Credibility Is Key
Users of business information rely on companies to communicate relevant financial and nonfinancial information. While entities regularly provide such information to influence decisions, it is not enough merely to provide information; decision-makers using that information must have confidence that it is reliable.
Uncertainty can be reduced by having a CPA firm provide a service to enhance the degree of decision-maker confidence in the information, that is, an assurance service. When we perform assurance services, we perform procedures designed to probe the credibility of your information and report on the results. We offer a range of assurance services that can be provided to enhance confidence in your information. The level of assurance needed is based on your objectives and generally is determined by the importance of the information, risk that the information is misstated, and confidence desired when considering the cost and effort required to achieve it.
Quick Jump:
Audit
An audit is the highest level of assurance service that a CPA performs and is intended to provide a user comfort on the accuracy of the financial statements. The CPA performs procedures to obtain “reasonable assurance” (defined as a high but not absolute level of assurance) about whether the financial statements are free from material misstatement.
When we perform an audit, we are required to obtain an understanding of your business’s internal control and assess fraud risk. We are also required to verify the amounts and disclosures included in your financial statements by obtaining audit evidence through inquiry, physical inspection, observation, third-party confirmations, examination, analytical procedures, and other procedures.
When performing an audit engagement, we are required to be independent based on our professional standards or will not be able to perform an audit engagement.
As part of an audit of your financial statements, we will issue a formal report that expresses an opinion on whether the financial statements are presented fairly, in all material aspects, in accordance with the applicable financial reporting framework. We are required to report to you any significant or material weaknesses in your system of internal control that were identified during the audit. By making you aware of internal control weaknesses, you might be able to improve the way you do business.
As the highest level of assurance, an audit typically is appropriate and often required when you’re seeking complex or high levels of financing and credit. An audit also is appropriate if you’re seeking outside investors or preparing to sell or merge with another business.
Review
A review is a service in which a CPA performs analytical procedures, inquiries, and other procedures to obtain “limited assurance” on the financial statements and is intended to provide a user with a level of comfort on their accuracy.
Like an audit, we are required to determine whether we’re independent in accordance with our professional standards or will not be able to perform a review engagement.
We are required to understand the industry in which you operate — including the accounting principles and practices generally used in your industry when we perform a review of your financial statements. We are also required to obtain knowledge about you — including your business and the accounting principles and practices that you use — sufficient to identify areas in the financial statements where it is more likely that material misstatements may arise.
The procedures performed in a review are substantially narrower in scope than an audit. As part of a review, we are not required to contemplate obtaining an understanding of your business’s internal control; assess fraud risk; test accounting records through inspection, observation, outside confirmation or the examination of source documents or other procedures we would ordinarily perform in an audit.
We will issue a formal report that includes a conclusion as to whether, based on the review, we are 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.
Compilation
Compilation of financial statements is a service performed by a CPA where the involvement of professional is more apparent to a third-party user. As such, the CPA issues a compilation report that is included with the financial statements. When performing a compilation, the CPA does not have to be independent of the Company. If the CPA is not considered independent from ownership, management, or due to other circumstances, then the firm is required by professional standards to disclose the that they are not independent in the CPA's compilation report.
When we perform a compilation engagement, we are required to read the financial statements considering the financial reporting framework being used and consider whether the financial statements appear appropriate in form and are free from obvious material misstatements
However, we are not required to obtain any assurance for a compilation because we are not obligated to verify the accuracy or completeness of the information provided or otherwise gather evidence for the purposes of expressing an audit opinion or a review conclusion.
Our compilation report will include language that we did not audit or review the financial statements and accordingly do not express an opinion, a conclusion or provide any assurance on them.
A compilation is typically appropriate when initial or lower amounts of financing or credit are sought or there is significant collateral in place. Though no assurance is provided, outside parties may appreciate your association with a CPA, which is readily apparent in the formal compilation report.
Financial Statement Preparation
If you decide to have Maggart prepare your financial statements, we can do so in any frequency that is most useful for you. Typically, this service is performed in conjunction with bookkeeping or transaction processing services and can be monthly, quarterly, or annually. The financial statements are prepared in accordance with an acceptable financial reporting framework. If you’re not sure which reporting framework to use, we can help explain the pros and cons of each and the best fit for your business.
The financial statement preparation service is primarily intended for your own use to have current information on the financial standing of your business and to make decisions accordingly. In essence this service is no different from what an in-house controller or CFO would provide to management in a larger company.
You can share your financial statements with outside parties but on each page, a notice will be included that reads “no assurance is provided” on the financial statements. Because we will prepare your financial statements directly from the records you provide, we will not verify the accuracy or completeness of the information and are not required to issue a formal report on the financial statements.
Attestation Engagements
In an audit, review or examination, the CPA's report provides an opinion or conclusion on a subject, but an attestation report provides impartial facts.
When we perform an attestation engagement, we leverage our industry expertise, business acumen, and accounting skills to help you gain comfort, on certain types of transactions, internal control processes, financial information, and non-financial information.
Examinations
Examinations are the highest level of an attestation service. It is analogous to an audit of historical financial statements as it provides the same level of assurance as an audit and involves substantial evidence gathering. The risk of undetected material misstatement is required to be reduced to a low level by the CPA through procedures. As a result of the examination, the CPA provides an opinion about the conformity of the subject matter with the criteria.
Attestation Review
An attestation review, like a review of historical financial statements under SSARS, provides limited assurance. It allows a higher risk of undetected material misstatement than does an examination and primarily involves inquiries and analytical procedures. The review report provides negative assurance, that is, it says that nothing caused the practitioner to believe the subject matter did not conform to the presentation criteria.
Agreed-Upon Procedures
Agreed-Upon Procedures (AUP) engagements are designed by a company and appropriate third-party user(s) that specify the procedures they request the CPA firm to perform based on certain objectives. The parties understand the objectives and instruct the CPA to perform similar procedures to, but not limited to, those performed in an audit or review against a criteria or framework. The CPA then provides a report restricted to the intended users that lists the procedures performed and related results.
Employee Benefit Plan Audits
Once the number of eligible participants of your Employee Benefit Plan (“EBP”) exceeds a certain threshold, the United States Department of Labor (“DOL”) requires that you receive an annual audit of your EBP by a CPA. There are exceptions to the timing of the audit requirement if your plan qualifies.
CPA firms performing EBP audits must maintain the highest level of competence and skill due to the level of complexity associated with an EBP audit. Our team complies with Internal Revenue Code (IRS) and DOL standards and receives specialized training and designations to perform these compliance and regulatory-heavy audits.
EBP audits are intended to reveal areas needing improvement or of concern in the management of your company’s EBP funds and typically include procedures relating to:
- Employee and employer contributions into the EBP
- Loans and distributions taken out of the EBP
- Internal controls around the accuracy and completeness of participant accounts
Audits are typically due with annual tax returns seven months after the company’s year-end with the option to extend the filing deadline for two and a half months. Significant penalties can be assessed to companies for failing to timely obtain an audit.
The primary objective for companies to obtain an EBP audit is to avoid penalties. However, as with most audits, there are value adding opportunities. Our EBP audit services provide a health check for your plan. Some aspects of Plan activities that we verify include:
- Contributions are remitted timely to the Plan, in accordance with the DOL regulations, avoiding late contributions and lost earnings calculations
- Opportunities to make EBP management more efficient
- Participant accounts are complete and accurate
- Compliance with DOL and ERISA rules and regulations
- Compliance by EBP sponsor with their required fiduciary duties
HUD Audits
The U.S. Department of Housing and Urban Development (“HUD”) requires audits of entities participating in various HUD programs. Some of the more common program-specific audits required by HUD include:
- Multifamily housing programs
- Ginnie Mae programs
- FHA-approved lenders
Audit requirements continually change, so it can be confusing to understand if you need a HUD audit. Failure to comply with HUD can mean big penalties, increased overhead, and even disqualification from HUD programs.
HUD audits are unique and complex and require certain specific disclosures. Not every CPA can audit HUD programs. Our team receives ongoing education and training to stay informed on new standards and regulations that affect you and your business to ensure you get the highest quality of service. Our firm's expertise in performing HUD audits allows us to serve as trusted experts and help you navigate the details.
SEC Services
Maggart is a PCAOB registered firm. Our team receives ongoing education and training to stay informed of the most recent SEC accounting and reporting issues. Our professionals are prepared to meet your assurance needs in addition to offering specialized advisory services. We pride ourselves on having the necessary skills, knowledge, and expertise to provide solutions typically offered by larger firms while providing personalized and responsive service you expect to receive at a local firm. Our most common SEC services include:
- Financial statement audits in accordance with PCAOB standards.
- Internal control audits meeting Sarbanes-Oxley (“SOX”) Section 404 guidelines
- SOX implementation and compliance testing
- Tax compliance and tax advisory services
- Agreed-upon procedures and other attest work
- Due diligence services
- Technical accounting consulting
- Assistance with SEC filings such as 10-Q, 10-K, S-1, etc.