At DK Partners, a trusted CPA firm in Austin, Texas, with over 40 years of experience, we specialize in helping business owners navigate complex financial landscapes. Among the various financial accounting services we provide, two of the most essential for business transparency and decision-making are Compilations and Financial Statement Reviews. 

This guide provides a thorough overview of Compilations and Financial Statement Reviews, including what they are, why they are used, their benefits, the process involved, and why DK Partners is the right choice to assist your business.

Introduction to Financial Reporting Services

Accurate financial reporting is crucial for internal management, external stakeholders, and regulatory compliance. Depending on the size, complexity, and reporting requirements of a business, different levels of financial statement services may be necessary. These generally include compilations, reviews, and audits.

Compilations and reviews are both conducted by certified public accountants (CPAs), but they vary significantly in scope and purpose. While audits provide the highest level of assurance and involve in-depth testing and verification, they may not always be necessary or cost-effective for smaller businesses. Compilations and reviews serve as alternatives that help meet business objectives without the extensive requirements of an audit.

What is a Compilation?

A compilation is the most basic level of financial statement service. In a compilation engagement, a CPA uses financial data provided by a client to present financial statements in accordance with a framework of accounting. The CPA does not audit or review the data and does not express any opinion or assurance on the accuracy or completeness of the information.

This service is ideal for internal purposes or for small businesses that do not require reviewed or audited statements for lenders, investors, or other third parties. Compilations are prepared in accordance with professional standards, such as Statements on Standards for Accounting and Review Services (SSARS) issued by the AICPA.

Purpose of a Compilation

The main purpose of a compilation is to present financial information in a standardized format without providing any assurance. Business owners often use compilations for compliance with lending covenants, internal planning and analysis, budget preparation, or simple reporting to stakeholders who do not require an assurance-level engagement.

Benefits of a Compilation

• Affordability: Since there is no verification or in-depth analysis involved, compilations are the least expensive form of financial reporting service.

• Timeliness: Compilations are typically faster to complete than reviews or audits.

• Professional Presentation: While no assurance is provided, a compilation still results in formal financial statements prepared in accordance with accounting standards.

• Business Planning Tool: Compilations can be used to prepare for future assurance-level services like reviews or audits, or to develop strategic plans and forecasts.

The Compilation Process

1. Engagement Letter: The CPA and the client agree on the terms and scope of the engagement, including limitations of the service.

2. Information Gathering: The client provides the CPA with financial data.

3. Statement Preparation: The CPA organizes the provided information in accordance with a framework of account (i.e. cash basis, modified cash basis, tax basis, accrual basis), applying appropriate formatting and classifications.

4. Report Delivery: A compilation report is issued stating that no assurance is provided and that the statements are based solely on the information provided by management.

What is a Financial Statement Review?

A financial statement review is a step above a compilation and involves procedures to provide limited assurance. In this type of engagement, a CPA performs analytical procedures and inquiries to help determine whether there is any indication that the financial statements contain material misstatements.

Although a review does not involve the detailed testing that occurs during an audit, it offers stakeholders more confidence in the accuracy and completeness of the financial statements compared to a compilation. A review is often required by lenders, investors, or regulatory bodies for compliance or due diligence purposes.

Purpose of a Review

The objective of a review is to provide limited assurance that there are no material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework. It offers an added layer of credibility without the cost and time associated with an audit.

Benefits of a Financial Statement Review

• Limited Assurance: Reviews provide limited assurance that financial statements are free from material misstatements.

• Increased Credibility: Reviews can satisfy the requirements of lenders or other stakeholders who need more than just a compilation.

• Cost-Effective Alternative to Audit: While more involved than a compilation, a review is significantly less expensive than an audit.

• Business Insights: The analytical procedures and inquiries often uncover trends or anomalies that can inform business decisions.

The Review Process

1. Engagement Letter: Outlines the objectives, responsibilities, limitations, and reporting expectations.

2. Understanding the Business: The CPA develops knowledge of the client’s industry, operations, and accounting practices.

3. Analytical Procedures: The CPA performs analytical procedures such as ratio analysis, variance analysis, and trend analysis to detect inconsistencies or unusual patterns.

4. Inquiries of Management: The CPA asks questions to understand key events, accounting practices, and changes in financial position.

5. Review Report: The CPA issues a report stating that nothing came to their attention that would indicate the financial statements are not in conformity with the applicable framework.

Choosing Between Compilation and Review

Choosing the appropriate level of financial statement service depends on your business’s specific circumstances. Factors to consider include:

• Who Will Use the Financial Statements: If external parties such as banks or investors need assurance, a review might be required. For internal planning, a compilation might suffice.

• Regulatory Requirements: Certain industries or lenders may require at least a review as part of compliance.

• Budget and Resources: Compilations are generally less costly and time-consuming. Reviews involve more work and therefore higher fees, but offer more assurance.

• Business Growth Stage: Startups or small businesses might begin with compilations and move to reviews as they grow and external reporting becomes more critical.

Our team at DK Partners helps you evaluate these factors to determine the most appropriate and cost-effective financial reporting solution.

Why Choose DK Partners for Compilations and Reviews?

With a strong foundation built over four decades, DK Partners has become a go-to CPA firm for businesses in Austin, Texas, and beyond. Here’s why clients choose us:

• Experienced Professionals: Our team includes CPAs with deep knowledge of accounting standards and industry best practices.

• Tailored Services: We work closely with business owners to understand their unique needs and tailor our engagements accordingly.

• Commitment to Integrity: We maintain the highest standards of professionalism and ethical conduct.

• Efficient and Collaborative: We streamline our processes to reduce disruption to your business operations and maintain open communication throughout the engagement.

Our approach to compilations and reviews is collaborative and consultative—we’re here to help you present your financial data clearly, not just check boxes.

Getting Started

Compilations and Financial Statement Reviews are essential services that provide business owners with varying levels of insight and assurance about their financial data. Whether you need a compilation to organize internal records or a review to satisfy lender requirements, DK Partners offers the experience, professionalism, and personalized attention you deserve.

Both services help you make informed decisions, manage business risks, and present your financial information credibly. Let DK Partners be your trusted advisor in all your financial reporting needs.

Contact DK Partners Today

Ready to learn more about how DK Partners can support your business with professional financial statement services? Reach out today to schedule a consultation. We’re here to help ensure your financial reports are structured for clarity and credibility.