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As a business owner, you are ultimately held responsible for the financial health of your business. That includes the accuracy of your financial statements. Unless you’re a CPA (certified public accountant) yourself, keeping track of more details than “making a profit” isn’t in your skill set.

So without the expertise or time to fully tend to the financial health of our business, you’d likely consider adding an in-house accountant to the team. But doing so could be expensive for a small business with a limited budget. A cost-effective option to consider is outsourcing the role to a local CPA firm that has the knowledge, experience and tools to make sure that your financial books look the way they should.

CPA firms offer a variety of services to help small businesses with financial reporting requirements. Audits, reviews, and compilations – all different, but useful - can help your business secure a loan, satisfy regulatory rules, or entice new investors. These services can be expensive, so it’s a good idea to understand what each includes so you can determine which one best meets your needs and budget.

Audit

If you need to prove that your financial statements are accurate, an audit is the most comprehensive and well-documented way. During audits, CPAs analyze accounting records and study the documentation for your transactions. After finishing this research, a CPA issues an opinion on whether or not they believe that your financial statements comply with generally accepted accounting principles (GAAP) in all material respects.

An audit is the highest level of assurance you can obtain from a CPA. Because the stakes are high, a CPA spends a lot of time reviewing transactions. Because audits can be so costly, some small businesses don’t get them unless they absolutely have to. Audits are sometimes required by banks in situations where large businesses are seeking large loans or seeking federal grants above a certain amount.

Review

A financial statement review is similar to an audit, but not quite as time consuming or in-depth. When conducting a review, CPAs express limited assurance about your financial statements. Rather than digging through documentation, the CPA performs basic analytical procedures to double-check that the financial statements make sense. The best report you can get from a review is simply that the CPA is not aware of any material departures from GAAP.

If you want a CPA’s stamp of approval on your financials, but aren’t required to get a full-blown audit, a review can be a good option. Because there’s less assurance provided in a review, the CPA spends less time reviewing your books, which costs you less. Reviews can be a helpful tool if you’re trying to attract new investors or are looking for a buyer for your business.

Compilation

During an audit or a review, the client company often prepares the financial statement, although the CPA can prepare them as well, as an additional service. During a compilation, your CPA assists you in preparing the financial statements but doesn’t give an opinion on their quality or accuracy.

The American Institute of CPAs believes that compilations are best suited for very simple accounting situations. For example, a compilation may be appropriate if your business uses the cash method of accounting and needs to translate that to the accrual method. If your company is small and your transactions are straightforward, a lender may accept this in lieu of a financial review for a loan application.

Compilations aren’t very time intensive and are generally much cheaper than audits and reviews. But sometimes, you get what you pay for. Although you’d hope that compiled financial statements comply with GAAP, your accountant has no obligation to ensure that they do. In other words, you’re paying for the right to say that a CPA has helped you put together financial statements.

For more information about which financial statement “check” method best suits your business, contact Byler, Wolfe, Lutsch & Kampfer at 330-332-4646 in Salem or 330-385-2160.

As a business owner, you are ultimately held responsible for the financial health of your business. That includes the accuracy of your financial statements. Unless you’re a CPA (certified public accountant) yourself, keeping track of more details than “making a profit” isn’t in your skill set.

So without the expertise or time to fully tend to the financial health of our business, you’d likely consider adding an in-house accountant to the team. But doing so could be expensive for a small business with a limited budget. A cost-effective option to consider is outsourcing the role to a local CPA firm that has the knowledge, experience and tools to make sure that your financial books look the way they should.

CPA firms offer a variety of services to help small businesses with financial reporting requirements. Audits, reviews, and compilations – all different, but useful - can help your business secure a loan, satisfy regulatory rules, or entice new investors. These services can be expensive, so it’s a good idea to understand what each includes so you can determine which one best meets your needs and budget.

Audit

If you need to prove that your financial statements are accurate, an audit is the most comprehensive and well-documented way. During audits, CPAs analyze accounting records and study the documentation for your transactions. After finishing this research, a CPA issues an opinion on whether or not they believe that your financial statements comply with generally accepted accounting principles (GAAP) in all material respects.

An audit is the highest level of assurance you can obtain from a CPA. Because the stakes are high, a CPA spends a lot of time reviewing transactions. Because audits can be so costly, some small businesses don’t get them unless they absolutely have to. Audits are sometimes required by banks in situations where large businesses are seeking large loans or seeking federal grants above a certain amount.

Review

A financial statement review is similar to an audit, but not quite as time consuming or in-depth. When conducting a review, CPAs express limited assurance about your financial statements. Rather than digging through documentation, the CPA performs basic analytical procedures to double-check that the financial statements make sense. The best report you can get from a review is simply that the CPA is not aware of any material departures from GAAP.

If you want a CPA’s stamp of approval on your financials, but aren’t required to get a full-blown audit, a review can be a good option. Because there’s less assurance provided in a review, the CPA spends less time reviewing your books, which costs you less. Reviews can be a helpful tool if you’re trying to attract new investors or are looking for a buyer for your business.

Compilation

During an audit or a review, the client company often prepares the financial statement, although the CPA can prepare them as well, as an additional service. During a compilation, your CPA assists you in preparing the financial statements but doesn’t give an opinion on their quality or accuracy.

The American Institute of CPAs believes that compilations are best suited for very simple accounting situations. For example, a compilation may be appropriate if your business uses the cash method of accounting and needs to translate that to the accrual method. If your company is small and your transactions are straightforward, a lender may accept this in lieu of a financial review for a loan application.

Compilations aren’t very time intensive and are generally much cheaper than audits and reviews. But sometimes, you get what you pay for. Although you’d hope that compiled financial statements comply with GAAP, your accountant has no obligation to ensure that they do. In other words, you’re paying for the right to say that a CPA has helped you put together financial statements.

For more information about which financial statement “check” method best suits your business, contact Byler, Wolfe, Lutsch & Kampfer at 330-332-4646 in Salem or 330-385-2160.