Compilation and Review Services

Which financial statement service best suits your purpose?

In the course of doing business, lenders, suppliers and others may request a financial statement from you. This seemingly simple request can be expensive and time consuming if you are not aware of the various services available.

Just as your physician has many options when examining your physical health, your CPA has a number of options for determining your fiscal health.

In a social situation, your doctor may give you a quick, but not very reliable, assessment of a health matter based on your description of your symptoms. The doctor's quick assessment may give you sufficient assurance about your condition.

For more worrisome symptoms, you may undergo extensive testing before your doctor issues a diagnosis. Each option differs in the time and money involved, as well as the quality of the assessment.

Similarly, your CPA can give you a quick financial report with little time involved. Of course, the corresponding assurance that accompanies the report is also minimal.

With considerably more time, effort and expense, your CPA can audit your organization and issue a professional opinion on your financial statements. Between these two extremes, other levels of financial statement services are available, depending on your needs.

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What are the levels of service?

The three general levels of financial statement service your CPA can provide are compilation, review and audit. Other types of special services that can be considered hybrids of the three general service levels are also available.

A separate, distinct service, known as agreed-upon procedures, illustrates the range of options. In this service, the client and the user agree with the CPA on the specific procedures that will be employed.

Your CPA will present the results of those procedures instead of supplying a full set of financial statements. This service may satisfy a creditor needing assurance that the inventory and accounts receivable are accurately stated but not requiring assurance as to the rest of the financial information.

This solution satisfies the one making the request for certain financial information, while saving you much effort and expense, resulting in a win-win situation.

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Which service do I need?

Many different terms are used to identify financial statement services. Users may not always define these terms as you or your CPA would define them.

To determine the right level of service, you must precisely ascertain the user's real need for the financial statement. A clear understanding can enable you to meet that need appropriately without wasting resources.

Just as a physician normally does not use a scalpel to remove a splinter, you should not contract for an audit when a lower level of assurance – and professional fees – would be sufficient. Your company benefits when you discover and use the right tool for the job.

Your CPA can help you determine the appropriate level of service needed when someone requests a financial statement from you.

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What is a compilation?

A compilation is a rough equivalent to your doctor's assessment based only on your description of your symptoms. It is the lowest level of service your CPA can use to work with your financial statements.

A compilation involves gaining a general understanding of your business and bookkeeping system and presenting your financial information in the accepted format of proper financial statements. Your CPA expresses no assurance about the accuracy of the numbers presented. The report attached to the financial statement emphasizes that the service is a compilation.

While independence is required at the other levels of service, your CPA does not have to be independent of your organization to perform a compilation.

Further options lie within the compilation level of service. The compilation report may be a full disclosure report with complete footnote explanations of certain amounts and policies contained in the financial statements. Or, you may opt to omit substantially all of these otherwise required disclosures. Omission of this information is not permissible under the other levels of service.

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What is a review?

A review is conducted when a lower degree of assurance than an audit is acceptable, yet the user wants to know that a professional has performed some analysis of the statements.

Frequently, clients or users think they need an audit when a review or even a compilation may satisfy their needs. A review is significantly smaller in scope than an audit and thus much less expensive.

During a review, your CPA will inquire about your business, your accounting policies and procedures, your industry, operations and personnel. The CPA will also ask about any changes in these items and request other pertinent information.

In addition, your CPA will conduct a battery of analytical procedures, such as ratio analysis, comparison of your operating statistics to prior periods or perhaps to industry averages, as well as other financial analyses deemed appropriate.

Your CPA's analyses provide a better understanding of key relationships among certain numbers. This understanding gives more assurance about the reasonableness of your financial condition as presented in your financial statements.

We will be glad to discuss your needs with you and the user of the financial statements to decide whether a review will be sufficient.

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What is an audit?

An audit involves performing procedures that provide your CPA with enough assurance to offer an opinion as to whether your financial statements are fairly presented and are in conformity with generally accepted accounting principles.

The auditor's goal is to determine whether the financial statements are free of material misstatement. An audit requires extensive inquiry and study of the organization's policies, procedures, systems, operations and financial management.

Items are observed, tested, confirmed, compared or traced based on the auditor's judgment of their importance and risk. After gathering sufficient evidence through this process, an auditor can issue an opinion about the fairness of the financial statements.

As an additional benefit, the auditor may become aware of some inefficiencies or weaknesses in the organization's systems and offer suggestions for improvement.

Comparing Levels of Service
  Audit Review Compilation
Acquire understanding of the nature of business transactions, form of accounting records, qualification of accounting personnel, statement basis, form and content x x x
Inquire about unusual account fluctuations x x x
Perform analytical review and ratio analysis x x  
Document understanding of client's business and internal controls x    
Perform substantive tests x    
Report upon material internal control deficiencies (reportable conditions) x    
Issue report even if all informative disclosures have not been made     x
Permit accountant who is not independent to issue report     x

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How you benefit from our services

Business knowledge and experience – Preparing financial statements is much more than a typing service for us. Through years of working with hundreds of organizations in diverse industries, we have gained extensive experience helping clients deal with commerce today.

Just as your physician takes your vital signs, expands on those tests and makes recommendations for your better health, we follow a similar model in working with our clients and their financial statements.

Other related services – Please ask us about the following types of services that can contribute to your success:

National access to professionals – Our firm takes pride in its affiliation with CPAmerica International – a worldwide network of CPA and consulting firms. Our membership allows us to make available to you the business knowledge and resources of thousands of CPAs across the country and around the world.

For more information, please call us to make an appointment.

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© May 2007 CPAmerica International