Financial Reports (Audits, Reviews, and Compilations): What are They and Which One Does Your Business Need? Pt. 3
Financial reports: Part 3. Which audit does your business need? In the last of our three-part series about financial reports, we will focus on the most basic type of financial overview. Read more from our CA CPAs.
Part Three of Three: Compilation, the lowest level of assurance
Compilations are one of three ways to evaluate your company’s financial position: audits, reviews, and compilations. In this last of a part series about financial reports, we will focus on the compilation, which is the most basic type of financial overview we can provide for your business.
What is a Compilation?
Compiled financial statements represent the lowest level of assurance provided with respect to financial statements. In compiling financial statements for a client, we present information that is the “representation of management” and we express no opinion or assurance on the statements.
When performing a compilation, a CPA conforms professional standards and requirements, including the following: a knowledge of the client’s industry and applicable accounting principles, a clear understanding with the client as to scope of the services to be provided, and an assurance to read the financial statements, noting any departures from generally accepted accounting principles.
Compilations don’t require inquiries of management or analytical procedures, as would an audit or review. Instead, we rely on our knowledge of accounting principles and a general understanding of your business. Sometimes we may need to execute other services, such as creating the company’s general ledger, or assisting with journal entries before the financial statements can be compiled.
Finally, we issue a report on the financial statements. The report will indicate that a compilation was performed in accordance with AICPA professional standards, but no assurance is expressed that the statements conform to “generally accepted accounting principles.” Another name for this is the expression of “no assurance.”
Which Companies Need a Compilation?
Compiled financial statements are often prepared for privately held entities that do not need a higher level of assurance. 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 bank or other parties, as well as meeting your budgetary needs.
Understanding each report’s unique strengths and weaknesses can help you choose the most appropriate one. For more information on Audits and Reviews: Part Two of Three: Review, Limited Assurance Link to Blog Part One (of Three): Audits, Assurance of the Highest Level.
What are Cook CPA Clients saying about the compilation process?
“Having a compilation really helped us understand the timing of transactions and how that impacted our revenue.” Jon, Finance Director
If you have further questions about whether a Compilation is right for your business, contact Cook CPA Group at evelyn@cookcpagroup.wpengine.com or 916-432-2218 for a free consultation.