Q & A: Financial Statement Quality

Question: What is the difference between audited and reviewed statements?

Answer:

Although these terms may be thrown around loosely in some circles, each has an important meaning and should be clearly understood.

Company Prepared statements are financials (income statement, balance sheet and statement of cash flows) that have not been compiled, reviewed or audited as described below. They are simply issued by the company itself with no third-party assurance of accuracy or completeness.

Compiled Statements have been organized in a manner that conforms to how statements are supposed to “look” but the accountant has not tested or reviewed the data and does not render any opinion as to accuracy, conformity or completeness.

Reviewed Statements have received a limited “review” by an independent auditor or certified public accountant who offers limited assurance as to accuracy and conformity with GAAP. However, it is understood that if an audit was performed, material errors could be found.

Audited Statements have been checked by an independent auditor or certified public accountant for accuracy and conformity with GAAP principals and standards. The audit is much more extensive than a review, and each audit will come with an auditor’s opinion letter. In the letter, the auditor will identify herself, her firm and will summarize what she did and whether she is willing to attest to the financial statements without reservation (”unqualified opinion”) or with reservation (i.e., “qualified opinion”).