
of the financial statements.
As an additional benefit, the
auditor may become aware of some inefficiencies or
weaknesses in the organization's systems and offer
suggestions for improvement.
Comparing Levels of Service
| |
Audit |
Review |
Compilation |
| Acquire understanding of
the nature of business transactions, form of
accounting records, qualification of
accounting personnel, statement basis, form
and content |
x |
x |
x |
| Inquire about unusual
account fluctuations |
x |
x |
x |
| Perform analytical review
and ratio analysis |
x |
x |
|
| Document understanding of
client's business and internal controls
|
x |
|
|
| Perform substantive tests
|
x |
|
|
| Report upon material
internal control deficiencies (reportable
conditions) |
x |
|
|
| Issue report even if all
informative disclosures have not been made
|
|
|
x |
| Permit accountant who is
not independent to issue report |
|
|
x |
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How you benefit from our
services
Business knowledge and
experience –
Preparing financial statements is much more than a
typing service for us. Through years of working with
hundreds of organizations in diverse industries, we
have gained extensive experience helping clients
deal with commerce today.
Just as your physician takes your
vital signs, expands on those tests and makes
recommendations for your better health, we follow a
similar model in working with our clients and their
financial statements.
Other related services
– Please ask us about the following types of
services that can contribute to your success:
- Bookkeeping/write-up
- Business succession planning
- Cash flow and budgeting
analysis
- Consulting services
- Financial forecast and
projections
- Other comprehensive basis of
accounting (OCBOA) statements
National access to
professionals –
Hunter Group is a founding member of CPAmerica
International – a worldwide network of CPA and
consulting firms. Our membership allows us to make
available to you the business knowledge and
resources of thousands of CPAs across the country
and around the world.
For more information, please call
201-261-4030 to make an appointment.
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© May 2007 CPAmerica International
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