Auditing services are the highest level of independent CPA services available. Some of the procedures required by an outside CPA in an audit environment include confirmation of bank balances, review and verification of bank reconciliations, confirmation and testing of accounts receivable and investment balances, confirmation and notes payable, lines of credit, security agreements and the testing compliance with debt covenants. Additionally we will review the minutes of Board of Director and Committee minutes, and we may obtain a letter of representation from the client's attorney, and much, much more.
The auditor's goal is to determine whether the financial statements are free of material misstatement. An audit requires extensive inquiry and study of the organization's policies, procedures, systems, and operations and financial management. If during our audit we determine weaknesses in the organization's system of internal control, or areas where operating procedures can be improved, we will report those findings to management and those charged with overall governance of the organization.
While our firm's shareholder has provided auditing services to numerous companies and organizations, in a variety of industries, he has developed two particular niche areas. These niche areas are:
A review is conducted when a lower and limited degree of assurance than an audit is acceptable, yet when the user wants to know that a professional has performed some analysis of the financial statements. A review is significantly smaller in scope than an audit and thus much less expensive. Reviews are frequently requested by banks or insurance companies issuing performance bonds who want a higher degree of service or verification than a compilation, which is discussed next, but not the full extent and cost of an audit.
A review consists predominantly of an assessment of the organization's books and records through the performance of inquiry and analytical procedures. The analytical procedures include ratio analysis, the comparison of your organization's operating statistics to prior periods and operating budgets, or perhaps to industry averages, as well as other financial analyses deemed appropriate.
The lowest level of assurance or attestation services a CPA may provide is a compilation. Essesentially, a compilation is when a CPA compiles the books and records of an organization without the performance of any substantive procedures or independent verification or confirmation of any account balances.
Thus a compilation is solely the representation of the organization's management as no verification or procedures of balances sheet or income statement accounts are performed. Also management has the option to also exclude from compiled financial statements all related footnotes. Additionally, management use only financial statements can be issued without an accountant's report in some circumstances. Ommission of the financial statement footnotes and a report are not permissible under the levels of accounting and assurance services.
An agreed-upon procedures engagement is one in which a CPA is engaged by a client to perform specific procedures and to report findings. The CPA does not perform an examination or provide an opinion relating to the subject matter or assertion about the subject matter. Rather the CPA performs only the procedures that have been agreed upon and determined by the client to serve its needs and to report on the findings after the procedures are performed.
Typically, an agreed-upon procedures engagement arises when clients need the practitioner's involvement, but do not want a compilation, review, or an audit. The specified users of the report are determined and the client determines the procedures required to meet the specified users needs. Examples of specified users may be absentee owners, banks, and regulatory agencies.