Audits, Reviews and Compilations San Diego

Financial Statements

Many companies provide their financial statements, along with a CPA’s report, to lenders, investors, suppliers and customers. Informed readers of the report will gain varied levels of comfort based on the type of financial statement provided.

Not all reports are the same. A CPA can provide different levels of service related to a company’s financial statements.

The three general levels of financial statement service are audit, review and compilation. When do you need an audit? Businesses should work with their external auditors to determine what their real needs are so they can decide the right level of service. Is the need for the financial statement a debt covenant requirement? Shareholder use? Regulatory requirement? Performance measurement? Or perhaps compensation calculation?
With a clear understanding of what is needed, the correct decision can be made appropriately without wasting resources.

Audits

Audits are generally the highest level of service rendered by an independent CPA in terms of the extent of work performed and the level of assurance given. They are performed in accordance with generally accepted auditing standards (GAAS). This service includes tests of the accounting records and such other auditing procedures as the CPA deems necessary. Because a detailed examination of all transactions is not performed, there is a risk that errors, irregularities and/or illegal acts, including fraud, may exist and not be detected.

Under California law, community associations must, each year, have an audit or review if gross receipts exceed $75,000.

Reviews

Reviews are generally the second highest level of service rendered by an independent CPA in preparing yearend financial statements. In a review, the financial statements are subjected to analytical review procedures and inquiry as a means of insuring compliance with generally accepted accounting principles (GAAP).

Under California law, community associations must, each year, have an audit or review if gross receipts exceed $75,000.

Compilations

Compilations are generally the lowest level of assurance rendered by a CPA associated with the financial statements. Compiled financial statements are appropriate for those situations in which conformity with GAAP is desired without the need for the greater assurance given in an audit or review.

AGREED UPON PROCEDURES

In this type of engagement, the organization and the CPA agree on the accounts to be looked at and the procedures to be performed. The CPA’s report reflects such agreed upon scope of work in addition to his/her findings. This service may be appropriate, and more cost-effective, when a “full audit” is not necessary.