Levels of Accountant$-$Prepared Financial Statements and Sample Cover Letters

Accountant$-$Prepared Statements Exercise $($Time Permitting$)$

In assigned or small groups, review the following pages and complete the two charts below.

Unaudited statements $($example cover letters on pages $37-41)$

$\backslash$table$[[$Type$,$Features,Reliability$],[p^3,\backslash$table$[[$Less in scope than an audit and provides only$],[$limited assurance that the statement is prepared in$],[$accordance with GAAP. Some are expanded to$],[$include specially$-$requested tests of receivables$],[$and$/$or inventory$]],\backslash$table$[[$May be reliable for some$],[$analysis situations, but not$],[$as reliable as an audit.$],[$Popular service due to$],[$lower cost vs$.$ audit$]]],[,\backslash$table$[[$Contains few or no disclosures of accounting$],[$methods$,$ except if any departures from GAAP$],[$observed$.$ Usually excludes footnotes and$],[$statement of cash flows$]],\backslash$table$[[$Much less reliability of data$],[$because of lack of$],[$independent testing and$],[$verification$]]],[,\backslash$table$[[$Very similar to a compilation, but usually no report$],[$from CPA and no notation of non$-$independence$]]],[,\backslash$table$[[$Prepared internally by business employee$($s$),$ so$],[$key issue is accounting experience and$],[$knowledge of the person responsible, plus$],[$knowing the method of accounting $($cash or accrual$)],[$used$,$ plus revenue recognition practices, etc. $($see$],[$page $10)]],\backslash$table$[[$Least assurance due to$],[$lack of independent testing$],[$and verification, plus$],[$possible inconsistencies$],[$and departures from GAAP$]]],[,\backslash$table$[[$Revenues and expenses recognized using IRS$],[$rules$,$ and frequently on cash basis$]],\backslash$table$[[$Similar to company$],[$prepared$,$ even if tax return$],[$prepared by accountant$]]]]$

ntial answers: $[$accountant$]$ prepared, company prepared, compiled, income tax basis, reviewed