Guide to Financial Statement Services

Guide to Financial Statement Services – Compilation, Review & Audit

As a business owner, there may be many reasons you may need to have your financial statements prepared by an independent licensed Certified Public Accountant (CPA). Whether you are a contractor looking to get licensed in your state, or whether you need financial statements for your bank, lender, investors or bonding company; you might be wondering what all the different types of financial statements are and what are their differences. There are four basic types of financial statements in which the underlying work involved and level of assurance provided varies significantly:

          Prepared Financial Statements (AR-C Section 70) – Note that no official report is issued in a preparation

          Compiled Financial Statements (AR-C Section 80)

          Reviewed Financial Statements (AR-C Section 90)

          Audited Financial Statements

 

Please note your CPA firm must follow the AICPA’s Statement on Standards for Accounting and Review Services (SSARS).

 

Compiled Financial Statements

Compiled financial statements represent the most basic level of service offered by a Certified Public Accountant with respect to financial statements. In a compilation engagement, the CPA presents your financial statements on their letterhead without providing any assurance as to whether there are any material modifications that should be made to your financial statements in order for them to be properly presented under Generally Accepted Accounting Principles (GAAP) maintained in the United States. Basically, the CPA takes your trial balance (financial statements) and imports your numbers into their system and only performs a few high-level tasks such as footing out your company’s retained earnings and making sure the financials are presented in the required form under GAAP. A compilation does not include performing inquiries of management or performing any analytical or other procedures ordinarily performed in a Review or Audit. Compiled financial statements generally range in costs from $1,000 – $5,000 based on the size and complexity of your company and can take 1-3 weeks to complete. SSARS AR-C Section 80 sets the standards for performing Compilation Engagements

 

Reviewed Financial Statements

Reviewed financial statements are the second type of financial statement assurance provided by a CPA. In a Review engagement, the CPA presents your financial statements on their letterhead while providing only limited assurance as to whether there are any material modifications that should be made to your financial statements in order for them to be properly presented under Generally Accepted Accounting Principles (GAAP). This is level of assurance is provided by the CPA to give you comfort that based on the CPA’s review of the financial statements, the CPA is not aware of any material modifications that should be made to the financial statements in order for them to be properly presented. In a Review engagement, the CPA designs and performs inquiries of management and other analytical procedures such as comparing account balances in certain selected accounts and seeking explanations for any variances or significant changes year over year. These will provide a reasonable basis for obtaining the limited assurance required by the CPA in a review engagement. Reviewed financial statements generally range in costs from $4,000 – $15,000 based on the size and complexity of your company and can take 1-4 weeks to complete. SSARS AR-C Section 90 sets the standards for performing Review Engagements.

 

Audited Financial Statements

The third and most complex service and level of assurance offered by a CPA are Audited financial statements. Audited financial statements are much more complex and in-depth and require a substantially larger scope of work than Compiled financial statements and Reviewed financial statements. Audited financial statements provide you, the company, with an opinion letter from the CPA, as to whether or not your financial statements are presented fairly, in all material respects, under U.S. generally accepted accounting principles. An audit requires the CPA to obtain an understanding of your company’s internal controls and to assess your potential fraud risk. The CPA is required to 1) corroborate (gain evidence and confirm) that the amounts and disclosures that your company has presented in their financial statements are correctly stated; 2) perform testing of your company’s internal controls; and 3) to perform other substantive testing procedures which the CPA will select and design in order to gain the proper level of documentary evidence needed to issue an opinion as to whether your financial statements are properly presented and free of material errors. Audited financial statements can cost you anywhere from $10,000 and can go up dramatically depending on the size and complexity of your company’s operations. Audits can also take anywhere from 3 weeks to a number of months to complete. Compiled financial statements and Reviewed financial statements offer much more cost effective solutions and shorter time frames to complete.

If you have any more questions as to any of the four types of financial statement services and their respective levels of assurance or costs, please contact us at GRA CPA.

3 Responses to Guide to Financial Statement Services

  • If I had a business, I would probably need help with my financial statements. I’d be pretty new at everything so going with a CPA would for sure help me out. As you said here, there are three basic types of financial statements. Determining which one to go with would all depend on the level of detail I wanted in the report. It might be a good to go with a compiled one since it’s the least expensive of the lot.

  • We have an internet start up (Virtual World Computing LLC) and we are considering crowd funding. As we would like to raise $535,000, we need to have a review performed on our last two years financials. Could you give us a price and timing estimate on getting a review done?

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