Financial Statement Preparation

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Financial Statement Preparation

Certified Public Accountants are licensed by the state to prepare financial statements.  Before being licensed by the state, the individual must pass a rigorous national exam and obtain working experience.  As a licensed CPA I must comply with relevant ethical requirements.

Financial statements usually include a balance sheet, statement of income, statement of retained earnings and the statement of cash flows.  There are other financial statements that may be included in specific types of financial statements.

Financial statements are needed for a variety of reasons.  Some businesses need them for banking purposes, some for obtaining outside financing, and others for bonding or insurance.  Whatever your need we are able to prepare these statements for your business.  The following are examples of financial statement preparation.

Audit

An audit includes examining, on a test basis, the records of a particular business.  An audit is usually designed so the auditor can give the readers of the financial statements an opinion whether the financial statements are prepared according to U.S. Generally Accepted Accounting Principles or the accounting principles of the country in which the financial statements are prepared.  Financial statements can also be prepared on a general purpose framework or special purpose framework.  Audits are usually done on an annual basis.  An audit is the highest level of assurance that a CPA will provide on financial statements.

Review

A review is substantially less in scope than an audit.  It does require the CPA to perform the review engagement with professional skepticism.  In a review some audit procedures may be performed if the CPA believes they would be beneficial to the review engagement.  In addition, a review includes performing analytical procedures and inquiries of management regarding all areas of the financial statements.  The CPA will also obtain a management representation letter which gives additional assurance that the numbers correctly represent the activity and position of the entity.  A CPA must be independent of the entity on which he is performing a review.

Compilation

For a compilation, the CPA is not required to be independent but there will be a report that indicates this fact.  A CPA’s objective in a compilation engagement is to apply his accounting and financial reporting expertise to assist management in the presentation of financial statements and report in accordance with compilation and review standards without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements in order for them to be in accordance with the applicable financial reporting framework.

Preparation of Financial Statements

In this type of financial statements, the CPA is not required to be independent and a report is usually not issued that would indicate any assurance or responsibility for the financial statements.  This carries the least amount of responsibility for the CPA.