Tim Valentino of H&J CPAs explores these types of engagements and provides a better understanding of what is involved.
There are three levels of financial statement engagements: audited, reviewed and compiled.
First, the audited statement provides an opinion as to the fair presentation of the financial statements. In this process at H&J CPAs, we verify and substantiate, which includes contacting customers, vendors, banking institutions to verify amounts and performing physical inspections of inventory, fixed assets, equipment and investments. In addition, all internal controls and procedures for the business need to be documented. Most businesses do not have their books audited.
Second is the reviewed statement, which states that H&J CPAs are not aware of any material modifications for the financial statement to be in accordance with general accepted accounting principles. In conjunction, we make inquiries management and perform analytical procedures on the numbers from prior years to uncover trends, but the work performed is less than what we do for an audit.
The last type of statement is the compiled statement–the most basic type of financial statement. Essentially, we take your numbers and put them into the proper form. This process doesn’t include an audit nor a review, and we are not required to perform any procedures to verify the accuracy or completeness of the numbers. Typically, a compiled financial statement is issued for privately held businesses that are not required to have a higher level of service, such as an audit, for their banking institutions and investors or bonding purposes.