Accounting & Assurance

The auditor gathers evidence on the reliability of the entity’s financial statements. This includes such procedures as confirmation with outside parties, observation of inventories, and testing selected transactions by examining supporting documents.

An audit provides a reasonable level of assurance that the financial statements are free of material errors and fraud.

Audited financial statements entail the highest level of assurance to ensure they fairly represent the entity’s financial position and results of operations in accordance with generally accepted accounting principles.

The CPA obtains a working knowledge of the industry in which the entity operates and acquires information on key aspects of the organization, including operating methods, products and services, and material transactions with related parties. The CPA will then make inquiries concerning such financial statement-related matters as accounting principles and practices, record keeping practices, accounting policies, actions of the board of directors, and changes in business activities. The CPA will then apply analytical procedures to identify unusual items or trends that may need explanation.

A review is designed to ascertain whether the financial statements “make sense” without applying audit type tests. It does not involve gathering evidence and examining supporting documents as in an audit. However, in many instances,  the limited assurance provided by a review may be adequate for a business or its creditors.

The CPA becomes familiar with the accounting principles and practices common to the client’s industry, and acquires a general understanding of the clients transactions and how they are recorded.

After compiling the financial statements, the CPA  determines that they are appropriate in form and free from obvious material errors. The CPA then issues a standard report that says, in effect,  the financial statements were compiled, but because they were not audited or reviewed, no opinion or other level of assurance is expressed.

A compilation is sufficient for many private companies. However, if a business needs to provide some degree of assurance to outside groups that its financial statements are reliable, it may be necessary to upgrade to a review or audit.

Non-traditional attest services are engagements other than a traditional audit, review or compilation of financial statements. Non-traditional engagements include, among others, agreed-upon procedures applied to; audits, review or compilations of specified elements of a financial statement audits, review, or compilations of special-purpose presentations, other attestation engagements such as reports on internal controls, compliance, or non-financial information and other assurance services such as risk assessment and performance measurement.

Non-traditional attest services are utilized to meet a specific need that a traditional engagement cannot meet with respect to a specific demand by a potential lender, regulatory authority, stockholder, or absentee owner.  For example, a bank might ask for assurance on the company’s receivables and inventory that serve as collateral for a loan. In that case, a report on those specified financial statement elements might be of more benefit to the banker than a complete set of financial statements, and less costly for the company to provide.