Audits - Reviews - Compilations

Stockholders, creditors, private investors, as well as governmental agencies often need assurance that the financial statements accurately represent the true financial position of a company.

These interested parties have different levels of risk tolerance.  In response, the accounting profession offers three levels of assurance to meet your needs.

Audit - Highest Level of Assurance

Audit services are desired for many reasons.  Primarily they are the result of a governmental or bank requirement, for the purpose of prospective investors, or per the request of a governing board. 

An audit provides the highest level of assurance. An audit is a methodical review and objective examination of the financial statements, including the verification of specific information as determined by the auditor or as established by general practice.

Audits require:

  • An in-depth understanding of the business and external environment affecting the entity, the entity's operations, design and operation of controls, and the risks associated with these elements.

  • A combination of transaction and analytical testing of financial statement elements.  The transactional testing process entails the review of records, contracts, and other documentation.

  • Communication of internal-control related matters. This communication categorizes internal control deficiencies as either material weaknesses or significant deficiencies, is provided to the governing body of the entity.  This correspondence identifies areas of enhanced reporting/fraud risks due to either an ineffective design of internal controls or a failure in the operation of those controls.

Dramatic regulatory changes have occurred in the industry during the past several years. These changes promulgate a risk-based audit approach.  This approach not only serves as a means to direct our efforts to areas of exposure to error, but the approach also results in a more efficient audit.

Our Credentials:

Due to our industry expertise, you can have assurance that we understand the regulations and external factors which affect your entity. The team assigned to your audit will include team captains with substantial experience in your industry (we do not send novices to care for your account, no matter what the size of your organization).  We also ensure that all members of the audit team comply with the continuing education requirements stipulated by the AICPA and Maryland Board of Accountancy, as well as special training required by the AICPA Government Audit Quality Center, U.S. Government Accountability Office, and the AICPA Employee Benefit Plan Audit Quality Center.

HCF&L is a member of the Maryland Association of Certified Public Accountants (MACPA),  the American Institute of Certified Public Accountants (AICPA ) as well as the AICPA Employee Benefit Plan Audit Quality Centers.  Further, we are proud to announce that HCF&L was awarded an unmodified opinion on its peer review of its audit and accounting practice.

Review - Limited Assurance

Review services are significantly less in scope, and therefore, do not provide the same level of assurance as an audit.  A review consists of analytical procedures and inquiries of your company's personnel and management team as a means to ascertain, with limited assurance, the fair presentation of the financial statements. However, if the financial statements or supporting information appear inconsistent or otherwise questionable, we may need to perform additional procedures.

A review doesn't require us to study and evaluate your company's internal controls or verify data with third parties or physically inspect assets. Rather, a review report expresses limited assurance in the form of the statement: "We are not aware of any material modifications" for the financial statements to be in conformity with the Generally Accepted Accounting Principles (GAAP). Reviewed financial statements must include all required footnotes and other disclosures.

Why might a business request a review engagement? It can be a good middle ground, providing the advantages of a CPA's technical expertise without the work and expense of an audit.

 

Compilation - Lowest Level of Assurance

In compiling financial statements for a client, we present information that is the "representation of management" and expresses no opinion or assurance on the statements. Compilations don't require inquiries of management or analytical procedures. Instead, we rely on our knowledge of accounting principles and a general understanding of your business.

Banks often require compilations from an independent CPA as part of their lending covenants.

Which Report Should You Use?

In some circumstances, the level of assurance is dictated by third party users, such as lenders, bonding agents, and governmental regulators.  In other situations, it is the governing board of an organization which determines the level of reporting.

In situations wherein the level of assurance is not dictated by third-party users, understanding each report's unique strengths and weaknesses can help you select the most appropriate one. Please call if you have questions about which type of report best

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