When it comes to understanding your company’s financial picture, choosing the appropriate type of financial statement is key. Whether you need a financial compilation, reviewed statements, or a full financial statement audit, each option offers a different level of assurance – and selecting the right one depends on your objectives and the expectations of your stakeholders.
Understanding Compiled Financial Statements
A financial compilation is the most basic type of financial statement a CPA can prepare. Compiled financial statements rely entirely on financial data provided by management. There is no assurance offered that the information complies with U.S. Generally Accepted Accounting Principles (GAAP) or is free from material misstatement.
These reports typically follow a standard GAAP format but may omit elements such as footnote disclosures and statements of cash flows. A compiled financial statement may be suitable when there’s no external requirement for assurance — for instance, for internal use, prospective buyers, or informal financial reporting.
Reviewed Financial Statements: A Middle Ground
If a bit more credibility is required, a financial statement review may be appropriate. While still based on internal data, a review involves analytical procedures and targeted inquiries by the CPA. This allows them to offer limited assurance that the statements are free of material misstatements and comply with GAAP.
Unlike compilations, reviews typically include footnotes and a cash flow statement. However, CPAs do not verify third-party information, inspect assets, or evaluate internal controls unless inconsistencies arise during their procedures. This level of service is often ideal for companies needing to demonstrate a higher degree of financial oversight without the time or cost of a full audit.
Audited Financial Statements Offer the Highest Assurance
A financial statement audit is the most in-depth type of engagement. Auditors not only analyze and inquire but also perform verification procedures such as inventory observations, account confirmations, and transaction testing. They must also develop an understanding of the company’s internal controls over financial reporting.
Audited financial statements are the only type that include an expressed opinion about whether the statements are fairly presented in accordance with GAAP or another applicable framework. While audits provide the highest level of assurance, it’s important to note that they still do not guarantee the complete absence of fraud or errors.
Additional Value from Your Audit
Beyond assurance, audits often provide insight into opportunities for operational improvements. ML&R’s experienced audit team takes a comprehensive approach, offering insights and recommendations to enhance your operations based on observations made throughout the audit process. Our professionals provide valuable guidance on complex accounting matters and support in implementing new accounting standards.
Choosing the Right Type of Financial Statement
Whether you need a compiled financial statement, a review, or an audit, understanding the different types of financial statements available can help you meet your financial reporting needs with confidence. ML&R’s experienced team is here to help you determine the appropriate level of assurance based on your goals and stakeholder requirements.
Let’s talk about how we can support your financial reporting process.
