Our firm provides two basic levels of financial statement attest services: Reviews, and Compilations. Here is a brief explanation of the difference between each type of attest service.
Compilations – lowest level attest service
A compilation provides no assurance on an organization’s financial statements. A compilation involves obtaining financial data provided by the organization’s management and rearranging the information in a financial statement format that complies with generally accepted accounting principles. There is no testing or analytical procedures performed during a compilation. A compilation may be useful when a Company has limited in house accounting staff for the preparing of financial statements and if neither the firm, its creditors, nor other relevant outside parties require any level of assurance as to the accuracy of the financial statements. In a compilation, the CPA is not required to be independent, nor is it required that the financial statements include all required footnotes. However, if the CPA is not independent and if certain required footnotes have been omitted, the compilation must state that the CPA is not independent and that some footnotes have been omitted to ensure that there is no intent to mislead the users of the financial statements.
Reviews – medium level attest service
A review provides limited assurance on an organization’s financial statements. During a review, inquiries and analytical procedures present a reasonable basis for expressing limited assurance that no material modifications to the financial statements are necessary in order that the financial statements are in conformity with generally accepted accounting principles. In an audit, the CPA must be independent of the client and the financial statements must contain all footnotes required by generally accepted accounting principles. This type of limited analysis is useful when the organization needs some assurance about their financial statements, but not the higher level of assurance provided by an audit.
However, it is important to keep in mind that during a review, a CPA does not confirm balances with banks or creditors, observe inventory counting, or test selected transactions by examining supporting documents. However, in many instances, a review—with its limited assurance —may be adequate for a business or its creditors. If more assurance is necessary, the organization may need to engage a CPA to perform an audit.
Audits – highest level attest service (not provided by David E Tepper, CPA, PLLC at this time)
An audit provides the highest level of assurance on an organization’s financial statements, assurance that an organization’s financial statements are free of material misstatement and are fairly presented based upon the application of generally accepted accounting principles. In an audit, the CPA must be independent of the client and the financial statements must contain all footnotes required by generally accepted accounting principles.
An audit includes: confirmation with outside parties, testing selected transactions by examining supporting documents, completing physical inspections and observations, considering and evaluating the internal control system of the organization. In an audit, the CPA generally confirms balances with banks or creditors, observes inventory counting, and tests selected transactions by examining supporting documents. In addition, the CPA contacts sources outside the client organization to gather information that may be more objective than that obtained from internal sources. For example, the CPA usually obtains written confirmation from a client’s customers about amounts owed to the client at a specific date.