Tips for Helping Ensure Financial Accuracy for Your Business
One of a business owner’s most important responsibilities is ensuring the company’s financials are correctly managed and in compliance with all regulations. But with so many moving pieces, it can be difficult to monitor and maintain financial accuracy. That’s why it’s important to regularly conduct a financial audit, review or compilation.
Here, we highlight differences between an audit, a review and a compilation and provide tips to help you determine which level of assurance you need.
What’s the difference between a compilation, a review and an audit?
Understanding the difference between audits, reviews and compilations can help you determine which type of analysis makes sense for your business.
Compilation – A compilation refers to the process of organizing financial data into a formal financial statement. Although compilations are completed by a Certified Public Accountant (CPA), they don’t provide any assurance that the information is accurate or complete. The main objective of a compilation is to provide financial data in an organized, easily digestible format based on the company’s books and records.
Review – A financial review is intended to provide limited assurance that a company’s financial statements are free from inconsistencies and errors. It also offers insight into potential process improvements. A review typically provides better insight into a company’s financial health than a compilation and consists of inquiries and analytical procedures.
Audit – An audit is the most comprehensive type of financial analysis. Its primary goal is to provide a high level of assurance that all financial statements are materially correct and in compliance with generally accepted accounting principles (GAAP). Audits provide in-depth details that allow the CPA to offer an opinion on whether all financial statements are accurate and fairly stated. Financial statement audits include detailed testing of transactions.
When should I get a compilation, a review or an audit?
Most small to mid-sized business owners choose to conduct an annual compilation to accompany their financial statements or conduct regular reviews as necessary to satisfy the needs of investors and/or lenders.
As your company grows, your need for an audit may increase, as banks, investors and regulatory agencies typically require that large businesses provide higher levels of assurance.
You should consider initiating an independent audit under the following circumstances:
- A bank, investor or lender requires a high level of detail and assurance that exceeds the data provided by a review.
- You hope to uncover weaknesses in your financial reporting in order to better manage potential financial risks.
- You wish to secure a loan or raise capital.
- You are considering a merger, an acquisition or a business sale in the next few years.
- Your business’s operating agreement requires regular audits.
- Your business is publicly traded and must comply with regulatory requirements.
Could you use help conducting a financial compilation, a review or an audit? Our experienced professionals partner with clients to help optimize all aspects of their organizations and drive success for their businesses. To learn more, schedule a call with a member of our team. Creative Planning and its affiliates lease employees and other resources to BerganKDV, an independent, separately governed and licensed CPA firm, in support of audit and attest services BerganKDV provides to its clients.
