The level of service is determined by your needs as a nonprofit organization, and what your donor, grantor, and/or creditor require. The higher the level of service required, the more time our firm needs to complete the engagement and therefore the more costly the engagement. While privately held companies opt for compiled or reviewed statements, most grantors often require audited statements.
Compilation - Accountant does not obtain or provide any assurance that there are material modifications that should be made to the financial statements.
• Compiled financial statements represent the most basic level of service CPAs provide with respect to financial statements.
• In a compilation engagement, the accountant assists management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements.
• Involves the lowest amount of work and as a result is far less costly than a review or audit.
Review - Accountant obtains limited insurance that there are no material modifications that should be made to the financial statements.
• Reviewed financial statements provide the user with comfort that based on the accountant's review, the accountant is not aware of any material modifications that should be made to the financial statements.
• In a review, the CPA designs and performs procedures (primarily analytical procedures and inquiries) based on the accountant's understanding of the industry, knowledge of the client, and awareness of the risk of failing to modify the accountant's review report on financial statements that are materially misstated. A review does not contemplate obtaining an understanding of the entity's internal control, assessing fraud risk, testing accounting records, or other procedures ordinarily performed in an audit.
• More costly than a compilation but lower in cost than an audit.
Audit - the auditor obtains a high, but not absolute, level of assurance about whether the financial statements are free of material misstatement.
• Audited financial statements provide the user with the auditor's opinion that the financial statements are presented fairly, in all material respects, in conformity with the applicable financial reporting framework.
• In an audit, the auditor is required by auditing standards generally accepted in the United States of America (GAAS) to obtain an understanding of the entity's internal control and assess fraud risk. The auditor is also required to corroborate the amounts and disclosures included in the financial statements by obtaining audit evidence through inquiry, physical inspection, observation, third party confirmations, examination, analytical procedures, and other procedures.
• The auditor issues a report that states the audit was conducted in accordance with GAAS, the financial statements are the responsibility of management, provides an opinion that the financial statements present fairly, in all material respects, the financial position of the company and the results of operations are in conformity with the applicable financial reporting framework (or issues a modified opinion if the financial statements are not in conformity with the applicable financial reporting framework. The auditor may also issue a disclaimer of opinion or an adverse opinion if appropriate).
• Involves the most work and therefore the cost is substantially higher than a review or compilation.