Almost every organization — whether it’s a privately held business, a publicly owned corporation, or a nonprofit 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 CPAs to offer a range of financial statement services:
Reviewed Financial Statement
Why Performed: A review is typically performed because outside third parties or investors are looking for some comfort that the financial statements are not materially misstated, but do not require audited statements. For instance, the Small Business Administration requires companies participating in its 8(a) program provide reviewed annual financial statements from a licensed independent public accountant for those concerns with gross annual receipts of $2,000,000 to $10,000,000.
Standards Met: A review is conducted in accordance with Statements on Standards for Accounting and Review Services (SSARS) issued by the AICPA and consists primarily of inquiries of company personnel and analytical procedures applied to financial data.
Work Process: A review is significantly less in scope than an audit in accordance with GAAS and only provides limited assurance that there are no material modifications that should be made to the financial statements. There is no expression of an opinion on the financial statements taken as a whole.
- Financial Statements
- Pro-Form Financial Statement
- Financial Forecasts
Why Performed: A compilation is when a financial statement is prepared by an independent accountant. A compilation allows companies without an accountant to have financial statements prepared at a lower cost. There are instances where compilations may be required by a third party. For instance, the Small Business Administration may require companies participating in the 8(a) program to submit financial statements compiled by a licensed independent public accountant.
Standards Met: A compilation must comply with Statements on Standards for Accounting and Review Services (SSARS) and requires the accountant to have an understanding of the client’s industry, obtain knowledge about the client, read the financial statements and consider whether such financial statements appear appropriate in form and free from obvious material errors.
Work Process: In a compilation, we assist management in presenting financial information in the form of financial statements without providing any assurance that there are no material modifications that should be made to the financial statements. It does not contemplate any of the procedures ordinarily performed in an audit or a review. A compilation is limited to presenting in the form of financial statements information that is the representation of management. There is no expression of an opinion or any other form of assurance on the financial statements.
Preparation of Financial Statements
Why Performed: We prepare financial statements pursuant to a specified financial reporting framework.
Standards Met: Statements on Standards for Accounting and Review Services (SSARS) No. 21, Section 70, Preparation of Financial Statements.
Work Process: We are required to include a legend on each page of the financial statements stating that no assurance is being provided.