CPAs can obtain different levels of assurance about whether the financial statements are in accordance with GAAP or other financial reporting framework. The different levels of assurance can range from no assurance at all to the highest level of assurance, which is an audit. The level of assurance required is determined by the financial statement users – banks, investors, insurance companies, vendors, owners, etc. The following is a summary of the different attestation services we provide and the level of assurance they provide:
Audit
- Intended to provide users of financial statements with high level of comfort on accuracy of financial statements
- CPA performs procedures in order to obtain “reasonable assurance” about whether the financial statements are free from material misstatement
- Procedures performed include obtaining understanding of the business’ internal controls, assess fraud risk, and corroborate amounts and disclosures in financial statements by obtaining audit evidence through inquiry, physical inspection, observation, third-party confirmations, examination, analytical procedures and other procedures
- CPA must be independent
- CPA issues formal report that expresses opinion on whether the financial statements are presented fairly, in all material aspects, in accordance with the applicable financial reporting framework
Review
- Intended to provide users of financial statements with basic level of assurance on accuracy of financial statements
- CPA performs analytical procedures, inquiries and other procedures to obtain “limited assurance” on the financial statements
- CPA must be independent
- CPA issues formal report
Compilation
- Intended for use by outside parties who may appreciate the business’s association with CPA without requiring a level of assurance on the accuracy of financial statements
- CPA does not obtain or provide any assurance
- CPA is required to read the financial statements and consider whether the financial statements appear appropriate in form and are free from obvious material misstatements
- CPA is not required to be independent but must disclosure if CPA is not independent
- CPA issues formal report
Basic Financial Statement Preparation
- Intended for business owner’s use to manage the business
- CPA does not obtain or provide any assurance
- CPA will prepare financial statements directly from the records provided by client and will not verify the accuracy or completeness of the information
- CPA is not required to be independent
- No formal report issued on the financial statements
If your requirements are unclear, speak to your financial statement users about the level of service that will satisfy their requirements. If you have any questions regarding the different service options available from MWB please contact me at stephanieh@meara.com.