FINANCIAL STATEMENT PREPARATION
Our firm provides three levels of service in association with financial statements:
- an audit;
- a review; and
- compilation engagement.
Each of the above services lends different levels of assurance to the financial statements depending on the nature of involvement and requires a different level of documentation and analysis. These different requirements drives the noticeable differences in the cost of each service.
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 information as determined by the auditor or as established by general practice.
The audit process encompasses a review of internal controls, testing of selected transactions, and confirmations from third parties. Audits are designed to assess risks of a material error or misstatements. Based on the level of risk assessed, the auditor prepares an audit response designed to address those risks. Based on the findings, the auditor issues a report on whether the financial statements are fairly stated and free of material misstatements.
Review Engagement
A review engagement provides a moderate level of assurance to the user of the financial statements.
In reviewing financial statements for a client, the public accountant bases his/her work primarily on inquiry, discussion and analysis with the overall of objective of ensuring that the information presented is plausible under the circumstances.
A review is not an audit and therefore all pages contained in a set of reviewed financial statements are clearly marked as un-audited.
In most cases related to small to medium size businesses, review engagements are required by regulatory agencies, financial institutions and other lenders.
Review engagements are cost effective compared to an audit.
Compilation Engagement
In case of compilation, the accountant essentially presents numbers provided by management without expressing his/her own professional opinion. In compilation engagements, an accountant does not make inquiries or nor does he/she carry out an analytical review. The accountant just puts his/her accounting and financial reporting knowledge based on a very limited understanding of the client’s business.
Quite frequently the bankers and other lenders find financial statements compiled by an independent accountant, even though without any assurance, to be useful for their purposes.