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.
My work includes a review of internal controls,
testing of selected transactions, and communication with third parties.
Based on my findings, I issue a report on whether the financial
statements are fairly stated and free of material misstatements.
An Audit allows you to...
- Satisfy stakeholders such as employees,
customers, suppliers and pressure groups, as well as the investing
community, as to the credibility of published information.
- Facilitate the payment of corporate tax, goods and services tax,
and other taxes on-time and accurately, thereby avoiding interest,
penalties, and investigations.
- Comply with banking covenants.
- Help deter and detect material fraud and error.
- Facilitate the purchase and sale of businesses.
Here's what you get...
You get the highest level of assurance because I
go outside your company to obtain more information. Typically, I'll
have written communication with:
- Your customers, to check outstanding receivable balances,
- Your banks, to confirm cash or debt balances and terms,
- Your vendors, to verify outstanding payable balances, and
- Your attorneys, for information on pending or threatened legal action.
I also perform physical inspections by observing
your inventory counting methods and perform test counts. I document and
test each operating cycle, including sales and cash receipts, expenses
and cash disbursements, and payroll. My 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 - Limited Assurance
Less extensive than an audit, but more involved
than a compilation, a review engagement consists primarily of
analytical procedures I apply to the financial statements, and various
inquiries I make of your company's management team. If the financial
statements or supporting information appear inconsistent or otherwise
questionable, I may need to perform additional procedures.
A review doesn't require me 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: "I am 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.
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.
Compilation - Lowest Level of Assurance
In compiling financial statements for a client, I
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, I
rely on my 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.
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.
