So You Need An Audit… or Do You

By Joel Martin

As an audit shareholder, I often get calls from clients or perspective clients that start out with the person on the other end of the line saying:  “We need an audit.”  Most non-CPAs believe that outside of taxes, “audits” cover every service that a CPA offers as it is the term they are most familiar with.  As this post will explain, not all CPA services and resulting reports are the same; CPAs provide a wide variety of services depending on your needs and the needs of the users of your financial statements.  The levels of services a CPA can provide fall into five basic types:  audit, review, compilation, agreed-upon procedures, and consulting services.

An audit provides clients and other financial statement users with the highest level of comfort an independent CPA is able to provide with regards to the accuracy of the financial statements.  This level of comfort is called “reasonable assurance” which is defined as a high, but not absolute, level of assurance that the financial statements are free from significant, material, errors.  Audits are typically the most expensive level of service due to the requirement that the CPA gains an understanding of the industry that your business operates in, the control and risk environment in place within your business, and the scope of detail items required to be examined to issue a report – an opinion – on the financial statements. 

A review engagement is designed to provide a limited level of comfort – assurance – that there are no material modifications that should be made to the financial statements.  In a review, the independent CPA gains a very limited understanding of the industry that your business operates, your business operations, and the numbers in your financial statements.  Significantly fewer items are examined than in an audit; thus, making the cost of this engagement less than an audit.

In a compilation engagement, the CPA may be independent or not.  In this type of engagement, the CPA simply presents information provided by the client in financial statement format.  While the CPA may obtain general support for numbers such as bank balances, there is absolutely no level of assurance as to the accuracy of the financial information presented.  As a result, compilations costs less than a review.

The American Institute of Certified Public Accountants (AICPA) has provided a Guide to Financial Statement Services:  Compilation, Review, and Audit that serves as an excellent resource to help further distinguish between the levels of financial statement services CPAs can provide.

An agreed-upon procedures engagement is one where an independent CPA is engaged to issue a report based on specific agreed-upon procedures applied to subject matter as determined by and for the use of specific parties.  The specific parties determine the procedures; therefore, they also assume responsibility for the sufficiency of the procedures.  The CPA’s report is in the form of procedures and findings and provides no opinion or conclusion on the work performed.  Agreed-upon procedures engagements can be applied to fulfill a wide variety of requirements.  Some examples of agreed-upon procedures engagements include regulatory compliance procedures and applying stated procedures to specific documents.  Costs of agreed-upon procedures engagements vary depending on the quantity of procedures requested.

In addition to the engagements above, CPAs can provide business consulting and advisory services to clients.  Consulting services differ fundamentally from the other four services defined above because the CPA is not attesting to the assertions of other parties.  In a consulting engagement, the CPA develops the information, findings, conclusions, and recommendations presented.  The nature of the scope of work is determined solely by the agreement between the practioner and the client.  Generally, consulting work is performed only for the use and benefit of the client; however, at the CPA’s discretion, the CPA’s work may be referred to by outside parties.  Some examples of consulting services include bookkeeping services, financial statement preparation, CFO or controller services, performing the internal audit function, and a wide variety of special projects that makes use of the CPA’s technical and business knowledge.  Like agreed-upon procedures engagements, costs of consulting engagements vary depending on the extent of services desired.

As you can see from the general overview provided above, CPAs provide a wide variety of services.  Contact us today, and let us help you find the appropriate level of service for your specific needs.