What are the Three Types of Services CPA’s Offer

Intro

“I’ll have my accountant handle that.” You’ve probably heard this before, and for good reason.

Certified Public Accountants are versatile, highly skilled, and trained professionals that are held to American Institute of Certified Public Accountants (AICPA) standards. They must also follow a stringent code of ethics determined by the AICPA.

But what do they do, exactly? Generally speaking, most CPA services fall under three main service categories:

1. Audit services
2. Taxation Services
3. Advisory and Specialized

Let’s explore in in more depth below.

Audit

The purpose of audit and assurance services is to provide assurance, limited or reasonable, that financial information is materially correct. Limited assurance is based on analysis and inquiry and is provided in a financial statement review. Reasonable assurance is based on the last two items plus, inspection, verification, observation and other methods and is the basis of an audit. Neither provides absolute assurance.

The significance of an audit is that it provides assurance to lenders, clients and investors of a company. Generally, an audit is perfumed to provide reasonable assurance of the financial statements. This is under the umbrella of an external audit. Large companies also have internal audit staff. Processes are performed on a daily/weekly basis to provide internal assurance of the functions of the company.

The Firm of Ernest L. Tomkiewicz CPA PLLC (ELTCPA) provides audits to various companies ranging from start-ups to mid-size corporations. The variety of areas covered goes from crowdfunding to non-profit, to tech companies.

Tax preparation and Filing

Tax services range from simple 1040 preparation to complex tax filings for C Corporations. The clients are charged with providing all documentation needed for this service. Generally, the CPA will provide clients with a list of documents for them to gather, from there the information is uploaded to the firm’s portal for processing.

Once the return is essentially complete a client copy is sent to the client for them to review and approve. After approval the return is e-filed to federal, an as needed, state agencies.

Compliance with the tax code is mandatory and, if not done, can result in significant penalties and interest on unpaid taxes. The best advice is to get to your tax preparer early and provide them with all documentation in a timely (quick) fashion. The Internal Revenue Service has no sense of humor and does not tolerate tardiness.

Many CPA’s also provide tax advice along with filing. If your situation changes (you have a child, start/end a business, have a large increase in income) you should always contact your advisor to discuss how this will affect your tax filing. Many are the clients that do not do this. Then when tax season rolls around, they are hit with a large unexpected tax bill. This can be avoided with proper planning.

Advisory and Specialized Services

CPA’s are a wealth of information when it comes to advisory services. Financial planning, wealth management, investment advice are just a few of the services that are offered. These services can prepare you financially for the future. Whether you find a private CPA firm or a larger management company, like Edward Jones or Wells Fargo, your financial future will be better off.

With the stock market as volatile as it is, today is the best time to enlist an investment advisor. Managing your retirement account shouldn’t be left to chance, or a generic investment company. You owe it to yourself to find a certified financial planner or other professional.

Specialized services include forensic accounting, fraud prevention, and acquisition guidance. Fraud prevention is generally done prior to an incident. This is a service where the CPA will help you determine the loss points in your business. Things like proper security cameras and alarms, procedures and inventory systems are some of the areas they provide advice.

Forensic accounting is generally done after a loss, unlike fraud prevention. This entails the accountant reviewing records, documents, bank statements, etc. Once the investigation is underway, they will usually interview employees and managers to narrow the scope of the investigation. Once complete you will be issued a report of findings. In some cases, the authorities are brought in to investigate and potentially arrest a suspect.

Acquisition guidance is performed when an individual, or a business, is purchasing a business. This involves high level analysis of financial information, auditing, and verification of accounts. Making sure revenue and expenses are appropriate and confirming accounts with vendors and customers is a usual event with acquisition investigation.

Where Taxation Meets Assurance and Advisory

When it comes to advisory, tax and audit services, they are often combined in the same CPA firm. It is far easier, and more cost effective to have the tax preparation done at the same time as the audit. When it isn’t, two providers are needed, and generally the audit staff wants the tax preparation done prior to the audit work. This can save extra time as well as extra money. I’ve found that a company can save several thousand dollars when having me perform both items. This is particularly important to non-profits.

When it comes to advisory, one would expect their tax CPA to provide this service. While not all services are handled by all CPA’s, basic tax advisory should be. Often when it comes to retirement planning and investing, clients are referred to companies that have more experience in this area.

Choosing the Right CPA Service and Provider

The primary things to look for when finding a CPA are:

Knowledge of your industry. Find a CPA that has experience with what you do. Not all can handle the food industry, or manufacturing. Experience is key to success.

Who will be handling your work. Some CPA’s push work to lower-level staff and this can create a low-quality work product and repeat questions.

Find a CPA that is technology heavy. Some individuals do not like this, and that’s fine, but a business needs a CPA 2ith the latest knowledge of tech. The days of the CPA working out of their house and not using a portal are coming to an end.

What do they charge? My philosophy is to price the job at hand, so the client knows up front what they’ll be paying. Others however charge by the hour, by the form for taxes, or other hybrid methods. Be sure you are comfortable with the pricing structure.

Contact us today for a free no obligation quote on your audit, review or business tax preparation.

Outsourcing Financial Statement Review for Small Businesses

Intro

There’s always more to do when you own a small business. The last thing you need to do is spend the precious little time you do have setting up financial statements for a review. If you find yourself here, then chances are you are wondering if CPA reviewed financial statements are what you need.

The good news is that we here at Ernest L Tomkiewicz CPA PLLC specialize in review, compilation and audit. We are the low-pressure, high-quality choice. We strive to offer quality service fast and at a good price. The work speaks for itself.

With that in mind, here is what you need to know to determine whether having your financial statements reviewed by a certified public accountant is what your business needs.

The Challenges Small Businesses Face with Financial Statement Review

The first question you are probably asking is, “what is a reviewed financial statement?” A review provides limited assurance that the financials are in compliance. Limited assurance is used as a basis for the CPA to report whether he is aware of any material modifications that should be made to the financial statements, for them to be in accordance with the applicable financial reporting framework.

Limited assurance is not absolute, nor is it providing an opinion like an audit.  This is achieved through inquiry and analytical procedures. But not through document inspection, confirming with vendors or creditors, or other processes commonly used with an audit.

A comprehensive analysis of the financials is done through ratio analysis and comparison to determine if the company is within industry norms. This includes the balances sheet, income statement, statement of cash flows and the notes to the financials.

In a review, assistance is provided to management to be in compliance with AR-C Section 90: Review of Financial Statements. Preparation is quite often performed in conjunction with a review. In this way the accountant can aid management in its report of items properly.

A business can’t perform a review themselves, it must be done by a licensed CPA. This is due to many factors including the expertise, licensing and the requirement that the reviewer be independent of the company.

Difference between an Audit and Review

A review generally consists of analysis, comparison and inquiry as a basis for providing limited assurance on the financial statements as a whole. In an audit, those processes are preformed in addition to many others.

The timing of a review is usually 4-6 weeks under normal conditions. However, we can generally expedite in some circumstances for companies that are under a time crunch. This is prevalent for crowdfunding. Quite often the company doesn’t realize they need a review until the fund is about to start.

An audit involves direct verification with vendors and clients of amounts paid to/received from them. Also, detailed transaction verification is performed on bank accounts and expense accounts to determine account balances. The audit will generally require you to submit a vast amount of documents including: loan paperwork, asset purchase documents, loan covenants, inventory and shipping records, founding documents and board meeting notes, etc.

Timing for an audit is usually around 6-8 weeks but can be expedited in some situations. Companies that are asset and liability light, may be able to get the process done faster.

The Benefits of Financial Statement Review for a Small Business

A review has many uses including helping with decision making, securing funding and legal compliance. Thus lessening the financial challenges you face. Quite often companies that seek investment through crowd funding call for our services. We can even expedite the process for an additional fee.

Also, having accurate and timely financial reporting information helps with business decision making. This provides you with the ability to concentrate on management and not on the financial minutia.

In some cases, businesses and non-profits are required to have a financial statement review or audit. Whether for state, and federal agencies, or to comply with funding and loan requirements, you may have to have a review performed.

How to Find the Right Provider

Different providers have different results. Some are focused on timing and this leads to errors and omissions, which are never a good thing in your financials. Others only have expertise in one area of financial review.

At our company  we have wide experience with non-profits, crowdfunding, tech companies, and inventory. This allows us to serve businesses from coast to coast. Quite often a site visit is not needed as our processes are designed to be effective remotely.

In the business world today adaptability and convenience are keys to success. Making the review process smooth for you, the client, is essential. The less you have to do, the more time you have for other tasks.

Providers also need to have strict confidentiality. Finding a servicer that keeps private information, just that, private, is key. Securing a confidentially agreement is sometimes needed. You should feel comfortable getting one signed if it makes you feel better about the process.

Beyond confidentiality is security. Be sure document exchange is secure, or if you are not sure, provide documents through your secure portal. Or better yet a service like Proton Mail is a good way to exchange items.

Schedule a financial statement review with our experts today!

This is a standard checklist of what we require for a review:

The full legal name and address of the company

Minutes of meetings in 2022

Founding documents, i.e., incorporation documents

Tax return 2022, or 2021 if not complete

Copy of prior year review or audit

Brief 2-4 paragraph description of the company, its operations, its founding, etc.

Brief 2-4 paragraph description of the company’s revenue sources.

List of board of directors

A copy of QuickBooks backup or online accountant’s access.

Plus, I have designed a questionnaire specific to the review that management must fill out.

The financial statement review management representation letter is designed to complete managements responsibilities in the review. The letter is signed at the end of the engagement and is dated at the time of the review report. The management representation letter has three basic parts, the introduction, statements about the financials and declarations on the information management has provided.

Care should be taken in producing this letter. It contains many items that if left out, increase liability on the CPA. In addition, the standards of SSARS (Statements on Standards for Accounting and Review) require certain elements to be included.

Also, please review our Ultimate Guide to Financial Statement Review and Compilation for information on the review process from beginning to end.

If you need help with a financial statement review or audit, contact me now!

The Introduction

This section lays out the basis of the representations. Management states what has been performed, the review. They also state that matters are generally limited to items that are material in nature. The following is the standard wording provided by the American Institute of Certified Public Accountants (AICPA).

This representation letter is provided in connection with your review of the financial statements of ABC Company, which comprise the balance sheets as of December 31, 20X2 and 20X1, and the related statements of income, changes in stockholders’ equity and cash flows for the years then ended, and the related notes to the financial statements, for the purpose of obtaining limited assurance as a basis for reporting whether you are aware of any material modifications that should be made to the financial statements in order for the statements to be in accordance with accounting principles generally accepted in the United States of America.

Certain representations in this letter are described as being limited to matters that are material. Items are considered material, regardless of size, if they involve an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement.

Statements About the Financials

This is one of the two sections of the document that contain the meat. In this section management takes responsibility for a number of things, it covers fair presentation according to GAAP, responsibility for internal controls and more. The following is a section form the AICPA approved wording.

1. We acknowledge our responsibility and have fulfilled our responsibilities for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America.
2. We acknowledge our responsibility and have fulfilled our responsibilities for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
3. We acknowledge our responsibility for the design, implementation, and maintenance of internal control to prevent and detect fraud.
4. Significant assumptions used by us in making accounting estimates, including those measured at fair value, are reasonable.
5. Related party relationships and transactions have been appropriately accounted for and disclosed in accordance with the requirements of accounting principles generally accepted in the United States of America.
6. Guarantees, whether written or oral, under which the company is contingently liable have been properly accounted for and disclosed in accordance with the requirements of accounting principles generally accepted in the United States of America.
7. Significant estimates and material concentrations known to management that are required to be disclosed in accordance with FASB Accounting Standards Codification (ASC) 275, Risks and Uncertainties, have been properly accounted for and disclosed in accordance with the requirements of accounting principles generally accepted in the United States of America.
8. All events occurring subsequent to the date of the financial statements and for which accounting principles generally accepted in the United States of America requires adjustment or disclosure have been properly accounted for.
9. The effects of uncorrected misstatements are immaterial, both individually and in the aggregate, to the financial statements as a whole.
10. The effects of all known actual or possible litigation and claims have been accounted for and disclosed in accordance with accounting principles generally accepted in the United States of America.

Declaration of the Information Provided

Finally, management states certain things about the information it has provided during the engagement. Things such as:
We have responded fully and truthfully to all inquiries made to us by you during your review.

We have provided you with:

1. access to all information, of which we are aware, that is relevant to the preparation and fair presentation of the financial statements, such as records, documentation, and other matters
2. minutes of meetings of stockholders, directors, and committees of directors or summaries of actions of recent meetings for which minutes have not yet been prepared; additional information that you have requested from us for the purpose of the review; and unrestricted access to persons within the entity from whom you determined it necessary to obtain review evidence.
3. All transactions have been recorded in the accounting records and are reflected in the financial statements.
4. We have [no knowledge of any] [disclosed to you all information that we are aware of regarding] fraud or suspected fraud that affects the entity and involves
5. management, employees who have significant roles in internal control, or others when the fraud could have a material effect on the financial statements.
6. We have [no knowledge of any] [disclosed to you all information that we are aware of regarding] allegations of fraud, or suspected fraud, affecting the entity’s financial statements as a whole communicated by employees, former employees, analysts, regulators, or others.
7. We have no plans or intentions that may materially affect the carrying amounts or classification of assets and liabilities.
8. We have disclosed to you all known instances of noncompliance or suspected noncompliance with laws or regulations whose effects should be considered when preparing financial statements.
9. We [have disclosed to you all known actual or possible] [are not aware of any pending or threatened] litigation and claims whose effects should be considered when preparing the financial statements [and we have not consulted legal counsel concerning litigation or claims]
10. We have disclosed to you any other material liabilities or gain or loss contingencies that are required to be accrued or disclosed by FASB ASC 450, Contingencies.
11. We have disclosed to you the identity of the entity’s related parties and all the related party relationships and transactions of which we are aware.
12. We have disclosed to you all information relevant to the use of the going concern assumption in the financial statements.
13. No material losses exist (such as from obsolete inventory or purchase or sale commitments) that have not been properly accrued or disclosed in the financial statements.
14. The company has satisfactory title to all owned assets, and no liens or encumbrances on such assets exist, nor has any asset been pledged as collateral, except as disclosed to you and reported in the financial statements.
    We have complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance.
15. We are in agreement with the adjusting journal entries that you have recommended, and they have been posted to the company’s accounts (if applicable).

In total the management representation letter sums up the company responsibilities for the engagement. It outlines the various factors taken into account during a review or audit. Care should be used when preparing this letter to assure it is in compliance with accounting regulations. Below is a link to a properly formatted financial statement review management representation letter.

Sample Management Representation Letter