Almost every organization — whether it’s a privately held business, a publicly owned corporation, or a nonprofit organization — must prepare reports on its financial performance. Such reports help owners and managers make operating decisions, enable creditors to evaluate loan applications, and provide individuals with information to make investment decisions.
What Is Compilation?
A compilation refers to preparing financial statements of private entities based on information provided by the entity’s management.
A CPA may provide a client with three distinct services involving financial statements. Each is designed to meet a different need.
A compilation is useful to small, privately held entities that need help in preparing their financial statements. A review, on the other hand, may be adequate for entities that must report their financial positions to third parties, such as creditors or regulatory agencies. Reviewed financial statements may also be useful to business owners who are not actively involved in managing their companies.
An audit is the third and most extensive service. An audit is appropriate for entities that must offer a higher level of assurance to outside parties. An unqualified opinion from a CPA after an audit provides reasonable assurance to outside parties that the entity's financial statements fairly present its financial position and results of operation in accordance with certain accounting principles.