Stockholders, creditors, and private investors often need assurance that the
financial statements accurately represent the true financial position of a company.
Your stockholders, creditors, or private investors have different levels of risk tolerance, so we provide
three levels of assurance to meet your needs.
Audit - Highest Level of Assurance
An audit provides the highest level of assurance. An audit is a methodical review and objective examination
of the financial statements, including the verification of specific information as determined by the auditor or as
established by general practice.
Our work includes a review of internal controls, testing of selected transactions, and communication with
third parties. Based on our findings, we issue a report on whether the financial statements are fairly stated and free
of material misstatements.
An Audit allows you to...
Satisfy stakeholders such as employees, customers, suppliers and pressure groups, as well as the
investing community, as to the credibility of published information.
Facilitate the payment of corporate tax, goods and services tax, and other taxes on-time and accurately,
thereby avoiding interest, penalties, and investigations.
Comply with banking covenants.
Help deter and detect material fraud and error.
Facilitate the purchase and sale of businesses.
Here's what you get...
You get the highest level of assurance because we go outside your company to obtain more information.
Typically, we'll have written communication with:
Your customers, to check outstanding receivable balances,
Your banks, to confirm cash or debt balances and terms,
Your vendors, to verify outstanding payable balances, and
Your attorneys, for information on pending or threatened legal action.
We also perform physical inspections by observing your inventory counting methods and perform test counts. We
document and test each operating cycle, including sales and cash receipts, expenses and cash disbursements, and
payroll. Our audit papers include a detailed work program to document the examinations and testing performed, as well
as the client's supporting work papers.
Audits Not Just for Public Entities
All public companies are required to have an annual audit, but some nonpublic entities must undergo an annual
audit as well. These include local governments, not-for-profit agencies and other organizations receiving government
grants.
Moreover, some financial institutions require audits of nonpublic companies based on the financing amount
and/or the bank's assessment of the company's risk. Also, companies with absentee ownership (such as those owned by
investment firms, or individuals who no longer run the business) may order audits as checks of their management
teams.
Review - Limited Assurance
Less extensive than an audit, but more involved than a compilation, a review engagement consists primarily of
analytical procedures we apply to the financial statements, and various inquiries we make of your company's management
team. If the financial statements or supporting information appear inconsistent or otherwise questionable, we may need
to perform additional procedures.
A review doesn't require us to study and evaluate your company's internal controls or verify data with third
parties or physically inspect assets. Rather, a review report expresses limited assurance in the form of the
statement: "We are not aware of any material modifications" for the financial statements to be in
conformity with the Generally Accepted Accounting Principles (GAAP). Reviewed financial statements must include all
required footnotes and other disclosures.
Why might a business request a review engagement? It can be a good middle ground, providing the advantages of
a CPA's technical expertise without the work and expense of an audit.
Compilation - Lowest Level of Assurance
In compiling financial statements for a client, we present information that is the "representation
of management" and expresses no opinion or assurance on the statements. Compilations don't require inquiries
of management or analytical procedures. Instead, we rely on our knowledge of accounting principles and a general
understanding of your business.
Banks often require compilations from an independent CPA as part of their lending covenants.
Which Report Should You Use?
Each type of financial statement report may suit specific circumstances, depending on requirements from your
client's bank or other parties, as well as meet budgetary needs.
Understanding each report's unique strengths and weaknesses can help you choose the most appropriate one. Please call if you have questions about which type of report is right for you.
J. Kennith Brown, CPA
7500 Memorial Parkway S.W.
Suite 215-G
Huntsville, AL 35802 Phone: (256)650-0711 Fax: (256)650-0713 info@jkbcpa.net
