Auditing, Review and Compilation of
At Lombardo Spradley & Klein, CPAs, we are experienced in performing audits, reviews, and compilations for clients in a variety of industries.
When CPAs prepare financial statements, they are required, under professional standards to issue a report on those financial statements. The needs of the client, requirements of creditors or investors, and the size and complexity of the business determine the type of report issued. the reports are one of three types:
compilation, review, or audit.
Compiled Financial Statements represent the least complex set of financial statements that CPAs provide. In providing compiled statements, the CPA must comply with certain basic requirements of professional standarts such as having a knowledge of the client's industry and applicable accounting principles. Also the CPA must have a clear understanding of the client's needs and must read the financial statemtns to determine whether there areany abvious departures from generally accepted accounting priciples or, in some cases, another comprehensive basis of accounting used by the entity.
Reviewed Financial Statements require that the CPA perform inquiry and analytical procedures in addition to the procedures described above for a compilation. A review is less in scope than an audit. The report issued states the CPA did not become aware of any material modifications that should be made in order for the statements to be in conformity with generally accepted accounting principles, or if applicable, another comprehensive basis of accounting. This is known as the expression of "limited assurance."
Audited Financial Statements are the product of a CPAs highest level of assurance services. In an audit, the CPA performs all of the steps indicated above regarding compiled or reviewed statements, but also performs verification and substantiation procedures. These verification and substantiation procedures may include direct correspondence with creditors or debtors to verify details of amounts owed, physical inspection of inventories or investment securities, inspection of minutes and contracts, and other similar steps. Also, the CPA gains a knowledge and understanding of the entity's system of internal control. The CPAs standard audit report states that an audit was performed in accordance with generally accepted auditing standards, and expresses an opinion that the financial statements present fairly the entity's financial position and results of operations. This is known as the expression of "positive assurance."