Compilation … review … audit … standalone financial statement preparation … it’s all just reporting, right? Not by far, assures ECS Financial's Nancy Geary.
We often receive inquiries regarding the various levels of financial statement presentation and attestation services provided by Certified Public Accountants. Companies we speak with think they need or want one or another level of service without really understanding what is included at each level, and what is really appropriate for their needs.
First, it is helpful to explain a few terms that apply to all levels of service:
Generally Accepted Accounting Principles (GAAP) – The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records in the United States. GAAP provides companies and accountants with a consistent set of guidelines that cover both broad accounting principles and specific practices.
Applicable reporting framework – GAAP or other comprehensive basis of accounting on which the financial statements are prepared.
Independence – a state of objectivity in fact and appearance, including the absence of any significant conflicts of interest. When an accountant is independent, they do not have control, nor do they participate in any management decision making related to a company’s accounting policies, procedures or performance.
Accountant’s letter – A letter issued as a part of the basic financial statements issued by a certified public accountant. The letter will indicate the level of assurance the accountant is offering (compilation, review or audit), whether the statements are prepared using GAAP or another comprehensive basis of accounting, whether the statements contain any departure from GAAP (or the other basis of accounting being used), and whether the accountant is independent with respect to the financial statements.
The following information will address the major types of financial statements offered by CPAs, including compiled, reviewed and audited.
Compilation: A compilation is the most basic level of attestation services provided by a certified public accountant. At this level of service, the CPA assists the company in presenting its financial statements. A compilation does not require the accountant to obtain an understanding of the company’s internal control, or assess fraud risk. The accountant does not have any obligation to analyze the statements or conduct inquiries of management, although they should review the statements for...