Accurate financial statements are imperative for every business. Publicly held companies are required to not only issue them, but also have them audited by an independent CPA, like VAAS Professionals. Audited financial statements provide the highest level of assurance to third-party users that the documents in question are free of material misstatements.
The good news for privately held companies — particularly small businesses — is you may not need to incur the cost or undertake the effort that goes with formally audited financial statements. There are other less expensive and less arduous steps to follow.
The First Step: Preparations
True to its name, a financial statement preparation is simply the end product of an accountant preparing a set of financial statements in accordance with an acceptable financial reporting framework. It’s usually done as part of bookkeeping or tax-related work.
A preparation provides no assurance of the accuracy and completeness of the financial statements in question. And assurance is typically critical if you plan to share the financial statements with third parties such as lenders and investors.
With that said, some lenders may accept preparations in support of small lending arrangements. However, more often than not, preparations are used only for internal purposes to provide a business’s leadership with information on the company’s current financial condition and as a basis of comparison against future accounting periods.
To avoid misleading any third parties who might eventually receive a preparation, each page of the financial statements should include a disclaimer or legend stating that no CPA provides any assurance on the accuracy of the documents. In addition, a preparation must adequately refer to or describe the applicable financial reporting framework that’s used and disclose any known departures from that framework.
The Next Step: Compilations
If you want to fortify the trust of those who will access your financial statement, consider a compilation. Like a preparation, a compilation is simply a set of financial statements generated in accordance with an acceptable financial reporting framework that provides no assurance of the documents’ accuracy and completeness.
A compilation includes a formal report by a CPA attesting that he/she has fully read the financial statements and evaluated whether they’re free from obvious material errors. If the CPA isn’t independent of the business, this fact must be disclosed in the report as well.
The use of a compilation can extend beyond the business’s leadership to third parties such as lenders, investors and collaborative partners who may view the input of a CPA as reassuring. However, many third parties might still insist on some level of formal assurance to accept your company’s financial statements.
The Step Before an Audit: Financial Reviews
Financial Statement reviews are a sweet spot in between an audit which provides the highest assurance, and preparations and compilations which provides no assurance. A review is performed by an independent CPA like VAAS Professionals, who provides limited assurance that no material modifications should be made to the financial statements in question.
If you need help deciding which level of financial statement services is right for your business, please contact us. As always, our staff is here to help you and your small business determine which level best fits your business needs and can prepare, compile, and review your financial statements for you. Whatever your need, we got you covered.
To schedule an appointment to get an overview of our financial reporting services, or if you're ready to begin, book a free 30-min appointment today! In need of an audit? Our CPAs can assit with that too! Discuss your options with your trusted VAAS Professionals today.