CPA Firms provide three different levels of assurance for their financial reporting. These three, distinct levels are referred to as compilations, reviews, and audits. Although similar in their principles, each type of assurance level is unique. Below is a guide to understanding audits, reviews, and compilations as it relates to financial reports from CPA firms.
With regards to financial reports prepared by CPAs, a compilation provides the least amount of assurance to the company, organization, or not-for-profit. Compilations require outside CPA Firms to collect financial information and data from a client and reorganize that data into financial statements that comply with the generally accepted accounting principles (GAAP), but offer no additional analysis, testing, or conclusions.
Simply put, compilations, or write-up work, offer the value of appropriately formatted financial statements, but do very little in the sense of providing credibility to the information or data found in those financial statements. A compilation is essentially just reformatting provided into the appropriate financial statement.
Compiled financial statements will often come with a compilation report which states that the provided financial statements represent the organization and that the third-party accountant has not audited or reviewed the information and provides no assurance to the validity or accuracy of the statements. If your company is looking for an affordable way to prepare financial statements and are confident in the accuracy of your data, a compilation could be a viable option.
When working with financial statements, the assurance level above compilations is known as a review. Reviews offer a limited level of assurance that the information provided in the financial statements require no material modifications and comply with GAAP standards.
During reviews, CPAs use analytical procedures and inquiries to ensure more certainty and validation for the information in the financial statements. Organizations that want a moderate level of certainty for their financial statements would be wise to hire a CPA Firm to conduct a review.
The highest level of certainty and assurance in financial statement services is known as an audit. When you hire a CPA Firm to conduct an audit, you are looking for assurance that your financial statements are free from material misstatements. The goal of an audit is to provide users such as investors, managers, or lenders, with a high-degree of confidence that the organization’s financial statements are accurate and free from errors or fraudulent claims.
To perform an audit, the CPA will observe, test, compare, objectify, trace, and confirm the data and information they are auditing. After properly evaluating all information, auditors will provide the organization with a report that confirms their findings. Many CPA Firms will also provide additional information about peripheral controls and process inefficiencies that they discover through their audit process.
If your organization needs an audit, review, or compilation, then you should consider hiring Rivero, Gordimer & Company. We’re a Tampa CPA Firm with decades of experience in audits, reviews, and compilations.