Audits, reviews, and compilations can help your business secure a loan, meet regulatory requirements, and attract new investors. Financials that have been reviewed or prepared by a professional tax advisor provides "assurance" to whoever is making the requesting. It is to verify the financial integrity of your business.
There are three general levels of financial statement service: audit, review and compilation.
So which one do you need?
An audit is the highest level of assurance you'll be able to receive. If you need to provide proof of accuracy in your financial statements to another party, an audit is your best option. During audits, we'll analyze, test, verify, and trace your accounting records for materiality and risk. After finishing this research, we'll issue an opinion about whether financial statements are fairly presented and comply with generally accepted accounting principles in all material respects.
When do you need an audit?
All publicly traded companies are required to send the SEC audited financial statements on an annual basis. If you foresee a public offering with your business, you'll need an audit the year you IPO along with all subsequent years.
If you're looking to take out a large business loan and the bank sees your business as high risk, you may be asked to provide audited financial statements by the loan officer. Audited financial statements may mean the difference between a loan approval or denial. In some cases, it can even get you a lower interest rate if your business is perceived as low risk.
A review is similar to an audit, but less stringent and provides limited assurance. Rather than combing through documentation rigorously, a review will consists of analytical procedures to confirm that your financial statements and supporting information appear consistent. If you don't need an all-out audit and simply need a stamp of approval on your financials, then a review may be just right for you. The best opinion you're able to obtain from a review is that the enrolled agent is not aware of any material departures from GAAP.
When do you need a review?
If you're looking to apply for a small business loan, your lender may request a review on your financials to make a decision on your loan. If the loan contain stipulations for ongoing financial requirements, you'll likely need reviewed financial statements for every year that the loan remains outstanding.
Reviews can also be useful as supporting documents if you're looking to sell your business or trying to court new investors.
During a compilation, we assist you in preparing your financial statements but express no opinion or assurance on the statements. Compilations don't require inquiries of management or analytics to be performed. If your accounting system is simple, then a compilation may be all you need. For example, if your business uses cash method accounting and now needs to translate that to accrual accounting, then a compilation may be appropriate.
When do you need a compilation?
Compilations are appropriate for simple accounting situations. If you're applying for a small business loan and your transactions are straightforward, a lender may accept a compilation for a loan application.
A compilation may be sufficient if you're looking to get a new business insurance policy or if you're using it for a report to existing investors.
If you're unsure of which is right for you, contact Miller Financial Services today and we can help you decide.