If your organization needs audited, reviewed, or compiled financial statements, Sciarabba Walker can help. Here is a summary of these services, what each entail, and some relevant factors in deciding which fits your organization’s needs.
An audit provides the highest level of assurance. The goal of an audit is to obtain reasonable assurance about whether the financial statements are free of material misstatement due to fraud or error. At the end of the audit, the auditor will express an opinion as to whether the financial statements are fairly presented in accordance with a particular financial reporting framework – usually, accounting principles generally accepted in the United States (GAAP). Since it provides the highest level of assurance, an audit also requires the most detailed testing. Your auditors will perform procedures such as confirming your cash and debt balances with your financial institutions, examining invoices to determine whether your revenues and expenses are recorded in the correct period, and performing analytical procedures on certain accounts.
The next highest level of service is a review, which provides limited assurance. The accountant concludes on whether any material modifications are needed to make the financial statements conform to GAAP. The review process mostly consists of performing analytical procedures and making inquiries of management. Based on the results of those procedures or in areas where there is a higher risk of misstatements, the accountant may find it necessary to perform additional procedures in order to be able to express a conclusion.
In a compilation, the accountant does not express an opinion or conclusion, and no assurance is provided. The accountant reads the financial statements and proposes adjustments if necessary.
Which level of service is right for your organization depends on several factors. One of these is pricing: service levels will generally be more costly due to the greater amount of time required for the procedures. The requirements of third parties can also play a role: your organization may be asked for financial reports with a particular level of assurance by current or potential investors when applying for a loan from a bank or in connection with a grant.
In addition, financial statements that have undergone a particular level of assurance service may be required for regulatory compliance. For instance, nonprofit organizations that file annual reports with the New York State Charities Bureau are required to submit audited financial statements if their gross revenue and support for the year exceeds $1,000,000; if gross revenue and support are over $250,000, reviewed financial statements are required. These thresholds have changed in recent years, so nonprofit organizations in New York State should ensure they are aware of their requirements.
This was a brief overview of the differences between the levels of assurance services. If you have questions about which assurance services your organization may require, please feel free to reach out to us.
By Miriam Nussbaum