Guide to Financial Statement Services – Compilation, Review & Audit
If you are a contractor looking to license your company in other states that impose financial statement requirements, then you are probably wondering what all the different types of financial statements are and what are their differences. Many states, (most notably Nevada, Alabama and Tennessee) impose financial statement requirements in which your financial statements must be prepared by an independent licensed Certified Public Accountant. These financial statements are prepared on three different levels of assurance:
- Compiled Financial Statements
- Reviewed Financial Statements
- Audited Financial Statements
The underlying work involved with each level of assurance varies significantly. Always be sure to check each state’s licensing requirements that you are looking to obtain licensure in and determine the minimum level of financial statement assurance required before you hire a CPA. You may also contact your licensing experts at API Licensing and inquire as to the minimum requirements your company will need to meet. So onto the 3 basic types of financial statements.
Compiled Financial Statements
Compiled financial statements represent the most basic level of service offered by a Certified Public Accountant with respect to financial statements. In a compilation engagement, the CPA presents your financial statements on their letterhead without providing any assurance as to whether there are any material modifications that should be made to your financial statements in order for them to be properly presented under Generally Accepted Accounting Principles (GAAP) maintained in the United States. Basically, the CPA takes your trial balance (financial statements) and imports your numbers into their system and only performs a few high-level tasks such as footing out your company’s retained earnings and making sure the financials are presented in the required form under GAAP. A compilation does not include performing inquiries of management or performing any analytical or other procedures ordinarily performed in a Review or Audit. Compiled financial statements generally range in costs from $800 – $3,500 based on the size and complexity of your company and can take 1-2 weeks to complete.
Reviewed Financial Statements
Reviewed financial statements are the second type of financial statement assurance provided by a CPA. In a Review engagement, the CPA presents your financial statements on their letterhead while providing only limited assurance as to whether there are any material modifications that should be made to your financial statements in order for them to be properly presented under Generally Accepted Accounting Principles (GAAP). This is level of assurance is provided by the CPA to give you comfort that based on the CPA’s review of the financial statements, the CPA is not aware of any material modifications that should be made to the financial statements in order for them to be properly presented. In a Review engagement, the CPA designs and performs inquiries of management and other analytical procedures such as comparing account balances in certain selected accounts and seeking explanations for any variances or significant changes year over year. These will provide a reasonable basis for obtaining the limited assurance required by the CPA in a review engagement. Reviewed financial statements generally range in costs from $1,200 – $5,000 based on the size and complexity of your company and can take up to 2 weeks to complete.
Audited Financial Statements
The third and most complex service and level of assurance offered by a CPA are
Audited financial statements. Audited financial statements are much more complex and in-depth and require a substantially larger scope of work than Compiled financial statements and Reviewed financial statements. Audited financial statements provide you, the company, with an opinion letter from the CPA, as to whether or not your financial statements are presented fairly, in all material respects, under U.S. generally accepted accounting principles. An audit requires the CPA to obtain an understanding
of your company’s internal controls and to assess your potential fraud risk. The CPA is required to 1) corroborate (gain evidence and confirm) that the amounts and disclosures that your company has presented in their financial statements are correctly stated; 2) perform testing of your company’s internal controls; and 3) to perform other substantive testing procedures which the CPA will select and design in order to gain the proper level of documentary evidence needed to issue an opinion as to whether your financial statements are properly presented and free of material errors. Audited financial statements can cost you anywhere from $6,000 and can go up dramatically depending on the size and complexity of your company’s operations. Audits can also take anywhere from 3 weeks to a number of months to complete. Compiled financial statements and Reviewed financial statements offer much more cost effective solutions and shorter time frames to complete.
If you have any more questions as to any of the three types of financial statement services and their respective levels of assurance or costs, please contact us at GRA CPA.