Financial Statement Prepration
statements are often times required by a lending institution or a
government agency. We can prepare the following financial statements
Preparing financial statements of private entities based on
information provided by the entity’s management.
Through compilation services, a CPA prepares monthly, quarterly, or
annual financial statements. However, he or she offers no assurance
as to whether material, or significant, changes are necessary for
the statements to be in conformity with generally accepted
accounting principles, the cash basis, or the income tax basis of
accounting. During a compilation, the data is simply arranged into
conventional financial statement form. No probing is conducted
beneath the surface unless the CPA becomes aware that the data
provided is in error or is incomplete.
However, before agreeing to perform a compilation, a CPA will take a
"common sense" look at the entity to decide whether the client needs
other accounting services, such as help in adjusting the accounting
A compilation is sufficient for many private companies. However, if
a business needs to provide some degree of assurance that its
financial statements are reliable, it may be necessary to engage a
CPA to perform a review or an audit.
Inquiry and analytical procedures applied to financial statements of
A private entity may engage a CPA to perform a review of its
financial statements and issue a report that provides limited
assurance that material changes to the financial statements are not
necessary. With respect to reliability and assurance, a review falls
between a compilation, which provides no assurance, and the more
extensive assurance of an audit.
Before a review, the CPA may have to compile the financial
statements; however, in all cases, the financial statements are
management’s statements, not the CPA’s. Management must have a
sufficient understanding of the financial statements to assume
responsibility for them.
Two other factors differentiate a review from a compilation — the
CPA must remain independent of the client during a review, and all
appropriate footnotes must be included in the reviewed statements.