Compiliations (prev. Notice to Readers)
With & Without Notes to Financial Statements
Compiled Financial Statements (previously also known as notice to reader engagements) are financial statements that are compiled on the basis of information provided by the management of the company.
This form of financial statement is typically used when the main user of the financial statements is the government, as an attachment to the corporate income tax returns.
Reviewed Financial Statements
A review engagement is conducted to provide limited assurance (negative assurance) that nothing has come to the attention of the accountant that causes them to believe that the financial statements are not fairly presented. This requires more work than a compilation and is, therefore, more expensive. This type of engagement is often required for a significant bank loan or inactive shareholders.
A review differs slightly from an audit and provides less assurance than an audit as no audit procedures are performed. Instead, a series of analytical procedures and inquiries are performed. The procedures provide a better understanding of key relationships among certain numbers and financial situations which provides assurance about the plausibleness of the financial condition presented in the financial statements.
Audited Financial Statements
Audited financial statements are needed to provide information to decision-makers. During a financial audit, a CPA confirms that the financial statements do not contain material errors. In case there are substantial errors, the CPA recommends corrective measures that comply with the required accounting principals “An audit enhances the confidence of users in financial statements through the expression of an opinion by the auditor on whether the financial statements are prepared in all material respects in accordance with an applicable financial reporting framework.
– The financial statements subject to audit are prepared by management with oversight from those charged with governance. An auditor is responsible to the shareholders and examines the company’s financial records and operations on their behalf to determine whether the information reported in the financial statements is presented fairly. The auditor communicates this assessment to shareholders through the expression of the audit opinion. If the auditor discovers the financial statements depart materially from the applicable financial reporting framework, this fact is disclosed in the auditor’s report.
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