Over the years, potential clients have arrived at my office saying that they need an audit of their company’s accounting records. But, do you really need an audit? Perhaps you only need one of two other assurance services offered by a CPA firm. The information below is provided to assist you in making an informed decision. Please feel free to call us if you have questions about which report is right for your company or organization.
Assurance services have been defined by the American Institute of Certified Public Accountants (AICPA) as 'Independent Professional Services that improve information quality or its context'. Assurance services reduce the information risk; risk that the information provided is incorrect, on more than just financial data. The major purpose of assurance services is to provide independent and professional opinions that improve the quality of information to management as well as other decision makers within a given firm.
Differing levels of assurance services defined below:
- Audit Engagement—Highest Level of Assurance
FINANCIAL AUDIT
A systematic examination and verification of a firm’s books of account, transactions, other relevant documents, and physical inspection of inventory by qualified accountants, usually an external CPA, (called auditors). The CPA determines, among other things, whether the accounting records are:
- Accurate and complete,
- Prepared in accordance with Generally Accepted Accounting Principles (GAAP), and
- Prepared from the accounts present fairly the organization’s financial position, and the results of its financial operations. (Source: www.businessdictionary.com)
CIRCULAR A-133 AUDIT
A systematic examination and verification of a firm’s books of account, transactions, other relevant documents, and physical inspection of inventory by qualified accountants, usually an external CPA, (called auditors). The CPA determines, among other things, whether the accounting records are:
- The Office of Management and Budget (OMB) has issued Circular A-133, Audits of State, Local Governments, and Nonprofit Organizations, which require nonprofits organizations spending more than $500,000 per year in federal funding to have an audit.
- This audit is required even if the federal money you receive is passed through another agency. For example, a city housing authority may make, to a local nonprofit housing developer, a grant that contains H.U.D. funding. The local housing developer is subject to A-133 audit requirements even though the grant was not directly from H.U.D.
- A-133 audits, like non-federal audits, test financial statement information. However, the A-133 audit looks more closely at tracking and classifying revenue from federal sources.
- In addition, the auditor looks for compliance with general and specific government audit requirements, which cover both financial and non-financial factors such as program effectiveness, client eligibility, efficiency with which resources are used, etc. The auditor must also test internal control procedures more rigorously than in a standard audit, making sure that adequate systems are in place for complying with the requirements noted above. (Source)
OPERATIONAL AUDIT
- A measurement and report on the effectiveness and results of certain business procedures. Operational audits are usually performed internally and check to see that procedures have their intended effect.
- Unlike a compliance audit, defined below, an operational audit challenges the assumptions and goals of a procedure, with an eye towards improving efficiency.
- An operational audit may recommend changes in procedures resulting from observed inefficiencies in existing procedures. (Source)
COMPLIANCE AUDIT
- An audit undertaken to confirm whether a company is following the terms of an agreement (such as a bond indenture), or the rules and regulation applicable to an activity or practice prescribed by an external agency or authority. (Source)
OTHER ENGAGEMENT TYPES
- A Review Engagement—Lower Level of Assurance
An attest service in which the independent accountant or auditor performs analytical procedures, makes inquires of the client personnel, and issues a report that provides limited assurance (sometimes referred to as negative assurance) using language that states that they “are not aware of any material modifications that should be made to the financial statements in order for them to be in conformity with GAAP”. (Source: Auditing, 8th Edition by David N. Ricchiute)
- A Compilation Engagement—Lowest Level of Assurance
A nonattest service in which the accountant or auditor prepares financial statements from a clients unaudited and unreviewed accounts and issues a report that provides no assurance, using language that states they “have not audited or reviewed the financial statements and accordingly do not express an opinion or any form of assurance”. (Source: Auditing, 8th Edition by David N. Ricchiute)
RESULTS OF OUR LATEST PEER REVIEW
We are required to undergo a periodic peer review every three years of selected audits, reviews, and compilation reports. The reviewer also reviews our operations and practices to ensure consistency and adherence to professional standards including a review of our continuing professional education.