A CPA is not required to perform any procedures or to make any inquiries in order to verify the information they have been provided, except when the information appears to be incorrect or incomplete. A reference should be on every page of the compiled financial statements with wording such as “See Accountant’s Compilation Report.” The organization may choose to leave out most of the disclosures required by generally accepted accounting principles, as long as the report accompanying the financial statements reveals this fact, and as long as the omission is not done in order to mislead users of the financial statements.
If the organization includes all disclosures that are required by generally accepted accounting principles, this would be stated in the accountant’s report. Sometimes, the financial statements are presented on a form provided by the organization, and the form entails departures from GAAP, such as less than full disclosure. In this case, the accountant’s report would state that the statements differ from generally accepted accounting principles for this reason.
In any case, the accountant’s report for the compilation of financial statements includes a statement that a compilation is limited to presenting the information that is a representation of management in the form of financial statements. The accountant also states that he or she has not audited or reviewed the financial statements and is not expressing an opinion or any assurance on the statements.
When a CPA reviews the financial statements of a nonpublic company, a limited level of assurance is provided. A review is defined as carrying out inquiry and analytical procedures to provide the accountant with a reasonable basis for giving limited assurance of the absence of the need for any material modifications to the statements in order for them to be in conformity with GAAP, or another accounting basis, if applicable. Before completing a review, the CPA needs to understand both the accounting practices and principles of the client’s industry, and the client’s organization, which includes how it operates as well as the composition of its assets, liabilities, revenues, and expenses.
The CPA is not required to compile evidence to support the inquiries and analytical procedures, unless he or she suspects that the information might be incorrect or incomplete. Every page of the financial statements should have a reference, like “See Accountant’s Review Report.” The report issued with a review details the scope of the review, disclaims an opinion on the financial statements, and provides negative assurance on the conformity with GAAP.
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