What are the Differences Among Compilation, Review and Audit?

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What are the Differences Among Compilation, Review and Audit?

Every public-traded company is requisite to present their financial statements that comprise of a balance sheet or the financial balances of sole and business partnership, a cash flow and an income statement. Now how do we ensure that these important statements are accurate and will fall within the principles set by the General Accepted Accounting Principles (GAAP)?

Three methods: Audit Report, Review Report, and Compilation Report.

These types of report will be examined and determined both by the clients and, of course, their Certified Public Accountants.

Compiled Financial Statements

A compiled financial statement is a record that will provide business owners with the basic inspection of all the organization’s data. Take not that this presentation does not give any assurance that no material modifications are needed for the financial statements in conformity with GAAP. Under this process are the preparation, gathering and presentation of financial statements.

Review Report

In addition to the tasks described to complete the compilation, this method performs inquiry and analytical procedures applied to financial statements of private entities. These entities engage CPAs to perform a thorough review of the financial statements and prepare a report providing limited assurance that it is not necessary to perform any material changes.

Audit Report

This report is an opinion on whether or not every piece of information is correct, and if there have been any material misstatements done the whole time. In an audit firm, the professional CPA is in charge of completing the process. It will be stated that the whole audit was accomplished in compliance with the generally accepted auditing standards as soon as the process has been completed. Also, the report will convey that the statements include the entire financial position of the entity and the accurate results of the whole operation.

During the audit process, the CPA confirms balances with different banks, scrutinizes inventory counting, and contacts sources outside the client organization in order to collect information that are objective from internal sources. After all these, the auditor will submit  a report saying that all financial statements are issued in all material aspects and in conformity with generally accepted accounting principles.

Every audit is planned with complete professionalism. The professionals provide reasonable assurance that all material errors are detected, excluding forgery or collusion. Auditors are not trained to catch forgeries, and cannot detect the conspiracies by the customary audit procedures. However, it is very much important for business managers and auditors to choose the level of involvement needed based on their clients’ particular circumstances. Everything must be done with good understanding and they must make professional cost effective choices among all the alternatives that are available.

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