Review - Limited Assurance
Less extensive than an audit, but more involved than a compilation, a review engagement consists primarily of analytical procedures applied to the financial statements, and various inquiries of your company's management team. If the financial statements or supporting information appear inconsistent or otherwise questionable, additional procedures may be required.
A review doesn't require a study or evaluation of your company's internal controls or verification of data with third parties or a physical inspection of assets. Rather, a review report expresses limited assurance in the form of the statement: "We 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.
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, information is presented that is the "representation of management" and no expression of an opinion or other assurance is provided in connection with such statements. Compilations don't require inquiries of management or analytical procedures. Instead, we rely on a 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?
Either type of financial statement report may suit specific circumstances, depending on requirements from your bank or other parties, as well as meet budgetary needs.
Understanding each report's unique strengths and weaknesses can help you choose the most appropriate one. Please call if you have questions about which type of report is right for you.
