What is the difference between bookkeeping and compilation

Establishing an understanding with your client before beginning any work on an engagement is of the highest importance. As accountants, we should educate our clients on the services that we can provide so that the client has a proper understanding of what the accountant believes he or she is hired to do and the expected outcome of the engagement work e.

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Toggle search Toggle navigation. Breaking News. Bookkeeping or preparation service? If the accountant is aware that the client will provide financial statements to a third party and assert that the accountant prepared or is otherwise associated with the financial statements, the accountant may, as part of the process of reaching an understanding with the client as to the services to be provided, make clear that either: The accountant is preparing the financial statements, or The client sh ould not make any assertions regarding the accountant's association with the financial statements.

Unlike a review or an audit, this method provides no assurance. There are no tests performed, and the auditor does not examine any internal controls. This means that they cannot provide any opinion or assurance.

Due to its informal nature, the CPA performing a compilation is not required to be independent of your business. This means your current CPA can also perform your compilation for you. It is always recommended, however, to first consult with a CPA to ensure that you choose the correct method that will cover the amount of assurance needed for your unique situation.

A financial review is a limited examination performed by a CPA, reporting on the plausibility of your financial statements. A review provides limited assurance , while an audit provides a reasonable amount of assurance. The auditor can only vouch that your financial statements are free from any material misstatements, and determine if they meet generally accepted accounting principles. Many business owners who are not legally required to have an audit, but would still like an analysis of their financial records, many opt to instead have a review in order to save time and money.

While there are currently no laws that require reviewed financial statements, some grantors or lenders may include an annual reviewed financial statement requirement in your loan or grant agreement. Many business owners also find a financial review to be beneficial to their business even though it is not required of them, as the insights and moderate assurance provided give a level of confidence that is reassuring to them, their board, lenders, and investors.

It is commonly thought that a review can be an easy first step for transitioning into an audit in the following year, but this is not always the case. You should always consult with a CPA to make sure that you are performing the correct financial assessment method for your business and to ensure that there is value in performing a review instead of moving directly to an audit. An audit is a very thorough examination of the financial records for your business, which determines if the information correctly reflects the financial position at the given time.

The auditor may even interview employees within your company to survey internal controls. As a result, the results of an audit lead to the highest level of assurance that can be provided. In some circumstances, it will be required for your business to perform an audit. Certain states require audits for businesses over a revenue threshold, or the audit may be required by your grantor or lender. In this case, a financial review will not be sufficient. Your business will need the help of a qualified auditor to assess your needs and situation and perform the full processes of an audit.

Find an Auditor. The processes and procedures required for an audit, review, and compilation all differ significantly, which means that the costs will differ significantly as well. A compilation takes the least amount of time, which makes it the lowest cost option for your business. Businesses frequently do not consider if they are getting the appropriate level of financial statement services.

Most often, business default to audits because that is what they are familiar with. But accountants provide three levels of financial statement services, two of which are most often forgotten.

Compilations and reviews are cheaper alternatives to audits that many businesses do not take advantage of properly. Part of this may come from not properly understanding what each of these services entail. Understanding the level of services can help businesses select the best match of services for their needs and the needs of their financial statement users. A compilation is the one of the lowest level financial statement services an accountant can provide.

A compilation consists essentially of presenting information obtained from a client in financial statement format. There is no assurance being provided by the accountant. A compilation does not contemplate the accountant performing inquiry, analytical procedures or other procedures. There is no required testing of accounting records. In practice, many accountants still obtain general support for significant numbers such as bank statements, detail schedules of accounts and aging schedules.

The accountant also asks for documents such as operating agreements, loan agreements and leases so that the footnotes may be drafted. The compilation report specifically states that no assurance is being provided. An accountant need not be independent to perform a compilation engagement. The report states if the accountant is independent or not.

Generally, compilations are the least costly form of financial statement services.