Lower-Level Alternatives To Audits
When an objective picture of an organization’s finances is needed, a full-scale audit engagement is not always necessary. Depending on the size and complexity of the organization and the needs of users — creditors and funding sources, non-management owners, customers, affiliates and the client — a review or compilation of financial statements may be more appropriate.
Because DeJoy, Knauf & Blood invests the time to get to know our clients and their needs, we can determine with confidence when a circumstance requires an audit or a lesser alternative.
A Financial Statement Review
Provides a lower level of assurance than an audit but more than a compilation. In conducting a review, TeamDKB applies analytical procedures to financial statements and questions the management team to identify any unusual-looking account balances or relationships. A review does not require studying or evaluating internal controls, verifying data or physically inspecting assets.
Using our professional judgment, we determine the extent of inquiries needed and address the parties expected to respond. Such inquiries may involve:
- Accounting practices and principles
- Procedures for recording and accumulating financial information
- Actions taken at director and stockholder meetings
A Financial Statement Compilation
Involves the lowest level of professional input. It is called for whenever an external CPA handles the financial statements of a client — often, a privately held entity not required by a lender to provide a review or audit. When conducting a compilation, DeJoy, Knauf & Blood relies on basic American Institute of Certified Public Accountants (AICPA) standards, including understanding our client’s business and industry and the applicable accounting principles. A compilation engagement involves:
- Reading the financial statements to identify any obvious material errors or clear departures from generally accepted accounting principles (GAAP)
- Presenting information that is the “representation of management”
In a compilation engagement, we express no opinion or assurance of the financial statements, nor do we conduct inquiries of management or analytical procedures.