Financial Statement Audits Reviews and Compilations
Almost every organization — whether it’s a privately held business, a publicly owned corporation, or a not-for-profit organization — must prepare reports on its financial performance. Such reports help owners and managers make operating decisions, enable creditors to evaluate loan applications, and provide individuals with information to make investment decisions.
The accounting profession recognizes that different entities have different accounting needs. Acknowledging these differences, the profession has developed standards that enable us as CPAs to offer a range of financial statement services.
An audit is the most extensive service. An audit is appropriate for entities that must offer a higher level of assurance to outside parties. An unqualified opinion from a CPA after an audit provides reasonable assurance to outside parties that the entity’s financial statements fairly present its financial position and results of operation in accordance with certain accounting principles.
A review may be adequate for entities that must report their financial positions to third parties, such as creditors or regulatory agencies. Reviewed financial statements may also be useful to business owners who are not actively involved in managing their companies.
A compilation is useful to small, privately held entities that need help in preparing their financial statements.
In an ironic twist, corporate scandals have brought forth a renewed sense of appreciation for the extensive audit process. Today, companies welcome the assurance that audit reports provide to management and investors alike. These reports involve the consideration of an organization’s systems, internal controls, and financial records over a period of time. Ultimately, the users of the financial statements are looking for confidence that the information being provided has been subjected to an appropriate level of scrutiny. The audit professionals at The LBA Group provide that confidence.
AUDIT Includes such procedures as confirmation with outside parties, observation of inventories, and testing selected transactions by examining supporting documents.
A Clearly Defined Process
Though more highly regarded than ever, the audit process can appear to be complex and cumbersome for management teams. We seek to simplify the process by breaking it down into a series of clearly defined phases.
No other phase of the audit process affects the success of an engagement more than the time invested in planning, including identifying the relevant risks, scopes and detailed audit approach. At The LBA Group, formal planning is not an option. It is a policy.
Interim Field Work
We perform interim procedures at a convenient date prior to the end of the fiscal year in order to create the potential to save time during the critical year-end period. This approach enables us to identify any potential issues and discuss a resolution with management early in the process.
Year-End Field Work
During our year-end audit procedures, we continue to effectively execute our audit plan while ensuring that all critical issues have been resolved. We deliver on our agreed upon duties and provide management, and those charged with oversight, the appropriate and relevant communications.
We believe in close communication with management throughout the performance of the audit. Prior to the beginning of the audit process, we meet with the management team to discuss our audit approach and to address any issues or concerns. We request that a specific member of the management team serve as a dedicated representative for us to communicate with during our audit engagement. This communication includes progress reports, discussion of unresolved issues, audit findings and any administrative issues.
The LBA Group’s audit methodology features a computer-based electronic workpaper documentation system that provides our auditors with simultaneous access to audit workpapers and customized audit programs. This paperless system benefits our clients by promoting multiple efficiencies and enhances the security of the information we are provided. Both translate into a faster and less costly audit process for our clients.
Our approach to efficiency also encompasses the efficient use of your personnel’s time. Every effort is made to allow your staff to adequately prepare for the audit by requesting needed materials in advance and scheduling our work at times that are convenient to you, but that also allow adequate time to complete our work and meet your deadlines.
REVIEW Inquiry and analytical procedures applied to financial statements of private entities.
A Review of a company’s financial statements is not as in depth as an Audit. During a Review, the professionals at The LBA Group perform a review of a company’s financial statements and issue a report that provides limited assurance that material changes to the financial statements are not necessary. With respect to reliability and assurance, a review falls between a compilation, which provides no assurance, and the more extensive assurance of an audit.
COMPILATION Preparing financial statements of private entities based on information provided by the entity’s management.
Through our compilation services, The LBA Group’s professionals prepare monthly, quarterly, or annual financial statements. However, the compilation process offers no assurance as to whether material, or significant, changes are necessary for the statements to be in conformity with generally accepted accounting principles, the cash basis, or the income tax basis of accounting. During a compilation, the data is simply arranged into conventional financial statement form. No probing is conducted beneath the surface unless there is evidence that the data provided is in error or is incomplete.
What is the Difference Between a Compilation, a Review and an Audit? Click here to read the Comparative Overview.