Financial statements from our Northville CPA firm
Stockholders, creditors, and private investors often need assurance that the financial statements accurately represent the true financial position of a company. Most clients of The Accounting Office, Inc. require internal reports for use by management. Our clients receive financial statements each and every month.
In rare cases, stockholders, creditors, or private investors may have different levels of risk tolerance. There are three levels of assurance to meet your needs. Most small businesses representative of our clients will not require an audit or review. Should a client require audit services, we will gladly provide a referral to a firm that provides audit and review services.
A description of each level follows:
Audit - Highest Level of Assurance
An audit provides the highest level of assurance. An audit is a methodical review and objective examination of the financial statements, including the verification of specific information as determined by the auditor or as established by general practice.
This work includes a review of internal controls, testing of selected transactions, and communication with third parties. Based on our findings, we issue a report on whether the financial statements are fairly stated and free of material misstatements.
An Audit allows you to...
Here's what you get...
You get the highest level of assurance because the firm must go outside your company to obtain more information. Typically, we'll have written communication with:
The firm also performs physical inspections by observing your inventory counting methods and perform test counts. They document and test each operating cycle, including sales and cash receipts, expenses and cash disbursements, and payroll. Audit papers include a detailed work program to document the examinations and testing performed, as well as the client's supporting work papers.
Audits Not Just for Public Entities
All public companies are required to have an annual audit, but some nonpublic entities must undergo an annual audit as well. These include local governments, not-for-profit agencies and other organizations receiving government grants.
Moreover, some financial institutions require audits of nonpublic companies based on the financing amount and/or the bank's assessment of the company's risk. Also, companies with absentee ownership (such as those owned by investment firms, or individuals who no longer run the business) may order audits as checks of their management teams.
Review - Next Level of Assurance
Less extensive 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, additional procedures may need to be performed.
A review doesn't require a firm 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 the statement: "We (the firm) are not aware of any material modifications" for the financial statements to be in conformity with the Generally Accepted Accounting Principles (GAAP). Reviewed financial statements must include all required footnotes and other disclosures.
Compilation - Lower 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 do not 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 as part of their lending covenants.
Which Report Should You Use?
Each type of financial statement report may suit specific circumstances, depending on requirements from your client's bank or other parties, as well as meet budgetary needs. Most often a compilation is suitable for the great majority of needs of small businesses.