Financial Reports (Audits, Reviews, and Compilations): What are They, and Which One Does Your Business Need? Pt. 2

Part Two of Three: Review, Limited Assurance

Reviews are one of three ways to evaluate your company’s financial position: audits, reviews, and compilations. In this second of the three part series on financial reporting, we will focus on the review, which may bring to light some matters affecting a company’s financial statements, but is limited in scope and thus does not cover all matters that would emerge during an audit.

What is a Review?

Less extensive than an audit, but more involved than a compilation, a review engagement consists primarily of applying a standard set of analytical procedures to the financial statements, and making various inquiries 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. Because a review does not obtain an understanding of the internal control structure or assess control risk, the review only expresses limited assurance 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). Thus, reviewed financial statements will include required footnotes and other disclosures.

Which Businesses Might Request a Review Engagement?

Reviewed financial statements are often prepared for businesses or organizations that have bank loans, outside investors, or trade creditors, but those third parties are not requiring audited statements.

A review can be a good middle ground, providing the advantages of a CPA’s technical expertise without the work and expense of an audit.

What are Cook CPA Clients saying about the review process?

“Our board really appreciates that an outsider reviews our books and enjoy Evelyn’s comments about our accounting process.” Anjela, executive director of a local non-profit

If you have further questions about whether a review is right for your business, contact Cook CPA Group at evelyn@cookcpagroup.wpengine.com or 916-432-2218.

Part One of Three: Audits, Assurance of the Highest Level
Part Three of Three: Compilation, Lowest Level of Assurance