Financial statement preparation, compilations, reviews and audits- which is right for your business?

Financial statement preparation, compilations, reviews and audits- which is right for your business?

There are many factors that determine the type of CPA certified financial report that may be required for your business.  Following are the major reasons why you may be required to provide financial statement reports :

  Many companies, even though not required to have a full financial audit still go through financial audit process for quality & best practices.


The real difference between Preparation, Compilation, Reviews, and Audits.

A Certified Public Accountant can provide 4 types of financial reports.


Who should request Preparation of Financial Statements?

  1. Internal use: If these reports are mostly for internal use. This is most likely if a CFO/Controller has prepared the financials.
  2. No formal report: If your business/corporation does not require Formal Certified and Audited financial statements, then a preparation may be a right financial report for you.
  3. Smaller loans from banks and other lenders: This is sufficient in most cases if you are applying for a smaller loan with the lender or the bank.
  4. Smaller micro-businesses: Most cases if you are micro business, this report may be sufficient.


              Other key points:  

  1. As there is no assurance provided on this report by your CPA Firm, ‘no assurance is provided’ may be included on every page of your financial statement.
  2. There is no verification done on the financial statements regarding accuracy and completeness.


Compilation of financial statements: A Compilation report is a service where services of a CPA & association to the financial statements are clearly stated in the report. As an example, if a CPA is not issuing an independent report, he/she is required to state this in the financial compilation report. In addition, the first page of the financial statements will clearly state the name of the firm or the Certified public accountant who will be issuing the compilation statement.


Who should request Preparation of Financial Statements

  1. Bank requirement: If banks do not require any high level of assurance i.e audits but appreciate the association of a CPA i.e professional service provider with the company books, this may be an ideal report for the company as part of monthly, quarterly or annual financial package.
  2. Smaller businesses with lower credit or financing need: this is best suited for simpler businesses who have straightforward bookkeeping and tax procedures. Do not have any major complexities. Their books are easier to be reviewed by banks, investors and do not require any high-level financial audits.
  3. Company requirement: If company’s internal management considers a Certified Public Accountant annual, quarterly or monthly financial reports adequate then this may be the right financial report for the business.


 Financial statement reviews: A Financial statement review provides limited assurance regarding the completeness and accuracy of the financial statements. It provides a higher level of assurance that a preparation or compilation but does not provide any highest level of assurance similar to financial statement audits.


Who should request review of financial statements

  1. Bank requirement: Often times, the bank will request you to get your financials reviewed by CPA.
  2. Growing businesses: There are no specific guidelines for reviews, however, most early-stage growth companies to companies in the mid-market segment may request reviewed financial statements.
  3. Certified report by a CPA: In a financial statement review, a CPA firm will certify the financial statements with limited assurance as it is not as comprehensive as audited financial statements.
  4. Internal management decision: If the internal management decides an annual comprehensive audit is not necessary but a financial statement review is acceptable by most 3rd parties, customers and other agencies who rely on company financials for most decisions, then likely a financial statement review is an appropriate report.


 Financial statement audits

A financial statement audit is the highest level of assurance provided by a CPA regarding the accuracy and completeness of the financial statements. As a result, external agencies /3rd parties can rely on the financial statements for their decision-making process. In addition, many federal and state government agencies may require you to submit audited financial statements for any business activities.


       Who should request audited financial statements

  1. Bank requirement: Often times, the bank will request you to get your financials audited by CPA.
  2. Established/ Growing businesses: There are no specific $ thresholds in terms of revenue/size of companies who request audited financial statements. Many growing businesses may also request audited financials. As a general trend, however, most established and growing companies may request audits.
  3. Startups/VC funding and investor requirements: Depending on the nature of the business, type of industry, complexity and investor requirements, even startups may require the financials to be audited. 
  4. CPA issued formal report: In a financial statement audit, a CPA firm signs off the audited financial report with their opinion. The opinions may differ depending on the audit findings. 
  5. Merger or acquisition or sale of the business: Based on the complexity of the business transaction, if the business is going through a major M& A transaction or sale of the business, an audited financial statement may be required.


Overall, the company management needs to take an informed decision to ensure it meets the needs of internal and external users of the financial report. If you still have questions, you can contact us for further help via our web form.

Posted In: Financial statement audits, reviews and compilations

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