What is the difference between a review, compilation, and audit?
When it comes time to review financial statements, business owners look to different options in order to reduce time and cost. But how can you be sure which method will provide the correct method of assurance, and which is required for your specific needs?
Ashley Lee, staff accountant with Clements, Purvis and Stewart, explains the difference between the three methods of analyzing your business’s financial records so you can make a more informed decision in confidence.
What is your name, title / position at Clements, Purvis & Stewart? And can you tell us a little about your background?
My name is Ashley Lee and I have been with Clements Purvis & Stewart since January 2019 and I’m currently a part of the Audit team.
What is a compilation? When is a compilation performed?
A compilation is essentially where we, the CPA, takes the financial information that is given to us by company management and we present them in a financial statement format. No assurance is provided by the accountant in a compilation. In other words, we would take the company’s trial balance and prepare a set of financial statements. Typically, a compilation is performed when a company has the need to present its financial information and uniform financial statement format, but no assurance is required on the financial information.
What is a review? Are business owners required to get a financial review?
A review is intended to provide lenders and other outside parties with a basic level of assurance on the accuracy of a company’s financial statements. Typically speaking, a review would be required as a business grows and is seeking larger and more complex levels of financing and credit.
What are the benefits of a financial review?
Benefits to the company would be that they are getting an independent trained set of eyes on their financial information and applying analytical procedures to the data. Many times, helpful information comes out of these analytical procedures that would not have otherwise been uncovered.
What is an audit? Who needs an audit instead of a review?
An audit is intended to provide creditors, investors, and other outside parties with a high level of comfort on the accuracy of a company’s financial statements. As the highest level of assurance, an audit typically, is appropriate and often required when you’re seeking complex or high levels of financing and credit and on it also is appropriate if you’re seeking outside investors or preparing to sell or merge with another business.
How does CPS work with businesses to perform a compilation, review or audit?
Typically speaking, once the requirement is there for a business to have a compilation, review, or an audit, they will come to us and request the services that they need. We then explain what the required services entails and work with the company management to obtain the necessary information to perform the services needed.
What advice would you share with business owners about these services?
I would advise any business owner to be prepared to ask as many questions as possible. We are always ready to help and to serve any of the needs that you may need for your business and we are happy to help.
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