What are the different types of financial statements?
Financial statements can be prepared with one of three types of reports: Compilation Report, Review Report and Audit Report. The different types of reports that are issued with the financial statements provide different assurance levels and costs increase with each level of service.
Financial statements are required for many reasons including reporting results to stakeholders and providing a basis for company valuations. The type of report selected will depend on the needs of the users of the financial statements.
A Compilation is the most basic type of report and is a summary of the financial information produced by the company. There is no assurance on the information contained in the statements as underlying records and the accuracy of the numbers are not assessed.
Review engagements are often requested to satisfy lending requirements or by businesses who do not require an audit but desire some assurance on the financial information. Work consists of a discussion with management and analysis of the information presented.
Audits are required for all public companies and are often required by organizations engaged in government contracts or with high-level borrowing. An Audit is an evaluation of a company’s financial results and the systems used to produce those results. It involves detailed validation and assessment of the accounting information and internal controls of the company using inquiry, analysis, confirmation, inspection, and computation.
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