Stockholders, creditors,
and private investors often need assurance that the financial statements
accurately represent the true financial position of a company.
Your stockholders,
creditors, or private investors have different levels of risk tolerance, so we
provide three levels of assurance to meet your needs.
Audit - Highest Level of Assurance
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.
Our work includes a review
of internal controls, testing of selected transactions, and communication with
third parties. Based on our findings, we issue a report on whether the
financial statements are fairly stated and free of material misstatements.
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Satisfy stakeholders such as employees,
customers, suppliers and pressure groups, as well as the investing
community, as to the credibility of published information.
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Facilitate the payment of corporate tax, goods
and services tax, and other taxes on-time and accurately, thereby avoiding
interest, penalties, and investigations.
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Comply with banking covenants.
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Help deter and detect material fraud and error.
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Facilitate the purchase and sale of businesses.
You receive the highest
level of assurance. Typically, we'll
have written communication with:
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Your customers, to check outstanding receivable
balances,
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Your banks, to confirm cash or debt balances and
terms,
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Your vendors, to verify outstanding payable balances,
and
Your attorneys, for information on pending or
threatened legal action.
We also perform physical
inspections by observing your inventory counting methods and perform test
counts. We document and test each operating cycle, including sales and cash
receipts, expenses and cash disbursements, and payroll. Our audit papers
include a detailed work program to document the examinations and testing
performed, as well as the client's supporting work papers.
Audits Not Just for
Public Entities
All public companies are
required to have an annual audit, but some nonpublic entities must undergo an
annual audit as well. These include local governments, not-for-profit agencies
and other organizations receiving government grants.
Moreover, some financial
institutions require audits of nonpublic companies based on the financing
amount and/or the bank's assessment of the company's risk. Also, companies with
absentee ownership (such as those owned by investment firms, or individuals who
no longer run the business) may order audits as checks of their management
teams.
Review - Limited Assurance
Less extensive than an
audit, but more involved than a compilation, a review engagement consists
primarily of analytical procedures we apply to the financial statements, and
various inquiries we make of your company's management team. If the financial
statements or supporting information appear inconsistent or otherwise
questionable, we may need to perform additional procedures.
A review doesn't require
us to study and evaluate your company's internal controls or verify data with
third parties or physically inspect assets. Rather, a review report expresses
limited assurance in the form of the statement: "We are not aware of any
material modifications" for the financial statements to be in conformity
with the Generally Accepted Accounting Principles (GAAP). Reviewed financial
statements must include all required footnotes and other disclosures.
Why might a business
request a review engagement? It can be a good middle ground, providing the
advantages of a CPA's technical expertise without the work and expense of an
audit.
Compilation - Lowest Level of Assurance
In compiling financial
statements for a client, we present information that is the
"representation of management" and expresses no opinion or assurance
on the statements. Compilations don't require inquiries of management or
analytical procedures. Instead, we rely on our knowledge of accounting
principles and a general understanding of your business.
Banks often require
compilations from an independent CPA as part of their lending covenants.
Which Report Should You
Use?
Each type of financial
statement report may suit specific circumstances, depending on requirements
from your client's bank or other parties, as well as meet budgetary needs.
