~ Author – Cody Domasky CPA, Deluzio & Company – Senior Auditor ~
A question we often receive from clients is what are the levels of accounting and assurance (A&A) services we can provide and which do I need for my company?
1.) Financial Statement Preparation:
This level of service is typically intended for the company to use in-house, but a number of financial institutions now accept prepared financial statements instead of other levels of service. We will utilize the information you provide and prepare financial statements in accordance with an acceptable financial reporting framework (GAAP, cash, tax). We will not issue a formal accountant’s report on our firm’s letterhead, and will include a disclosure on each page of the financial statements that “no assurance is provided” that the financial statements are free from material misstatements. We will not verify the completeness or accuracy of the information provided by the client for this type of engagement.
A compilation is commonly required by lenders for loans and credit extensions. We do not provide any assurance that the financial statements are free from misstatement when providing compilation services. We will assist with the preparation of the financial statements, read the financial statements and consider whether they appear appropriate and free of obvious misstatements, and issue a formal Accountant’s Compilation report attached to the financial statements. Compiled financial statements are a great resource for growing businesses, and may be requested by vendors or banks before doing business.
A review is less substantial than an audit, but we do provide limited assurance over the financial statements. A review is usually required when a company is growing and needs larger or more complex borrowing arrangements from lenders. It is also recommended for use by companies that request additional confidence that their financial statements are accurate for evaluating and making business decisions. We will obtain limited assurance, primarily through client inquiries and analytical procedures, and state in the review report whether we are aware of any material modifications that should be made to the financial statements. A key difference from an audit is that we will not test accounting records and transactions.
An audit is the highest level of assurance service an independent accountant can provide. Audits are typically required by lenders for companies obtaining more significant financing arrangements, by certain regulatory entities, and for companies in the merger/acquisition process. They are also a useful tool for business owners to ensure financial data is accurate and internal controls are in place to assist in preventing fraud or errors in financial reporting. It is important to note that an audit does not provide absolute assurance; however, we will test the accuracy of accounting transactions and balances through procedures such as inspection, observation, confirmation and examination of source documents. We are also required to gain an understanding of the company’s internal control processes and procedures, assess the risk that fraud could occur, and address this risk through audit procedures. We will issue an audit report that states whether the financial statements are fairly presented in accordance with the applicable financial reporting framework. We will also provide a report to management and those charged with governance with opportunities for improvements in internal controls.
For more information or any questions regarding A&A services our firm can provide, please feel free to contact a member of our team.