Financial Statement Preparation

Financial statements are a summary of the financial information of your business and can only be prepared by a properly licensed CPA.  Commonly called attestation services, there are three different types of opinions attached to financial statements: audit, review and compilation. Each has a different level of assurance associated with it, meaning the level of reliance that can be placed upon it by third parties. Along with each level of assurance is an increase in the amount of analysis that is required, and also the cost.

Audit - An audit report is the highest level of assurance and as you can guess, the most extensive (rhymes with expensive) amount of analysis. Audits require us to verify certain account balances with third parties (banks, insurance companies, etc) as well as testing and analyzing the activity through and around various account balances as well as assess the strength of systems and internal controls as well as the status of the company as a whole. This level of financial statement opinion is often required by the bank when you maintain larger loans, mortgages and lines of credit. At the same time, the bank or an attorney will sometimes reference an audit because it is the term they know but not necessarily understand.  Due to the prohibitive cost and extensive nature of the analysis, audits are not necessarily the most efficient financial statement opinion for your business.

Review – Reviews are my favorite financial statements to build.  Very often, this is the best level of financial statement report for your business needs. While reviews don't require the in depth testing associated with an audit, there is still a fair amount of exploring done to the various general ledger accounts as well as inquiry and fluctuation analysis. Although your numbers are not dissected as with an audit, the level of work is often more than adequate for internal use while satisfying the requirements of most banking relationships. Combine this with the reduced cost compared to the average audit and the review becomes the greatest bang for the buck, and a great tool for budgeting and marketing use.

Compilation – In its simplest form, the compilation report is your period end results presented in a format that adheres to generally accepted accounting principles. There is no formal analysis or testing done to prepare a compilation report, although we can perform certain enhanced procedures if necessary. This is often the report of choice for quarterly financial statements, and for year end internal use reporting.  You might even be able to sell this to the bank.  Basic, no disclosure compilations are also the most inexpensive form of financial statements a CPA can prepare.