Audit & Reviews
Government Entities, Stockholders, Creditors, and Private Investors often need assurance that the financial statements accurately represent a company’s true financial position. Each of them has different risk tolerance levels, so we provide three levels of assurance to meet your needs, which are Audit, Review, and Compilation of Financial Statements.
All public companies must have an annual audit, but some nonpublic entities must undergo an annual audit. These include local governments, not-for-profit agencies, and other organizations receiving government grants.
Moreover, some financial institutions require nonpublic companies’ audits 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 their management teams’ checks.
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 Government, Stockholders, Customers, Suppliers and other, 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 we do and 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..
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. A compilation is limited to presenting information that represents management in the form of financial statements and supplementary information. Accordingly, we do not express any degree of assurance on the statements. In a review of a company’s financial statements, we express limited assurance that there are no material modifications that should be made to the financial statements. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data.
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.
Understanding each report’s unique strengths and weaknesses can help you choose the most appropriate one. If you are looking for a California CPA in Los Angeles and Southern California that offers Audits, Reviews, and Compilations services, contact us today.
We perform the following type of Audit.
- HUD Audit
- SBA Audit
- Home Owners
- Association Audit
- Non Profit Audit
- Audit of Vocational School
- Audit of Vendors of the Department of Development Services
Understanding each report’s unique strengths and weaknesses can help you choose the most appropriate one.