We are frequently asked if our firm specializes in financial statement preparation, compilation, review, or audit. We do offer financial statement preparation and compilation. What is a compilation, and how does it differ from a review or audit?
The main difference between compilations and reviews or audits is the level of service the CPA provides:
What is a compilation?
- Compiled financial statements represent the most basic level of service CPAs provide with respect to financial statements.
- In a compilation engagement, the CPA assists management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements.
- In a compilation, the CPA must comply with Statements on Standards for Accounting and Review Services (SSARSs). In this case, those standards require the CPA to have an understanding of the industry in which the client operates, obtain knowledge about the client, and read the financial statements and consider whether such financial statements appear appropriate in form and free from obvious material errors.
- A compilation does not contemplate performing inquiry, analytical procedures, or other procedures ordinarily performed in a review; or obtaining an understanding of the entity’s internal control; assessing fraud risk; or testing of accounting records; or other procedures ordinarily performed in an audit.
- The CPA issues a report stating:
- The compilation was performed in accordance with Statements on Standards for Accounting and Review Services
- The CPA has not audited or reviewed the financial statements
- The CPA does not express an opinion or provide any assurance about whether the financial statements are in accordance with the applicable financial reporting framework.
To be a good auditor or reviewer, the CPA must have experience in such practice, and CPAs who make the very best auditors do not generally do tax work. In other words, auditing is a specialization, and tax work is a specialization. Our firm has chosen to focus on tax work because it is what we are good at, but most importantly, because it is the help most small businesses need.
Of course, small businesses also frequently need financial statements in order to inform potential investors on the performance of the company. Small businesses also need bookkeeping. Thus we offer those services and have very good personnel to do that.
We would welcome an opportunity to help your small business in the area of bookkeeping and financial report preparation/compilation. Give us a call, or email us. Initial consultations are free as we want to evaluate how we can really help your business succeed.
Paul Herndon, CPA