Year End Engagements and Why They Matter
At the end of the year businesses are required to provide year-end engagements. Here are 3 types of year-end engagements: audit, review, and compilations.
The type of year-end engagement that you should use will oftentimes be chosen by a third-party and will depend on what type of business, corporation, non-profit, association etc that your business is filed under for taxing purposes and legal proceedings. Let’s take a look at the specifics of each one of the three different year-end engagements and what makes them different from one another.
These are the most informal of the year-end engagements. Unlike reviews and audits, compilations are not bound by any disclosure or presentation requirements. These year-end engagements are generally only used when the owner and the taxing authority are going to be the only readers. These engagements merely compile the finances of a business and put them into the format of a financial statement. No other work is going to be done on these types of engagements unless there is clearly some sort of fraud or illegal activity apparent in the statements.
If compilations are the most informal of the engagements then audits are the most formal and stringent of the year-end engagements. All of the financial documents and statements provided are gone over with a fine tooth comb to find any inconsistency or area that could be at risk for inconsistency or illegal or evasive activity. The areas of the finances that are the weakest, as determined by the auditor, are examined at an even higher level of scrutiny and detail than the rest of the statements and documentation. This type of year-end engagement puts a business’ financial reporting practices to the test. These engagements are usually done when there is money lending and the lender wants to see an audit, the government requires it because of the amounts of money earned, shareholders want one done, or if a business simply wants to hold itself to the highest possible standards of financial reporting and do annual audits.
This is still a formal overview of finances and requires general financial and reporting practices to be followed, but it is not as stringent or through as an audit. Reviews seek to catch the big problems with finances that could lead to trouble down the road. They are not concerned with catching and correcting every little financial reporting error or mistake, but rather just making sure that the big financial picture and company standing are solid and sound for investors, lenders, and multiple owners.
Please feel free to contact us to learn more about year-end engagements and why they are so important.