A company’s financial health is a top priority for lenders, donors, and investors. Stakeholders need to know how a company performs and if the organization is transparent. Audited financials and reviewed financials from CPA auditors offer different levels of assurance and insights.
The choice between audited and reviewed financials can significantly impact stakeholders’ confidence and decision-making in financial reporting. It’s not always clear what level of assurance is necessary to satisfy your stakeholders.
So, how do you know which is the best choice for your organization?
What Is a Reviewed Financial Statement?
A review is performed by a certified public accountant (CPA) or an audit firm and includes performing analytics on the financial statements and asking questions about them. The primary goal of a review is to provide a limited level of assurance that the financial statements don’t need major changes to align with the standard financial reporting frameworks, like GAAP (Generally Accepted Accounting Principles).
What Are Audited Financials?
The audited financial statements are a comprehensive examination conducted by a certified public accountant (CPA). An audit is the highest level of assurance. It ensures that the financial statements adhere to GAAP and auditing standards.
This level of assurance also meticulously assesses accounting processes and internal controls. During an audit, the CPA firm dives into financial records to look for risks and note material misstatements in the audited financial statement.
The Key Differences Between Reviewed Financials and Audited Financials
The distinctions between reviewed financials and audited financials lie in the depth of scrutiny, the level of assurance provided, and the scope of procedures performed. Here are the key differences between the two:
Level of Assurance
A review provides a limited level of assurance where the CPA or accounting firm performs analytics and inquiries to assess the financial statements. During an audit, a CPA conducts an in-depth assessment of financial reporting, accounting processes, and internal controls. This allows them to provide reasonable assurance that the financial statements are in compliance with GAAP.
Cost and Time Considerations
Reviewed financials are generally less costly and time-consuming compared to audits. This makes them a more cost-effective option for entities that do not require the highest level of assurance. Audits involve more extensive procedures, documentation, and time commitments, making them more resource-intensive and expensive.
Regulatory Requirements
Reviews may be sufficient for specific regulatory or contractual requirements. They are often suitable for smaller businesses or entities with less complexity. Some regulations and stakeholders, particularly in larger corporations or industries with heightened scrutiny, may explicitly require audited financial statements for compliance.
Understanding these key differences is crucial for organizations to make informed decisions based on their specific needs, regulatory requirements, and the level of assurance sought by stakeholders.
Empower Transparency with Assurance Dimensions
Compiled, reviewed, and audited financial statements are critical to companies and organizations. Whether you’re seeking investors, applying for loans, or planning to go public, you need to ensure your financials are assessed by an independent specialist. Choosing the right level of assurance is critical.
Are you curious about which accounting service is best for your business? Do you need more information on the differences between these financial statements?
We encourage you to get in touch. At Assurance Dimensions, we offer audit and assurance services tailored to your organization, including compilations, reviews, and audits. Whether you’re looking for private company audits or an audit for your public company or nonprofit, contact us today for a quote.
