Which level of assurance do you need?
Assurance services answer one question for the people who rely on your financial statements: how much confidence can they place in these figures? A bank, an investor, a buyer, a surety company or a board may each require a different answer. The appropriate level is the one that satisfies the requirement without paying for more testing than anyone needs.
| Compilation | Review | Audit | |
|---|---|---|---|
| Level of assurance | None | Limited | Reasonable (highest) |
| What the CPA does | Presents your information in financial statement form | Performs analytical procedures and inquiries of management | Tests balances, transactions and controls |
| Independence required | No (disclosed if not independent) | Yes | Yes |
| Typical users | Owners, smaller loans | Lenders, some investors | Larger lenders, investors, buyers, regulators |
What does an audit provide?
An audit provides the highest level of assurance. Our CPAs test account balances and the other assertions in your financial statements, meaning the representations management makes about them, and issue an independent report that provides reasonable assurance the statements are free of material misstatement. The audit also addresses whether the statements are presented in accordance with accounting principles generally accepted in the United States (GAAP) or another comprehensive basis of accounting, such as the tax or cash basis.
What does a review provide?
A review is less extensive than an audit, and less costly. We analyze your financial statements and meet with selected members of your leadership to inquire about financial activity. The result is limited assurance that no material modifications are needed for the statements to conform with GAAP or another comprehensive basis of accounting. Our reviews are performed under the Statements on Standards for Accounting and Review Services (SSARS), issued by the AICPA.
What does a compilation provide?
A compilation is the least intensive option. We present financial statements in proper form based on the information you provide, without testing that information and without providing assurance. A compilation is often sufficient for internal use, for smaller loans and for owners who want professionally prepared statements on a regular schedule.
When are agreed-upon procedures the better fit?
Sometimes the question is narrower than whether the financial statements as a whole are correct. With agreed-upon procedures, we work with you to define precisely which procedures to perform, and then report our findings. Typical engagements include operational control reviews, limited-scope testing of a single area and fraud-focused procedures, for example after a change in bookkeeping staff.
What do retirement plan and 401(k) audits involve?
Employee benefit plans are subject to their own reporting rules, and errors can be costly to correct. We audit single-employer and multiemployer 401(k) plans and help plan sponsors avoid the errors and omissions that commonly arise, such as late deposits of employee deferrals or compensation definitions applied inconsistently.
A scenario: matching the service to the need
For example, a Front Range distributor with $8 million in annual sales asks its bank to increase a line of credit from $1 million to $2.5 million. The bank, which previously accepted compiled statements, now requires reviewed financial statements and a year-end inventory count. Planning ahead allows the company to bring its inventory records and reconciliations up to date during the year, so the review proceeds efficiently and the line is renewed on schedule. If the company later brings in an outside investor, the next step would be an audit. The figures here are illustrative.
How can you prepare?
Whatever the level, the work proceeds faster and costs less when the books are reconciled monthly, supporting documents are organized and someone in the business is responsible for the process. Our accounting team can help you reach that point, and our mergers and acquisitions team often relies on reviewed or audited statements to prepare a business for sale. To discuss what your lender, investors or board require, request a proposal or schedule an introductory call.