What Are Financial Statement Reviews?
Financial statement reviews provided limited amounts of business assurance. During a review, an auditor attempts to determine whether the financial information they’re examining is accurate or not. Typically, inquiries are made into the financials, accounting practices, and current/past balances. A financial review is more comprehensive than a compilation, but less expensive and time-consuming than an audit. Financial statement reviews are best if you’re looking to take out a line of credit or a loan larger than $2 million.
Looking to receive a financial review? Contact the SRG Financial Statement Review team today!CALL: 201-525-1222 x 5
Who can provide a financial statement review?
Only CPAs who have passed peer review are authorized to issue reviews. While the review process isn’t as arduous as an audit, it still requires management inquiries, analytical procedures, and issuing financials with footnotes.
What’s involved in a review?
During a review, a CPA will look into:
- How the financial information has been recorded
- The accounting principles and practices of the business
- Notes and actions taken from director meetings
- Whether or not there are any inconsistent findings
And much, much more.
What if a review isn’t enough for my business needs?
If you’re trying to secure a very large loan (defined here as $20 million or more), or for certain governmental agencies, an audit is required. It is significantly more involved and expensive than a review, so you should only receive one if you really need it. Audits are not required by most banks.
An audit is an opinion stating that the financial statements investigated accurately depict the operations and finances of a business. Deep examination of detailed transactions, internal controls, employee interviews, and investigations into ethics/fraud are all part of the auditing process.
When is an audit necessary?
NJ requires all non-profits with receipts over $500,000 to have a yearly audit. Some states also have a revenue threshold which necessitates an audit. They are sometimes also required by the government or an individual, depending on the situation.
When is a review necessary?
Private companies don’t have any laws that necessitate reviews, but they might be required by lenders to provide some amount of assurance that an independent party has gone over the financials and that everything looks in order. Oftentimes, businesses don’t have full-time board members that are financial experts. An independent party who can look everything over gives some level of comfort that the business is adhering to important ethical and financial guidelines.
Typically for a review, the issuing bank of a line of credit, mortgage, or other bank debt will add a yearly review requirement to the loan documents, in addition to other bank covenants like a debt service coverage ratio or net worth covenant. As noted above, non-profits have different requirements than private companies.
- A review provides a limited level of assurance that a company’s financial statements comply with the applicable financial reporting framework.
- It gives limited assurance on the accuracy or correctness of financial statements.
- A review takes less time than an audit, since there is less effort involved.
How can a Company benefit from a review?
- An annual review will support regulatory reporting, compliance and implementation of any new accounting standards that have occurred.
- A Company will benefit from a CPA that provides recommendations for improvement of any internal control deficiencies identified.
- A review will provide information from your financial statements which can help management run the Company more efficiently.
- Reviews help Company’s identify if a cash position is improving or declining.
- Companies that have annual financial statement reviews are typically more profitable and better managed than companies that do not undergo a review or audit.
- Successful accountants have years of experience observing what profitable companies do well and what unprofitable companies do poorly. Identifying small opportunities for improvement can be the key to a company’s profitable future.
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