After loaning your business money, your bank wants to know how well your business is performing in order to assess whether they want to continue to loan you money. Your company’s financial statements is used for this assessment; however, they are not going to take your word that your financial statements are correct. Instead, they’ll ask you to have a CPA issue a report about your financial statements. These reports come in two flavors: a review or an audit report.

Review or Audit, What’s the Difference?

A review is lesser in scope than an audit. A review consists primarily of financial statement analytics and inquires about your financial statements. For example, if your CPA notices that accounts receivable has increased in the current year from the prior year, they may ask you about the factors contributing to the increase. Where they can, the CPA will try to validate your responses to these inquiries to their analytics on accounts receivable. They may, for example, analyze the aging of your accounts receivable, look at the trend between the monthly accounts receivable balance and sales or inventory levels.

When the review is completed, your CPA will issue a report that expresses limited assurance that there are no material modifications that should be made to the financial statements in order for the financial statements to be in conformity with generally accepted accounting principles (GAAP).

An audit is more comprehensive than a review. The CPA will make the same kinds of inquires about, for example, accounts receivable and perform the same kinds of analytical procedures, but they will take it several step further by actually examining and vouching to documents. For example, in the case of accounts receivable, they will ask that you prepare letters to be sent to your customers so that your customers can confirm the amount that they owe to you (this is to establish existence of the accounts receivable). The CPA will also test whether or not you are collecting on your accounts receivable by vouching the cash receipts on a sample of accounts receivable. For an audit, the list of tests go on and one on.

When the audit is completed, your CPA will issue a report that expresses an opinion on your financial statements as to whether your financial statements is presented fairly, in all material respects, in conformity with GAAP.

It is your bank’s prerogative as to whether they want a review or an audit.

What Will It Cost?

Reviews generally cost less than an audit because there is less work for the CPA to perform. The cost of a review or audit will depend on many factors that your CPA will consider when determining a fee quote. Some of these factors include:

• Complexity of your business
• Timing of the review or audit
• Size and experience of your accounting staff
• The users of the review or audit report
• Whether this is your first time being reviewed or audited
• Whether you report to a regulatory agency

The more complex your business, the more your review or audit is going to cost in general. If you want your review or audit performed during the CPA’s busiest time, generally January through May, it’ll cost you more (you generally don’t have a choice in this matter as most banks require you to submit your reviewed or audited financial statements within 90 – 120 days of your year end).

How to Control the Cost

One way to control the cost is to have clean books and records. Make sure, for example, that all your accounts are reconciled. The more comfort your CPA firm has with respect to the accuracy and completeness of your accounting records, they more likely they will reduce their fees because it will take them less time to complete the review or audit.

Need More Help?

Our Audit Assistance service can help you speed through your audit whether its your first audit (or review) or a recurring audit.