Do you have a newly incorporated company, are you contemplating a business sale or considering acquiring new financing? If so, it’s important to know the different types of engagements offered by your accounting firm to ensure you receive the information that will best meet your needs. The engagement report attached to your financial statements tells the user the type of assurance provided on the financial statements.
The three most common engagement report types are:
1)Notice to Reader – This is a compilation of the financial information provided by you. The accounting is not required to be in accordance with Generally Accepted Accounting Principles. No assurance is provided in this report.
Typically, this engagement is for companies with no or little debt, and no immediate plans to change ownership or expand.
2) Review Engagement – This report provides negative assurance, which means that based on the limited procedures performed, there is no reason to believe the financial statements are not in accordance with the applicable accounting standards.
Typically, this engagement is for companies with a moderate level of debt, or that must comply with specific agreements, such as a franchise agreement.
3) Auditor’s Report – Provides an opinion, a higher level of assurance than a review. Requires the auditor to obtain supporting and independent evidence as well as evaluate internal controls.
Typically, Audit engagements are required by a third party, such as a lender, government agency, related companies, or silent partners.
As the owner of the company, you have the option of getting a higher level assurance engagement, even if it is not required. This might be appropriate if you are thinking about obtaining new financing or selling your business.