When it comes time for financial documents to be corroborated, the three options available are a compilation, a review, and an audit. Each of these represents a very different degree of effort and investigation, and therefore each provides differing levels of confidence for investors and lenders. Let’s take a closer look at all three.
The Compilation
A compilation requires the least amount of work from an auditor, and though it is likely to cost the least of the three and take the least amount of time, it also provides the lowest level of assurance about the accuracy of the information presented. This is because in a compilation, the auditor does little more than hand over the original financial statements that were prepared internally by the company’s management, with no due diligence performed even to determine whether the information contained in the documents is accurate or true. It relies entirely on the information originally presented.
The Review
A review demands significantly more work on the part of the auditor, who is expected to determine the accuracy of the information contained in the financial documents presented to them through a series of inquiries and analytical procedures. Because some of the information contained in the financial documents presented by management has been tested, a review provides a moderate degree of assurance that the information is correct and can be trusted.
The Audit
An audit requires a much greater degree of due diligence than either a compilation or a review. It represents a significant amount of time spent making sure that all of the disclosures and ending balances that are contained in the organization’s financial statements are accurate, including time spent testing internal controls, confirming the engagement and statements from third parties, and examining all source documents in order to make sure that they are representative of the true situation at hand. An audit will often include a physical inspection where appropriate, as well as other procedures that are designed to confirm or refute the information that management has presented.
Though an audit will take the most time and be the most expensive procedure, it also provides the highest level of assurance for those considering investing in an organization or lending it money.
If you have any questions relating to the different options for financial documents to be corroborated, contact the Experts at Henssler Financial:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Disclosures: The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
