Understanding Compiled vs Reviewed Financial Statements

When it comes to financial statements, there are various types that businesses use to report their financial performance and position. Two common types seen in the world of accounting are compiled financial statements and reviewed financial statements.

The Basics of Compiled Financial Statements

Compiled financial statements are the most basic form of financial reporting. They are typically compiled by a company's internal accounting staff or an external accountant. These statements are prepared based on the information provided by the company and do not require any additional verification or analysis beyond basic accounting principles. While they can be useful for internal purposes and to provide a general overview of a company's financial health, compiled financial statements are not subjected to any external review or assurance.

The Importance of Reviewed Financial Statements

On the other hand, reviewed financial statements undergo a higher level of scrutiny compared to compiled statements. Reviewed statements are reviewed by an independent accountant who assesses the financial statements to ensure they are free from material misstatements and follow generally accepted accounting principles. A review provides a moderate level of assurance to stakeholders that the financial statements are accurate and reliable.

Key Differences Between Compiled and Reviewed Financial Statements

• Level of Assurance: Compiled financial statements offer no assurance, while reviewed financial statements provide limited assurance to users.
• Scope of Work: A compilation involves basic accounting services, while a review includes analytical procedures and inquiries to provide a higher level of assurance.
• Independence: The accountant preparing compiled statements may not be independent, unlike the independent accountant performing a review.

Deciding Between Compiled and Reviewed Financial Statements

When deciding between using compiled or reviewed financial statements, it's essential to consider the needs of your business and stakeholders. Small businesses with simple financial structures may opt for compiled statements as a cost-effective solution. However, businesses seeking greater credibility and transparency may choose to have their financial statements reviewed to provide assurance to investors, lenders, and other parties.

Conclusion

Both compiled and reviewed financial statements serve different purposes within the realm of financial reporting. Understanding the distinctions between the two can help businesses make informed decisions about the level of assurance they require for their financial information. Whether you choose compiled or reviewed statements, ensuring the accuracy and reliability of your financial reporting is crucial for maintaining trust and credibility in the business world.