Financial Statements

Financial statements are financial records that track and report economic activities of a business, not-for-profit, person or other entity and are important tools for business growth

(and are required by law for publicly traded firms).

- Main Financial Statements -

Balance Sheet    

    Income Statement

Statement of Cash Flows    

    Statement of Retained Earnings

Issued Financial Statements

COMPILED FINANCIAL STATEMENTS

 (can only be issued by a licensed CPA)

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The objective of a compilation is to apply accounting and financial reporting expertise to assist management in the presentation of financial statements, without providing any assurance on those financial statements. CPAs are not required to make inquiries or perform other procedures to corroborate the accuracy or completeness of the information supplied by management. However, a CPA has an obligation to obtain additional or revised information if they become aware that information supplied by the client is inaccurate, incomplete, or misleading. Compilations are the least time consuming of the services in which the CPA issues a formal report. 

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• Intended for use by lenders and other outside parties who may appreciate the business’s association with a CPA without requiring a level of assurance on the accuracy of financial statements

• Typically appropriate when initial or lower amounts of financing or credit are sought or significant collateral is in place

• CPA must disclose the impairment of independence, if applicable, and issue a compilation report

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A compilation of financial statements is a service where the role of the CPA is more apparent to outside parties, and as such, the requirements for performing this service are more explicit

REVIEWED FINANCIAL STATEMENTS 

 (can only be issued by a licensed CPA)

The objective of a review is to obtain limited assurance as a basis for reporting whether the CPA is aware of any material modifications that should be made to the financial statements for them to be in accordance with the applicable financial reporting framework, primarily through the performance of inquiry and analytical procedures.

A review is:

• Useful when management is seeking greater confidence in financial statements for the purpose of evaluating results and making key organization decisions

• Intended to provide lenders and other outside parties with a basic level of assurance on the accuracy of financial statements

• Typically appropriate as a business grows and is seeking larger and more complex levels of financing and credit CPA issues review report

• CPA must be independent and issue a review report

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A review is substantially narrower in scope than an audit and is one in which the CPA performs analytical procedures, inquiries and other procedures to obtain “limited assurance” on the financial statements and is intended to provide a user with a level of comfort on their accuracy.

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It is also useful when you, as the business owner, are seeking greater confidence in your financial statements for the purpose of evaluating results and making key business decisions.

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AUDITED FINANCIAL STATEMENTS 

 (can only be issued by a licensed CPA)

The objective of an audit is to express an opinion about whether the financial statements are fairly presented in accordance with the applicable reporting framework that is used by the organization. The auditor will issue a formal report that expresses an opinion. The auditor must obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by fraud or error. An audit provides the highest level of assurance, and therefore is more time consuming than the aforementioned services. The auditor is required to obtain an understanding of the organization’s internal control and assess fraud risk. In addition, the auditor is required to corroborate the amounts and disclosures included in the financial statements by obtaining audit evidence through inquiry, physical inspection, observation, third-party confirmations, examination, analytical procedures and other procedures.

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• Intended to provide creditors, investors and other outside parties with a high level of comfort on the accuracy of financial statements

• Typically appropriate and often required when seeking high levels of financing or outside investors, or when selling a business

• CPA must be independent and issue a formal report that reports any significant deficiencies or material weaknesses in internal control that are identified and expresses an opinion on whether the financial statements are presented fairly, in all material aspects, in accordance with the applicable financial reporting framework

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The audit is the highest level of assurance service that a CPA performs and is intended to provide a user comfort on the accuracy of the financial statements. Your CPA is also required to corroborate the amounts and disclosures included in your financial statements by obtaining audit evidence through inquiry, physical inspection, observation, third-party confirmations, examination, analytical procedures and other procedures.

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also see

Accounting

Financial Reporting