Audits, Reviews, and Cash Accounting
Submitted by Roger D. Perry, P.C., Certified Public Accountant
Why have and Audit or Review?
What do the Governing Documents sa y?
What do the Governing Documents sa y?
What is the difference?
Levels of Financial Reporting Services:
Audit Services -Provides the highest level of financial statement assurance. Audits are engagements where a CPA provides an opinion about the fairness of a financial statement that has been prepared according to generally accepted accounting principles (GAAP). The general structure and document requirements of an audit are governed by the American Institute of Certified Public Accountants (AICPA) and the Auditing Standards Board and are subject to strict peer review standards.
Review Services -Provides only limited assurance about the financial statements. Although a review is also governed by the AICPA and subject to peer review standards , it is substantially less in scope than an audit. It consists principally of inquiries of entity personnel and analytical procedures applied to the financial data. The limited assurance is in the form of negative assurance whereby the CPA will report that he is unaware of any material modifications needed in order for the financial statements to be in conformity with GAAP .
Compilation Services -Provides no assurance about the financial statements . A compilation is an engagement where the CPA presents , in the form of financial statements, information that is supplied by the entity and performs few procedures outside file documentation . The accountant's report provides no assurance and clearly states that the financials are the entity ' s presentation .
Levels of Financial Reporting Services:
Audit Services -Provides the highest level of financial statement assurance. Audits are engagements where a CPA provides an opinion about the fairness of a financial statement that has been prepared according to generally accepted accounting principles (GAAP). The general structure and document requirements of an audit are governed by the American Institute of Certified Public Accountants (AICPA) and the Auditing Standards Board and are subject to strict peer review standards.
Review Services -Provides only limited assurance about the financial statements. Although a review is also governed by the AICPA and subject to peer review standards , it is substantially less in scope than an audit. It consists principally of inquiries of entity personnel and analytical procedures applied to the financial data. The limited assurance is in the form of negative assurance whereby the CPA will report that he is unaware of any material modifications needed in order for the financial statements to be in conformity with GAAP .
Compilation Services -Provides no assurance about the financial statements . A compilation is an engagement where the CPA presents , in the form of financial statements, information that is supplied by the entity and performs few procedures outside file documentation . The accountant's report provides no assurance and clearly states that the financials are the entity ' s presentation .
Why Cash Basis of Accounting?
Cash Basis vs . Accrual Basis of Accounting :
Cash Basis -Revenue is recognized when received (when fees are deposited into the bank) and expenses are recorded when they are paid in cash. The most straightforward basis of accounting to practice and to understand .
Accrual Basis -Revenue is recognized when it is realized/earned/due without regard to when payment is received and expenses are recognized when incurred, without regard as to when payment is made. This method provides a better matching of revenues to expenses but requires specialized accrual based accounting procedures (integrated accounts receivable and accounts payable details) .
Why Cash Basis for Interim Financial Statements:
Financial statements should be easy to read. They should set forth the financial information in a clear, precise and informative manner. On an interim basis, cash basis financial statements can be more timely generated and can be understood by the majority of homeowners .
Cash Basis vs . Accrual Basis of Accounting :
Cash Basis -Revenue is recognized when received (when fees are deposited into the bank) and expenses are recorded when they are paid in cash. The most straightforward basis of accounting to practice and to understand .
Accrual Basis -Revenue is recognized when it is realized/earned/due without regard to when payment is received and expenses are recognized when incurred, without regard as to when payment is made. This method provides a better matching of revenues to expenses but requires specialized accrual based accounting procedures (integrated accounts receivable and accounts payable details) .
Why Cash Basis for Interim Financial Statements:
Financial statements should be easy to read. They should set forth the financial information in a clear, precise and informative manner. On an interim basis, cash basis financial statements can be more timely generated and can be understood by the majority of homeowners .