Stockholders, creditors, and private investors often need
assurance that the financial statements accurately represent the true financial
position of a company. There are three levels of evaluation and certification,
each of provides the assurance required in a particular situation.
The first two, most comprehensive and expensive, of these
levels are Audits (a methodical
review and objective examination of the financial statements) and
Reviews (a middle ground involving analytical
procedures and inquiries). Your situation may require an audit or
review.
However, many business owners pay large sums for these
certifications when in reality, all they require is the third level, a
Compilation. SD&A routinely performs compilations and may be able to save
you money if this is the level of service you need.
A compilation
presents financial statements in conformity with GAAP (Generally Acceptable
Accounting Principles). With a clear understanding with the client as to
the services to be provided, the CPA uses the requirements of professional
standards, such as applicable accounting principles, and reads
the company's financial statements to determine whether there are any
visible departures from Generally Accepted Accounting Principles.
Why Have
A Compilation?
Small
organizations with limited accounting staff traditionally rely on CPA firms to
prepare their financial records, balance sheet, statement of income, statement
of cash flows and notes to the financial statements.
These
financial statements can be accompanied by a compilation report which
states that the information contained therein was prepared by a certified
public accountant; however, the information is simply the representation of
management. No in-depth examinations or testing were performed and, therefore,
the report can provide no assurance of accuracy.
In many cases,
a compilation may be sufficient to satisfy the minimum requirements of a bank
loan agreement or an insurance company performance bond.
