CPA firms are a great resource for small business owners to get help organizing their financial reporting. When a business owner applies for a loan or wants to get a new investor on board, the business owner should have the appropriate financial statement prepared to accurately reflect the business’ financial health. The three different financial statements that a small business owner can use are audits, reviews and compilations, but they each mean different things.
The Difference between Audits, Reviews and Compilations
A small business audit is when a CPA takes an extensive and methodical look into your business’ finances, transactions and accounting records. After reviewing everything, the CPA will form an opinion whether or not your financial statements comply with generally accepting accounting principles (GAAP). You would provide this insight to a lender, investor or potential buyer to assure that your finances are in line.
Not as rigorous as an audit but still a look into your finances, a review is a good idea for small business owners who don’t have the time or expenses for a full audit. The CPA will do a basic analysis to make sure that the financial statements make sense, giving a limited opinion if your procedures follow GAAP. These reviewed financial statements are given to a lender when the business owner is trying to secure a small loan.
A compilation report doesn’t require a hard analysis or deep dive into your finances. It’s the best option for simple accounting and organization. During a compilation, the CPA will help you prepare your financial statements without issuing an opinion; whereas during an audit or review, you prepare your financial statements and the CPA analyzes them to give an opinion.
Which financial statement is best for your small business?
Since each report has different requirements and levels of assurance, knowing which one to choose can be tough. That’s why Watson CPA is ready to help small business owners in Carmel, Westfield and the greater Indianapolis area and find the best financial statement for their business. Request your free consultation today to get started!