SSL Associates is a Chicago-based CPA firm that provides tailored audit and review services across the U.S. We ensure you have the level of assurance you need for informed decision-making and compliance. Below, we dive into the details of each service and help you determine which option might be right for your business.
What Is a Financial Review?
A financial review is a more streamlined examination of a company’s financial statements. It primarily relies on analytical procedures and inquiry-based assessments to confirm that a business’s financial data is presented fairly. In a review, certified public accountants (CPAs) perform a limited examination that focuses on identifying potential issues through trends, variances, and comparisons. The goal is to assess the company’s financial statements to ensure that no material modifications are needed for accuracy.
Compliance for Reviews
For medium-sized enterprises and some smaller businesses, financial reviews can meet compliance needs without the extensive requirements of an audit. Reviews generally apply when certain revenue thresholds or stakeholder requirements are met and provide limited assurance that financial statements are free of material errors.
Some smaller companies, while not legally bound, may voluntarily seek reviews to enhance credibility. By engaging in a financial review, these businesses demonstrate their commitment to transparency, which can help attract financial support and strengthen professional relationships.
What Does a Financial Review Involve?
Inquiry of management: CPAs engage in discussions with the company’s management to understand the financial operations, underlying transactions, and other relevant areas.
Analytical procedures: Accountants evaluate financial information through data comparisons and ratio analyses to look for unusual trends or variances in financial performance.
Documentation and limited assurance: The outcome of a financial review is a review report that offers limited assurance that no significant changes are needed.
Because a review doesn’t include an in-depth assessment of internal controls or record testing, it provides only a moderate level of confidence.
Audit or Review? Get the Assurance You Need.
Audit or Review? Get the Assurance You Need.
Schedule a personalized consultation with SSL Associates to find your best financial fit.
An audit offers the highest level of financial scrutiny, providing reasonable assurance that a business’s financial statements are accurate, complete, and free from material misstatements. This service involves a much more detailed and comprehensive examination.
Legal Requirements and Compliance for Audits
Publicly traded companies and large private firms with significant economic influence or a wide stakeholder base typically undergo mandatory annual audits. This process provides high assurance that financial statements accurately represent the entity’s financial health, which is crucial for investor and public confidence. In many cases, federal and state regulations mandate these audits to guarantee a consistent level of accountability and transparency in financial reporting.
Sectors like financial services and healthcare often have strict regulatory standards that require regular audits. These standards are designed to safeguard industry integrity and protect public interest by ensuring that financial practices comply with specific rules and regulations.
Failing to comply with mandatory audit requirements can have serious repercussions, including fines, legal liabilities, and potential disqualification of directors in regulated sectors. Non-compliance can lead to reputational damage, reduced access to funding, and diminished stakeholder trust.
What Does an Audit Involve?
During an audit, CPAs meticulously examine financial records and confirm transactions through various procedures, such as:
Testing of internal controls: CPAs evaluate the business’s internal financial processes to detect and prevent fraud risks.
Verification of transactions: This includes corroborating data points with external documents, such as bank statements, contracts, and accounts receivable records.
Third-party confirmations: Auditors seek confirmation of certain balances, like cash or accounts payable, with external parties for objective verification.
Detailed examination and reporting: Upon completion, CPAs issue an audit report that includes an opinion on whether the financial statements are a fair presentation of the company’s financial position.
Because of its comprehensive nature, an audit can be more time-consuming and costly than a review. However, it provides reasonable assurance that the audited financial statements conform to generally accepted accounting principles (GAAP) and are accurate enough to support crucial decisions by external stakeholders.
Key Differences Between Financial Reviews and Audits
Though both services aim to evaluate financial data and increase stakeholder confidence, the key differences between an audit and a review lie in the assurance level, scope of procedures, and cost implications. Below, we’ve broken down these differences to clarify which option might fit the unique requirements of your business.
Aspect
Audit
Review
Assurance Level
Reasonable assurance; ensures compliance with GAAP
Limited assurance; only identifies obvious errors
Scope
Extensive testing of financial records, internal controls, and third-party confirmations
Primarily inquiry and analytical procedures, with no in-depth verification
Depth of Examination
Full examination of accounting records and supporting documentation
Surface-level checks with limited documentation review
Time and Cost
Generally more time-consuming and costly due to depth of analysis
Less costly, suitable for businesses with simpler financial structures
Compliance
Essential for regulatory purposes or high-stakes investments
Often adequate for internal or lower-risk requirements
In summary, audits are more suitable for complex businesses, while reviews provide an effective option for smaller businesses looking for limited assurance at a lower cost.
When to Choose a Financial Review vs. an Audit
When deciding between an audit or review engagement, it’s important to assess your business’s unique needs, goals, and compliance requirements:
Assess company size and financial complexity: For smaller, straightforward businesses, a financial review may offer the right balance of transparency and cost-efficiency. In contrast, large entities with complex financials generally benefit more from the thorough, in-depth approach of an audit.
Consider stakeholder requirements: It’s essential to understand the needs of investors, lenders, and other stakeholders. Public companies or those with external investors often require audited financial statements to satisfy regulatory demands and build investor confidence.
Review regulatory requirements: Examine if your industry or location has regulations that mandate a certain level of financial oversight. In highly regulated sectors, audits are often required to ensure compliance and fulfill oversight responsibilities.
Anticipate growth and funding needs: Your long-term goals play a role in this decision. Companies aiming for significant expansion, substantial investment, or a potential public offering might prioritize an audit to strengthen their financial credibility.
Gauge financial and compliance risks: Identify the risk level within your financial reporting and compliance framework. If there’s a higher risk of material misstatement, an audit provides a detailed and reliable check that promotes transparency and risk mitigation.
Factors to Consider
Audit
Review
Stakeholder Confidence
High; offers peace of mind to banks, investors, regulators
Moderate; satisfies basic reporting needs
Financial Complexity
Suited for complex structures and high fraud risk
Ideal for simpler structures with limited financial risk
Strategic Business Plans
Recommended for companies planning expansion or external investment
Best for those with stable, limited growth
Making the Right Choice with SSL Associates
Choosing between a review and an audit isn’t always straightforward, but SSL Associates offers the expertise to help you make an informed decision tailored to your unique business needs. Whether your company is local to Chicago or located elsewhere in the U.S., you can take advantage of our audit and review engagements that provide dependable and compliant financial assessments.
Our team of CPAs at SSL Associates is here to support you in selecting the most suitable assurance services for your company’s goals, financial position, and compliance needs. Contact us today to discuss which option is best for you.
Susan S. Lewis
Susan Lewis is a seasoned CPA and financial advisor with over 35 years of experience. She founded SSL Associates, offering personalized financial guidance and tailored solutions to help businesses achieve financial excellence.
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