Stockholders, creditors, and private investors often need assurance that the financial statements accurately represent the true financial position of a company.  Accounting industry professional standards provide that there are three levels of assurance to meet the risk tolerance of investors.  They are:

Audit - Highest Level of Assurance

An audit provides the highest level of assurance. An audit is a methodical and thorough review and objective examination of the financial statements, review of internal controls, and testing of transactions including the verification (including outside of the company) of specific information as determined by the auditor or as established by general practice.  An audt tends to be quite expensive and is typically not required or justified for most small businesses.  We do not routinely specialize in providing audt services to our clients.

Review - Limited Assurance

Less extensive and less expensive than an audit, but more involved than a compilation, a review engagement consists primarily of analytical procedures we apply to the financial statements, and various inquiries we make of your company's management team. If the financial statements or supporting information appear inconsistent or otherwise questionable, we may need to perform additional procedures.

A review doesn't require us to study and evaluate your company's internal controls or verify data with third parties or physically inspect assets. Rather, a review report expresses limited assurance in the form of a statement regarding absence of need for material modifications in order to be in conformity with the Generally Accepted Accounting Principles (GAAP). Reviewed financial statements must include all required footnotes and other disclosures.

Why might a business request a review engagement? It can be a good middle ground, providing the advantages of a CPA's technical expertise without the work and expense of an audit. We find that few small business owners have true need for a review engagemnt.

Compilation - Lowest Level of Assurance

In compiling financial statements for a client, we present information that is the "representation of management" and expresses no opinion or assurance on the statements. Compilations don't require inquiries of management or analytical procedures. Instead, we rely on our knowledge of accounting principles and a general understanding of your business.

Banks often require compilations from an independent CPA as part of their lending covenants.

We find compilaton reports to be the most popular and cost effective for most small business clients.

Which Report Should You Use?

Each type of financial statement report may suit specific circumstances, depending on requirements from your bank, investors or other parties, as well as to meet budgetary needs.