Outsourcing Financial Statement Review for Small Businesses
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.
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.