Our review staff is experienced and ready to help by performing reviews and compilations. Jennings Hawley, and Co., P.C. can assist in the adoption of accounting changes and internal control reviews. We also perform reviews of retirement plans and prepare construction contract schedules for percentage-of-completion and completed-contract methods.
How We Can Help
As your business grows, it may become necessary to review or compile your financial statements. Lenders, investors, and other external stakeholders may ask for them so they can learn more about your business. You may need these reports for internal evaluations. There are several important differences between a compilation and a review. In a compilation, the accountant presents financial statements based on any representations made by management without any attempt to verify this information. In a review, the accountant takes a more analytical approach by making inquiries in an effort to determine whether the information is correct. This provides a limited amount of assurance that the financial statements don’t need to be modified.
Important Differences Between a Review and a Compilation
Some of the important differences between a review and a compilation include the following:
- Level of Assurance — This refers to how much assurance there is in whether the financial statements are being fairly represented. A review will have more assurance than a compilation, which will have the lowest amount of assurance (or even none at all).
- Reliance on Management — In all three of these scenarios, the accountant starts with the account balances that are given to them by management, but a review requires more testing than a compilation (which almost completely relies on the presented information).
- Work Performed — A review takes a lot more time to complete because there are certain procedures that have to be performed, but the effort needed to perform a compilation is relatively minor.
A review requires more effort, so it will be more expensive than a compilation. There’s also a difference in terms of the level of demand for these services. Users of these financial statements (such as investors and lenders) are more likely to ask for a review, because it will give them the most assurance that what they’re reading is a fair representation of the company’s finances. Be sure to speak to a professional for more information about which one is right for you.
When a Compilation is Performed
A compilation should only be performed in very straightforward, uncomplicated situations. If you only need to present the company’s financial information on a surface level or need a second pair of eyes to look at your financial records, a compilation may be enough. But it’s always a good idea to speak to a CPA to make sure you’re choosing a method that will give you the right amount of assurance for your specific situation.
When a Financial Review is Needed
A lot of businesses who aren’t legally required to have an audit performed still like to do a periodic analysis of their financial records, so most of them choose to do a review to save time and money. While there are no laws that require regular reviews of financial statements, some grantors or lenders may ask companies to do an annual review of their records as part of their loan or grant agreement.
A lot of companies find that a regular financial review is beneficial to their business, even though they’re not required to do so. The insights and moderate level of assurance can provide a certain level of confidence that can give them, their board, lenders, and investors more confidence. It also provides the benefit of having a second pair of independent eyes, because they will look into the company’s financial statements.
Determining Which One is Best
In every case, a CPA is actively engaged in the process, so it all depends on the needs of your business. You should always consult with a CPA so you can better understand each option and how it reflects the goals of your business. A lot of times, the CPA who performs the company’s general accounting, bookkeeping, and tax preparation is also responsible for its financial statements. And if the CPA’s independence isn’t impaired, he or she can perform whatever service is needed to meet your specific requirements.
Review & Compilation FAQ
A financial review is done by an independent auditor for the purpose of looking at the company’s financial statements and determining whether they’re consistent with generally accepted accounting principles. The goals of a review and an audit are the same, but a review isn’t done with the same level of scrutiny.
During a review, the auditor looks at the company’s financial statements but doesn’t look at its internal controls (which are usually within the scope of an independent audit). So, it provides a limited level of assurance that the financial statements don’t have any misrepresentations.
The main difference between an audit and a review is that an audit requires independent confirmation or verification of the financial information being examined.
A business may need a review in the following circumstances:
If it wants to gain investor confidence.
If it wants to offer assurances to lenders without performing a full audit.
If it needs to perform annual or interim reporting.
Be sure to speak to a CPA to determine if your company can benefit from an audit.
There is a significant difference between a compilation and an audit or review. It’s simply the process of compiling a company’s financial records and putting them in a format that’s required by accounting standards. When this type of work is performed by an auditor, he or she not only has to organize the records into the proper format but also has to determine if they’re free from any obvious errors.
There are some differences between a compilation and a financial review or audit. During a compilation, the auditor doesn’t look at the internal controls that are used to manage the risk of embezzlement or fraud (which is part of an independent audit). While the auditor will reformat the financial statements during a compilation, he or she won’t determine whether the account balances are reasonable.
After the auditor has finished a compilation, the auditor won’t offer any opinions or assurances that the financial statements accurately reflect the company’s financial position (which would be done during an audit or review).
When a CPA is performing a compilation, he or she relies on the company’s internal information. So unless there’s a clear misstatement in the records, the CPA doesn’t make any adjustments or question any information. With a review or audit, the CPA will test some of the information being presented.
The process of compiling financial statements is relatively straightforward. The company gives the accountant access to its financial records, which are used to generate the necessary statements. Reviews and audits take more time, and there may be differences in cost (depending on the scope of work and the complexity of the business).
A compilation has the advantage of having a pair of trained eyes to look at a company’s financial records. The auditor can look at the records for a specific month, quarter, or year. This can be useful because this person will be able to organize the company’s financial information into a standard format. It can even have some explanatory notes that can provide some clarification on the company’s financial statements.
If a company isn’t able to put its financial records into a “professional” format, a compilation will be able to accomplish this goal. The CPA doing the compilation may also raise questions about specific records that can be helpful in spotting any irregularities. Once the records have been put in a standard format, they can be easily reviewed by third parties (such as a bank that may be considering a loan application).
Compilations, reviews, and even audits can be important to a broad range of business applications. If you’re trying to sell your business, attract investors, apply for a loan, or go public, you need to have financial statements that have been reviewed by a third party. But you need to make sure you invest in the right type of services.
Many people think that a review is a precursor to an audit, but they’re two different services with very different processes. They also analyze different parts of your accounting procedures. If you start with a review, you probably won’t be able to switch to an audit while the review is still being performed. In many cases, you’ll have to start over. That’s why you need to speak to a specialist to make sure you get the right service for your specific needs.
If you’re looking for a CPA in Corpus Christi to help you with a review or compilation, be sure to reach out to Jennings & Hawley. We have a team of experienced professionals who can take care of any task related to a review or compilation. We also provide a broad range of accounting and bookkeeping services to residents of Corpus Christi and throughout the country. So if you’re looking for a reliable accounting firm that can help you with any review or compilation, feel free to get in touch with us. We would be happy to speak with you about your specific needs!