Navigating financial reporting can feel overwhelming when terms like ‘audit,’ ‘review,’ or ‘agreed-upon procedures’ are thrown around. But choosing the right engagement for your business isn’t just about compliance—it’s about saving money, improving operations, and making informed decisions. Here’s what you need to know to pick the right service for your needs.
Audits: The Gold Standard of Assurance
An audit is the highest level of assurance that a CPA firm can provide. It’s a rigorous examination of a company’s financial statements, designed to give assurance to stakeholders (like banks or investors) that the financials are accurate and reliable. During an audit, the CPA team carefully assesses and verifies the financial information to make sure it’s materially correct.
Why Would You Need an Audit?
Audits are often requested by:
- Banks: Many financial institutions require audited statements before granting loans or lines of credit because it minimizes their risk.
- Investors: Investors may demand an audit to verify the company’s financial health and guide their decisions.
- Management: Boards of Directors may ask for audited financials to better guide the business.
The Audit Process:
Here’s what an audit typically involves:
- Engagement Letter: This is a formal agreement defining each party’s responsibilities and setting clear expectations.
- Financial Statement Request: The client provides the statements they want audited.
- Risk Assessment and Testing: CPAs focus on high-risk areas instead of testing every single transaction (which would be costly).
- Management Representation Letter: After verifying the financials, we send a letter for management to confirm that all provided information is accurate and complete.
- Final Audit Report: If everything checks out, the client receives a finalized report stating that the financial statements are materially correct.
Common Misconception: An audit is not designed to uncover fraud; in fact, only 2-3% of fraud is detected through audits. For fraud concerns, consider a certified fraud examiner or an agreed-upon procedure engagement, instead.
Reviews: A Lighter, More Affordable Assurance Option
A review provides a moderate level of assurance, positioned below an audit but still offering valuable insights. In a review, the CPA firm’s objective is to confirm there are no obvious material misstatements in the financials, based primarily on inquiry and analytical procedures. The process follows a similar structure to an audit, with a key difference: a review doesn’t require the CPA to gain an understanding of the company’s internal controls or receive third-party confirmation of bank balances.
When to Opt for a Review
Reviews are ideal for companies that need some independent assurance but don’t have the requirements or budget for a full audit. Many companies, such as those in construction, find reviews valuable for regular check-ups and use them to keep their financial processes on track. Some even alternate between audits and reviews every few years to maintain oversight while managing costs.
Compilations: No Assurance, Just Organized Financial Statements
A compilation is the lowest level of service for the overall financial outlook. The CPA firm organizes the company’s financial data into a clean, readable format without providing any assurance or analysis.
Compilations are best for internal management use and small businesses that simply need help presenting their data in a standardized way. They can also be a stepping stone for businesses growing toward needing reviews or audits.
For example, a small consulting firm might use a compilation to present financials to a potential partner, demonstrating their growth without the added cost of assurance.
Agreed-Upon Procedures: Targeted, Custom Engagements
Agreed-upon procedures (AUPs) are tailored to focus on specific areas that a client wants verified or analyzed. For example, a business might ask a CPA to review only their accounts receivable processes to ensure collections are happening efficiently. Physicians may ask for AUP to ensure their billing write-offs are being done correctly.
AUPs are a great choice for targeted insights, particularly when a company is preparing for a new phase of growth or making a significant business decision.
Choosing the Right Engagement for Your Needs
At Bland Garvey, we’re here to help you determine the best service for your goals. Whether you need full assurance through an audit, moderate assurance with a review, organized statements with a compilation, or a customized agreed-upon procedure, we’re ready to guide you through each option. And remember, understanding the differences can save you time and money—and ensure you get exactly the service your business needs.
Have more questions? Feel free to reach out. Let’s work together to make your financial reporting simple, clear, and effective.
Jeffery Dalrymple has over 25 years of experience in public accounting. He joined Bland Garvey, PC in 2001 and today is a Director – Audit and Assurance with the firm. Jeffery’s areas of experience include supervisor of engagements of private companies, not-for-profit organizations, oil and gas and employee benefit plans. He enjoys live music, and spending time with family and friends. He is married with a young daughter.
