Funding in a business requires trust. One way investors gain reliance is through accountant-reviewed financial statements. These documents provide an extra level of certainty that the numbers reflect the company’s proper financial health. In this guide, we’ll explore why these reviewed statements are an essential tool for financiers and how they can impact your financial plan.
What Is a Reviewed Financial Statement?
A reviewed financial statement is a set of financial documents that has been examined by a certified public accountant (CPA). The CPA does not go as deep as they would during an audit, but they do review trends, conduct queries, and perform analytical processes to confirm there are no clear concerns.
Why Do Financial Reviews Matter?
Financial reviews play a crucial role in ensuring that a company’s financial health is clearly presented. These reviews, conducted by Certified Public Accountants, offer valuable viewpoints into a business’s performance. This added layer of inspection helps businesses avoid errors and comfort investors.
Reviewed Financial Statements vs Audited
The age-old question, reviewed vs audited financials, what is the difference?
- Audited financial statements: involve testing internal controls, certifying balances, and complex inspector work.
- Reviewed financial statements: on the other hand, involve limited affirmation through analysis and inquiry.
If you are a publicly held company, you likely need an audit. If you are a private business just looking to convince lenders and financiers, a review might be all you need.
Why Do Businesses Choose Financial Review Over Audit?
Audits are costly and time-taking. That is why many businesses, specifically startups and privately held firms opt for a financial statement review. It impacts a perfect balance between integrity and cost-efficiency.
- Lenders
- Private investors
- Boards of directors
When the Reviewed Financial Statements Required?
Some cases where a review might be required include:
- Applying for SBA loans
- Meeting with investor agreements
- Drafting for year-end financial review
- Fulfilling partnership or contractual tasks
CPA Reviewed Financial Statements
Only a licensed CPA can provide a review report under U.S. accounting levels. They will follow Statements on Standards for Accounting and Review Services and issue a formal letter, your privilege of financial conformity.
Financial Statement Review Checklist
Here is what the CPA typically looks at:
- Verify Financial Data: Confirm all financial numbers are stable and authentic across statements.
- Check for Compliance: Verify that financial reports meet all regulatory and accounting levels.
- Examine Revenue and Expenses: Assess income and expenses for any unusual patterns or variations.
- Review Cash Flow: Consider the company’s capacity to create cash and manage expenses proficiently.
- Evaluate Financial Ratios: Review key ratios like financial stability, financial gain, and debt to check the company’s health.
Statements on Standards for Accounting and Review Services
The Statements on Standards for Accounting and Review Services are guidelines set by the American Institute of Certified Public Accountants to certify stability and clarity in financial reporting. These standards are essential for CPAs when arranging, reviewing, or assembling financial statements. They help maintain the quality and authenticity of financial information, confirming that the reports meet professional and prescribed requirements.
Review Report and its Key Elements
Expect the review report to include:
- CPA’s Responsibility: The CPA outlines their role, explaining they performed a limited review, which involves questions and analytical methods.
- Scope of Review: It highlights that the review is not as complete as an audit, and no opinion on the financial statements is expressed.
- Basis of the Review: The report states the methods and processes used to perform the review, such as evalluating financial ratios and discussing the data.
- Signature and Date: The CPA signs the report and adds the date it was issued, verifying the date the review was completed.
Sample Reviewed Financial Statements Explained
Simplify what these docs look like.
1. Balance Sheet Review
A CPA will examine assets vs responsibilities and rate whether the numbers make sense compared to prior periods.
2. Income Statement Breakdown
They will spot variations like rises in expenses or revenue that do not match your business.
3. Cash balance Statements
The CPA will make sure you are not running on fumes even if your income report says differently.
Who Needs Reviewed Financials?
1. Small Businesses and Startups
Reviewed financials offer small businesses and startups an accessible, verified substitute to audits. They show financiers and partners the company is complex about financial management without the high cost of an audit.
2. Privately Held and Publicly Held Companies
Privately held companies use reviewed financials for bank loans or M&A deals to build trust, while public companies, required to audit, may use reviewed statements within for cost-effective financial monitoring and decision-making.
Benefits of Financial Review
- Cost-Effective: A financial review is less costly than a full audit, making it a financially viable option for many businesses.
- Increased Credibility: Reviewed financial statements provide added convincing, helping businesses gain trust from investors, banks, and other investors.
- Improved Decision Making: By analyzing financial health, companies can make better strategic decisions based on more reliable data.
- Identifies Areas for Improvement: A financial review helps unveil potential flaws or issues within financial practices, allowing businesses to address them strategically.
- Less Time-Consuming: Compared to audits, reviews take less time to complete, making them a more efficient option for companies that need timely insights.
Limitations on Reviewed Financial Statements
Less Detailed: Not as thorough as audits, with fewer tests and checks.
No Internal Controls Review: Does not examine the company’s within control systems.
Relies on Management Data: Depends on data provided by management, which may contain errors.
Narrow Scope: Covers fewer areas than an audit, missing some potential risks.
