Do you hate thinking about financial statements? Are you like many business owners and can’t outsource these services fast enough? We understand. But we also want you to know that the most significant benchmark of a stable company is whether its books are in order and compliant with generally accepted accounting principles.
At MGA, we also understand that the process of selecting the right public accounting firm can be intimidating. That’s where we can help, especially when it comes to unraveling the complex and making it simple. For example, when it comes to determining what level of assurance you need on your financial statements, you have three options: an audit, a review, or a compilation. We’ll explain.
Audit vs. Review vs. Compilation: The Fundamental Differences
An audit provides the highest level of assurance that a company’s financial statements as a whole are accurate, free of any material misstatements, and fairly presented based upon the application of generally accepted accounting principles.
Moreover, an audit involves several levels of control and testing that evaluate the accuracy of financial statements in order to provide an objective assessment of a company's financial statements. Independent auditors will:
- prepare or obtain the company’s financial statements
- confirm the accuracy of balances with external sources
- test a sample of selected transactions by examining supporting documents
- complete a physical observation of the company’s inventory and fixed assets
- search for any unrecorded liabilities
- review and evaluate the internal control systems in place
- assess fraud risk
Upon the completion of an audit, a company can, with assurance, present its financial statements with the audit report as proof of compliance with generally accepted accounting principles and accuracy of the information stated in its financial statements.
A review is a process which provides limited assurance on the accuracy of a company’s financial statements. Reviewed financial statements provide a negative assurance that the financial statements of a company do not require any material modifications to comply with generally accepted accounting principles.
The review process does not include procedures that are part of an audit, such as testing accounting records, assessing fraud risk, or reviewing and evaluating the internal control systems in a company.
Therefore, a review should not be used as an ultimate assurance of a company’s sound financial reporting and compliance, but rather as an intermediate tool or solution when a company needs a quicker assurance for a variety of purposes.
The third financial statement option is a compilation. Compilation of a company's financial statements does not assure their accuracy. Rather, it is a process in which a certified public accountant collects or receives financial records from a company and organizes them in the correct financial statement format according to generally accepted accounting principles.
Similar to a review, a compilation does not include analysis, testing, or assurance on the validity of those records. Therefore, compiled financial statements cannot be relied upon to provide the assurance of a company’s compliance and accuracy of its financial records.
Want to feel secure about your financial statements? We can help.
Whatever your needs regarding the financial records and statements of your company, our team at MGA is here to provide you with sound advice and answers to all your questions. We offer a variety of assurance services that are designed to take the complexity out of auditing, review, and compliance and make running your business easier. We are here as your trusted advisors, no matter how simple or complicated your situation.
While you take care of your business, let MGA take care of your financial statements.