What Services Do I Need From My CPA?
A Certified Public Accountant (CPA) is a person with accounting degree that holds a professional license to issue an report on a company’s financial statements following generally accepted accounting principles (GAAP). An accountant is a person with an associate or bachelor’s degree in Accounting who has responsibilities for the financial management of a company such as recording transactions, collecting and making payments, preparing a budget, managing payroll, and preparing and analyzing financial reports.
A CPA can typically perform any function handled by an accountant. However, they are also required to comply with professional standards, follow a code of ethics, and complete continuing education requirements to maintain their ability to practice as a CPA.
The major difference between a CPA and an accountant are the services provided on financial statements. There are four types of services: preparation, compilation, review, and audit. Each type of service on financial statements represents a difference in the scope of the work performed by the CPA primarily on whether assurance is provided on the information presented in the financial statements and whether an auditor’s report is required. All services, except preparation, require an auditor’s report, which describes the scope of work performed and the level of assurance provided. While an accountant can prepare financial statements, only a CPA can perform compilation, review, and audit services. Below is a brief description of what each service entails.
Preparation services require no verification of auditor independence. Auditor independence is a professional standard that requires an auditor to perform his or her work free from outside influences that may have a financial interest in the business being audited. When a CPA performs preparation services, he or she takes the client information and puts it in the financial statement format without providing any assurance on the accuracy and completeness of the information. Prepared financial statements do not require any type of opinion or auditor’s report. As a result, it has the lowest form of reliability of the different services on financial statements that can be provided by a CPA.
Compilation services require the CPA to evaluate and disclose his or her independence with regards to the entity being audited. The CPA must also evaluate the financial statements for obvious material misstatements as well to prepare a compilation report. The CPA is required to associate his or her name to the financial statements in the report, but does not provide an opinion.
Review services require the CPA to analyze the information provided by the client and enquire about any unusual trends. There is no independent verification of the detailed accounting transactions. However, the CPA does provide limited assurance on the financial statements.
Audit services provide an independent verification of the information presented in the financial statement. The goal of an audit is to allow the CPA to render an opinion on the fairness of the financial statements presented. This service provides the highest level of reliability and assurance.
When you hire a CPA to issue a report on your financial statements, it is important to identify what type of service you will require. Who is the user of this report? What is its purpose? What type of report does this user require? If you plan to use the report for multiple users, you should ensure that it meets the requirements of each user.
The purpose of the report will determine the type of service that you need from your CPA. Each service offers a different level of reliability and assurance and therefore, has a different cost. The size of your business and the state of your company’s financial records are key factors that will affect the cost of these services. It is important to highlight that if your CPA currently performs bookkeeping services for your company, he or she is not independent, and therefore, cannot provide review or audit services for your business. Tax preparation services do not affect auditor independence.
Most organizations at some point will require the services of a CPA to meet the requests of bankers, investors, funders, or government agencies. During the hiring process, be sure to ask for the right type of service from your CPA and don’t forget to verify that he or she has an active license to practice in your country or state.
To learn more about the services on financial statements provided by a CPA, see our training module The Auditor’s Report or visit the OBALearn web site. You can also follow OBALearn on Facebook, Twitter, and LinkedIn.