Understanding the Financial Statement Services a CPA Can Provide

There are four different types of financial statement services that a Certified Public Accountant (CPA) can provide, including preparation, compilation, review, and audit engagements.

Prepared Statements

A preparation engagement is the most basic level of service a CPA can provide for financial statements. In a preparation engagement, the CPA prepares financial statements but does not issue a formal report and does not provide any assurance on the financial statements. This is known as the expression of “no assurance.”  The CPA is not required to verify the accuracy or completeness of the information provided by the client, and no report is attached to the statements.  Each page of the financial statements must include a disclaimer stating that no assurance is provided.

Compiled Statements

Compiled financial statements are the lowest level of financial statement services that include a report.  The CPA must become familiar with the accounting principles used by the client and must obtain an understanding of the client’s business and industry.  The CPA arranges the financial information into financial statement format, then must read the statements to determine whether there are any obvious departures from the organization’s accounting framework.   Accounting frameworks include generally accepted accounting principles, modified cash basis, or tax basis.  The compilation report states that no assurance is expressed that the statements are in conformity with the organization’s financial accounting framework.

Reviewed Statements

Reviewed financial statements require the CPA to perform inquiry and analytical procedures in addition to the procedures for a compilation.

Inquiries are tailored to each organization and can include various questions, staff and board interviews, or document requests.  Topics of inquiry are varied and can include board actions, related parties, unusual transactions, actual or suspected fraud, subsequent events, new accounting policies, and questions regarding specific material financial statement balances.

Analytical review procedures include:

• Reasonableness testing – developing expectations or plausible relationships between financial and nonfinancial information.
• Comparing expectations to actual financial information and calculated ratios.
• Trend analysis, such as comparing financial statements with information from prior periods.
• Performing additional procedures to address any unexpected differences.

The review report states that a review has been performed in accordance with AICPA professional standards, that a review is less in scope than an audit, and that the CPA did not become aware of any material modifications that should