Examples: There are three levels of financial statement services offered by CPAs: audits, reviews, and compilations, each of which should be conducted by an independent CPA.
An audit provides the highest level of assurance on an organization’s financial statements. An audit provides assurance that an organization’s financial statements are free of material misstatement and are fairly presented based upon the application of generally accepted accounting principles. An audit includes:
confirmation with outside parties;
testing selected transactions by examining supporting documents;
completing physical inspections and observations; and
considering and evaluating the internal control system of the organization.
A review of financial statements provides limited assurance on an organization’s financial statements. During a review, inquiries and analytical procedures present a reasonable basis for expressing limited assurance that no material modifications to the financial statements are necessary; they are in conformity with generally accepted accounting principles. Following a review engagement, the CPA will issue a formal report that includes a conclusion as to whether, based on the review, the CPA is aware of any material modifications that should be made to the financial statements to bring them in accordance with the applicable financial reporting framework.
A compilation provides no assurance on an organization’s financial statements and does not meet the requirements of the standard.
The organization's practices reflect full implementation of the standard.
Organizations seeking reaccreditation have completed audits or reviews of financial statements for each intervening year since their last accreditation.
Practices are basically sound but there is room for improvement; e.g.,
The organization undergoing reaccreditation completed an audit or review of financial statements for the most recent auditable fiscal year; however, it did not conduct one for any or all the intervening years since their last accreditation; or
The organization undergoing accreditation for the first time completed an audit or review of financial statements in the most recent auditable year; or
The organization completed the audit or review; however, it was not completed within eight months of the end of the fiscal year, but the organization implemented procedures to ensure timely completion for future audits.
Practice requires significant improvement; e.g.,
The audit or review for the most recent auditable year is scheduled but has not been completed; or
The most recent audit or review was completed more than eight months after the end of the fiscal year, and no plan is in place to ensure timely completion of future audits.
Implementation of the standard was minimal or there is no evidence of implementation at all; e.g.,
An audit or review for the most recent auditable year has not been completed nor has one been scheduled.
Most recent audit or review and the accompanying management letter
Governing Body minutes reflecting review of the most recent audit or review