An audit engagement is heavily regulated and complex. Although not absolute, it is the highest level of assurance provided by a CPA firm regarding the correctness of a client’s financial statements. A financial statement audit is conducted to provide an opinion on whether financial statements are stated in accordance Generally Accepted Accounting Principles. In providing an opinion whether financial statements are fairly stated in accordance with accounting standards, the auditor gathers evidence to determine whether the statements contain material errors or other misstatements. The auditor is required to (1) understand the entity and its environment, (2) understand the client’s internal controls, (3) use planning analytics to identify audit risks, (4) perform risk analysis, (5) assess risk, (6) develop an audit plan based on the auditor’s assessment of risks, (7) perform substantive and analytical procedures to determine whether the statements contain material errors and/or misstatements, (8) thoroughly document all procedures and testing workpapers, and (9) issue an opinion on the financial statements as a whole. A compliance audit is often issued along with a financial statement audit. A compliance audit follows the same financial statement audit procedures with respect to the clients compliance with internal control over financial reporting and the clients compliance with laws and regulations.
A cost certification is essentially an audit of the costs incurred in the construction or rehabilitation of a building under HUD, USDA RD or LIHTCs. The cost certification procedures follow the same procedures as a financial statement audit but report under regulatory basis guidelines.
Reviews are usually performed to satisfy third parties that want to be assured that the financial statements are not materially misstated. They provide a lesser degree of assurance to financial statement users than an audit. Also, unlike an audit, there is no expression of an opinion on the financial statements, testing of controls, or financial data. Reviews essentially consist of inquiries of company personnel and analytical procedures applied to financial data.
Compilations provide the lowest level of assurance of the financial statements services. They are often required by outside third parties as well internally by companies.
In a compilation, we assist management in presenting their financial information as financial statements in the proper form. Compilations also require us to acquire an understanding of the client’s industry and to obtain specific knowledge about the client. Additionally, we read the financial statements and ensure they are free from obvious material errors. They provide no expression of an opinion on the financial statements.
Agreed Upon Procedures
Agreed-upon procedures are performed when the parties involved concur that they want the accountant to perform a specific procedure or set of procedures. They can be useful when you or a third party wants some comfort about a specific area such as inventory or cash, but do not need the assurance and related time and expense of a full audit or review. Agreed-upon procedures can deal with a diverse variety of subject matters such as the quality of collateral or due diligence related to a business acquisition. In all cases, agreed-upon procedures are solely the responsibility of the parties who specify them and they never provide an opinion on the subject matter or financial statements.
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