Relevant financial information
Financial statements are a must-have for any organization. The balance sheet reveals how much its assets and liabilities are worth based on historic costs. The income statement tells investors and lenders how profitably and efficiently the company has performed during the accounting period. The statement of cash flows details sources and uses of cash from operating, investing and financing activities. This information helps company insiders — as well as lenders and investors — make better-informed business decisions. Lenders and investors monitor the financial condition of companies in their portfolios on an ongoing basis. Business owners should be prepared to respond to changes in their stakeholders’ reporting requirements if the economy gets tough or simply changes.
Levels of assurance
While financial statements can be prepared in-house, lenders and investors typically prefer reports that are prepared by outside accounting firms. CPAs offer the following three types of services related to reporting on historical financial statements under U.S. Generally Accepted Accounting Principles (GAAP) or other accounting frameworks:
- Compiled statements.
Compiled statements present financial information in a format that is consistent with the accounting framework, for example GAAP. Compilation engagements provide no assurance that the financial statements are accurate, complete and comply with GAAP.
- Reviewed statements.
A review report provides limited assurance that the financial statements are accurate. Typically, your accountant will review the statements to ensure that obvious errors or misstatements are identified and corrected.
- Audited statements.
An audit report provides reasonable assurance that the statements are free from material misstatement and conform to GAAP.
A close partnership between your company’s accounting department and its CPA firm is critical to minimizing the cost and lead time associated with preparing financial statements. In addition to the types of statements lenders and investors may request, the frequency of statement production also may change. For example, they may request interim statements (typically quarterly or mid-year) that summarize a reporting period of less than a full financial year. What’s right for your business? Financial statements provide a wealth of data and insight into what drives your company’s revenue, profits and value. Above all, solid financials demonstrate to lenders and investors that management is proactively monitoring financial performance.
Contact us to explore what level of financial statement services your business needs. Connect with Dan Harris,, our experienced Audit Partner, for further details.
