For a financial statement compilation, a Certified Public Accountant (CPA) assists in preparing financial statements based on the information provided by company management. These reports do not provide assurance that the financial statements are accurate nor free from material misstatements since further procedures to verify the accuracy and completeness are not required. During this procedure, we obtain the financial data to be utilized in providing consistent and expected presentations of financial statements. Compilations are generally used for internal purposes or as minimal reporting requirements from a third party.

A financial statement review is a reporting that is a “step up” from a compilation. It provides limited assurance that financial statements are free from material misstatement. For this reporting, we obtain the financial data and perform procedures such as analytical procedures and management inquiries. However, it does not involve detailed selection testing of individual transactional data. For example, potential lenders or investors may require a financial statement review certified by a CPA, which demonstrates a reasonable level of financial oversight and accuracy. Whether they require a financial review or an audit may depend on the third-party risk factors such as the loan amount and terms.

A financial statement audit is the most comprehensive of the three reporting services. It involves rigorous examination of financial data provided through various testing methodologies for a reasonable assurance that financial statements are free from material misstatements, whether due to error or fraud. An audit is often required for large business loans, regulatory bodies for compliance purposes, or by investors in preparation for public offering or major investment rounds. Publicly traded companies are also required to undergo an annual audit to ensure transparency and protect shareholders. In certain cases, a company may choose to have a review or an audit voluntarily to improve internal controls, identify financial weaknesses, or prepare for expected growth.

If I can further help with questions on these reporting requirements, please contact me at jbyoun@jbcpafl.com or #727-600-1457.