Because banks, creditors, insurers, even stockholders have varying degrees of risk tolerance, Virtual Accounting & Tax offers varying levels of CPA assurance services. These include audit services, agreed-upon procedures, and reviews.
Audit – Highest Level of Assurance
An audit is typically appropriate and often required when seeking complex or high levels of financing and credit. An audit is also appropriate when seeking outside investors, seeking to sell the business or considering a merger. During an audit, a CPA obtains reasonable assurance about whether the financial statements as a whole are free of material misstatement. This enables the CPA to express an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework. During an audit, the CPA is required to obtain an understanding of the entity’s internal control and assess fraud risk. The CPA is required to perform inquiry and analytical procedures, and is required to perform verification and substantiation procedures. The CPA issues an audit report on the financial statements in accordance with the auditor’s findings.
Review – Limited Assurance
Less extensive than an audit but more involved than a compilation, a review requires a CPA obtain limited assurance that there are no material modifications that should be made to a company’s financial statements. During a review, inquiries of management and analytical procedures generally present a reasonable basis for expressing limited assurance that no material modifications need to be made to the financial statements. This “does it make sense” analysis is useful when the organization needs some assurance about their financial statements, but not the higher level of assurance provided by an audit.
Reviews are typically appropriate as a business grows and is seeking larger and more complex levels of financing and credit. It is also useful when business owners themselves are seeking greater confidence in their financial statements to evaluate results and make key business decisions. A review is more time consuming than a compilation but substantially less than an audit. A CPA issues a review report at the conclusion of the engagement.
Virtual Accounting & Tax has prepared accounting review reports for clients who were, in some instances, applying for bonding insurance as well as applying for contractor licensing through the Virginia Department of Professional and Occupational Regulation (DPOR).
Compilation – No Level of Assurance
For a compilation, the CPA does not obtain nor provide any assurance that there are no material modifications that should be made to the financial statements. Compilations are typically appropriate when initial or lower amounts of financing or credit are sought or there is significant collateral in place. Outside parties, like commercial banks, may appreciate the business’s association with a CPA, which is readily apparent in the formal compilation report. It is the least time consuming of the services in which the CPA issues a formal report. When compiling financial statements for a client, the CPA presents information that is the “representation of management.” Compilations do not require inquiries of management or analytical procedures.
Agreed-Upon ProceduresThe purpose of this type of engagement is solely to assist in evaluating the condition of certain accounting records. The CPA makes no representation regarding the sufficiency of the procedures. This form of engagement is designed to perform only the agreed-upon procedures requested by the client.
Examples of procedures performed during this type of engagement include, but are not limited to: inspection of specified documents evidencing certain types of transactions or detailed attributes thereof; confirmation of specific information with third parties; comparison of documents, schedules, or analyses with certain specified attributes; performance of mathematical computations; performance of specific procedures on work performed by others.
We would not be conducting an audit or review of the financial statements and therefore will not express an opinion or any other form of assurance on the accounting records based on our agreed-upon procedures.