When you need assurance of your financial position, it’s not enough just to know where you stand today. What is more important is where will you be tomorrow?
Audits, Reviews and Compilations
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 service to meet your needs.
What is an Audit engagement?
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.
An Audit allows you to…
- Satisfy stakeholders such as employees, customers, donors, suppliers and pressure groups, as well as the investing community, as to the credibility of published information;
- Comply with banking covenants;
- Help deter and detect material fraud and error, and
- Facilitate the purchase and sale of businesses.
Following is a summary of some things you get from having us perform an audit:
You get the highest level of assurance because we go outside your company to obtain and verify information. Typically, we will 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 the client’s supporting work papers.
Are Audits just for publicly traded companies?
Audits Are not just for publicly traded companies.
All public companies are required to have an annual audit, but many nonpublic entities must undergo an annual audit as well. These include local governments, not-for-profit agencies and other organizations receiving government grants. Not-for-Profit receiving donations in excess of $2m. 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 require audits as checks of their management teams.
What is a Review engagement?
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 does not 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.
Make a list of the top 10 questions people ask you about your business, services, or products. That’s a good start.
What is a Compilation engagement?
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 do not 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.
Which report should you use?
Each type of financial statement report may suit specific circumstances, depending on requirements from your bank or other parties, as well as that meet budgetary needs.
Understanding each report’s unique strengths and weaknesses can help you choose the most appropriate one.
How can we get more information?
Call us today at (408) 98 My Tax/(408) 986 9829 or (408) 986 9826 and get answers to your questions. You can also email us at email@example.com or fax us at (408) 986 9831.