Financial
statements may be prepared internally a business or externally by an
accountant. Historical statements that
have been prepared by a Certified Public Accountant will explain the level of
examination that has been made in a letter preceding the statements. The levels of CPA-prepared financial
statements are:
Compiled: These statements have been put
together by a CPA, and, therefore, should be correct with respect to
format. However, the accountant makes no
opinion as to the accuracy of the numbers, and the accountant is not required
to be independent of the business.
Reviewed: The statements are examined for
accuracy by the accountant, but the scope of the examination is significantly
smaller that of an audit.
Qualified Audit: In an audit, the accountant strictly
examines the financial statements.
Account balances including loans, deposits, receivables, payables, and
inventory are audited, and a selection of individual transactions is tested for
accuracy. The auditor also examines the
internal controls of the business and expresses an opinion on the ability of
the firm to continue as a going-concern.
An audit is
considered "qualified" because there is some discrepancy or
disagreement between the figures of the business and the auditor's
findings. Any such discrepancies will be
explicitly listed in the letter preceding the statements.
Unqualified Audit: This is also a strict examination as
described above, except that no discrepancies exist between the business and
the auditor.
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