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Should you pay accountants to compile, review or audit your financial statements?

For many businesses, for example government agencies or lending companies, it is vital to obtain fully audited accounts. But for most other businesses, it is a matter of judgement.

The issue really comes down to the quality of financial statements sought. Company-prepared financial statements are put together internally, without any organisation, review or validation by external, chartered accountants. Chartered accountants may have provided their services to set up the accounting system and book keeping methods, in accordance with generally accepted accounting principles (GAAP), but, from an investor or creditor point of view, there has been no qualified independent reviewer examining the books, and so no way of knowing how they were prepared, or how accurate they are.

Complied financial statements offer a little more in terms of quality. An accountant will have used company-prepared statements and organised them according to GAAP. Again, there is the similar issue that while these financial statements may look more professional, the information is again unverified at source.

Reviewed financial statements have been reviewed by accountants, though the review would be limited, and not as thorough as a full audit. Reviewed statements include a letter from the reviewer, explaining the scope of the review, any deviations from GAAP, and an opinion provided by the reviewer about the statements.

Audited financial statements are the most in-depth and trustworthy form of statements. They have been subjected to review and examination from a qualified third party, and will come with a letter from the auditor, concluding how accurate an opinion the auditor was able to form regarding the fairness of the statements. An ‘unqualified opinion’ shows the accountant had no concerns about accuracy, and this is the highest level of assurance an investor may seek on the quality of the company’s financial records. The audit firm can also advise management on how to improve accounting methods for future company audits, if necessary.

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