Do you have a newly incorporated company, are you contemplating a business sale or considering obtaining 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 provided by your accountant tells the user what level of assurance is provided on the financial statements.
The three most common engagement report types are:
1) Compilation – This engagement gathers financial information from you and reports it in a balance sheet and income statement format. There is no assurance provided with this report, as it is only a summary of the financial information provided.
Typically, this engagement is appropriate for companies who do not need to send the financial information to a third party, or if provided to a third party, those parties should be able to request additional information if needed.
2) Review Engagement – This report provides limited assurance as to whether there are any reasons to believe the financial statements are not in accordance with the applicable accounting standards. In this engagement, the accountant will perform analytical procedures, make enquiries and discuss the financial statements with you.
Typically, this engagement is appropriate for companies who are required to provide this report to third party users or to comply with specific agreements, such as a loan or franchise agreement.
3) Auditor’s Report – This report provides an assurance opinion as to whether the financial statements are fairly presented, in all material respects. This is the highest level of assurance an accountant can provide. In this engagement, the accountant will be required to gather information and perform testing to gain assurance over the financial statements.
Typically, audit engagements are required by a third party, such as a lender, government agency, grant providers or silent partners.
As the owner of the company, you have the option of obtaining a higher level assurance engagement, even if it is not required. If you have more specific reporting needs, your accountant can assist in determining whether a special engagement would be appropriate to meet your needs.