Audit, Review and Compilation – What is the difference?
November 15, 2009
The difference in each is significant. In most cases, audits, reviews and compilations are necessary to comply with the requirements of banks and lending institutions, suppliers, regulatory agencies or others who rely heavily on the information contained in your financial statements. Depending on the level of assurance required will determine the type of report needed. The services discussed below may only be performed by certified public accountants, which are registered to do so. Such firms are subject to quality review inspections. dbbmckennon, certified public accountants, are registered to perform these services.
An Audit provides the highest level of assurance involving gaining an understanding of the internal controls, a critical review of financial analytics, the testing of source documents such as sales orders and disbursements and an independent verification of financial information through third party confirmations. An audit results in an independent opinion from a certified public accountant attesting to the fairness and accuracy of your financial statements and the representations they contain. Audits provide the “highest level of assurance” about the reliability of your financial statements.
A Review is an evaluation of your financial statements through obtaining knowledge of the business and industry, making management inquiries, analytical procedures, and in some cases performing a limited amount of substantial testing. The scope of a review is less than an audit, and thus, the report issued provides “limited assurance” that nothing came to the certified public accountants attention that would require modification. In addition, the financial statements are clearly marked “unaudited”.
A Compilation requires the certified public accountant to obtain an understanding of your business in which your company operates, as well as the basic accounting function and those involved. A compilation is the assembling of financial data from your accounting records and presenting, in the form of financial statements, information that is the representation of management without undertaking to express any assurance on the statements. A compilation provides the assistance needed for you to prepare meaningful financial statements in which the certified public accountant provides no assurance. In addition, the financial statements are clearly marked “unaudited”.
A compilation may be prepared on a basis other than generally accepted accounting principles, such as a cash-basis financial statement. A compilation may include notes to the financial statements or no notes at all. The form of compiled financial statements depends on the requesting party or your particular needs.
Please contact us to assist you in evaluating your financial reporting needs and determining which level of service you require.
Is SOX 404 dead?
November 6, 2009
On November 4, 2009, the House Financial Services Committee approved the Investor Protection Act (H.R. 3817). Included within the Act was the exemption from SOX auditor attestation requirements for small businesses. Specifically, the Act was amended by the committee to exempt permanently companies with a market capitalization of less than $75 million from the Sarbanes-Oxley Act requirement that auditors attest to management’s declaration that their internal controls over financial reporting are effective. However, the legislation still has to move through the House and Senate.
We immediately provided a hopeful update to our clients, before many Registered Public Accounting Firm were even aware of the Committee approval.
Although it appears the requirement for auditors to attest to management’s declaration that their internal controls over financial reporting are effective is well on its way to the grave. The Act does not change the requirement that all public companies must document, test and report on the adequacy of the company’s internal control over financial reporting. Sorry! Until further notice, SOX 404 is still required for smaller reporting companies with fiscal years ending after June 15, 2010.
Since 2004, members of dbbmckennon have been assessing, documenting and testing internal controls. Our members have worked with some of the largest companies in Southern California. Please contact either Michael McKennon or Russ Boyer if you have any questions.
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