We prepare annual, quarterly, or monthly financial statements for businesses or individuals on the accrual (GAAP), cash, or tax basis.
When we prepare or assist in preparing financial statements, we are required under professional standards to issue a report on the financial statements, either a compilation or review report.
Compilation financial statements are the basic level of financial statement service CPAs provide. In a compilation, we must comply with professional standards, have a knowledge of the client's industry and applicable accounting principles, and determine whether there are any obvious departures from generally accepted accounting principles or, other comprehensive basis of accounting. It may be necessary for us to perform "other accounting services" — such as creating your general ledger or assisting with adjusting entries before the financial statements can be prepared.
Upon completion, a report on the financial statements is issued that states a compilation was performed in accordance with AICPA professional standards, but no assurance is expressed that the statements are in conformity with generally accepted accounting principles.
Compilations are known as the expression of "no assurance." Compiled financial statements are often prepared for privately held entities that do not need a higher level of assurance expressed by the CPA.
Reviewed statements require that we perform inquiry and analytical procedures in addition to the procedures described above for a compilation.
Upon completion, a report is issued stating a review has been performed in accordance with AICPA professional standards, that a review is less in scope than an audit, and we did not become aware of any material modifications that should be made in order for the statements to be in conformity with generally accepted accounting principles, or other comprehensive basis of accounting. Reviews are known as the expression of "limited assurance."
Reviewed financial statements are often prepared in situations where a third party requires them for bonding or loans.
There are other differences between the two types of statements. Compilation statements provide additional options. For example, the compilation may be a full disclosure report with complete footnote explanations of certain amounts and policies in the financial statements. Or, these disclosures may be omitted. In a reviewed statement, however, footnoted explanations must be included.
Another difference has to do with CPA independence. For reviewed statements, we must be independent of your organization, while for compiled statements, we do not have to be, and the report will state as much. Regardless of the level of service performed, financial statements are the primary responsibility of the reporting entity.