Frequently Asked Questions
What is an Engagement Letter?
An engagement letter establishes an understanding, in writing, between the client and the accountant regarding the services the CPA will provide. The engagement letter describes, in detail, the services to be performed, the fee, and other terms and conditions of the engagement. It also provides the staff of the accounting firm with a reference to the type of engagement to be performed, the date and period covered by the financial statements, and the nature of the report expected to be prepared.
Return to Top
What is a Representation Letter?
Prior to the CPA issuing reviewed or audited financial statements, he/she will require a representation letter from management of the company, whereby management is asked to acknowledge its primary responsibility for the financial statements. The CPA may also request a representation letter in a compilation engagement. The representation letter serves as a reminder and provides a list of important matters that may affect the financial statements.
Return to Top
Who needs financial statements?
All organizations, whether privately held, publicly owned or nonprofit, prepare reports on their financial performance. Such reports help owners and managers make business decisions, enable creditors to evaluate loan applications, and provide individuals with information to make investment decisions.
Different entities have different accounting needs; therefore, the accounting profession has developed standards that enable CPA's to offer a range of services designed to meet these varying needs.
Financial statements present financial information derived from an entity's accounting records. They are intended to provide information regarding the entity's economic resources and obligations on a specific date, as well as the entity's activities for a period of time. Financial statements are usually prepared in accordance with generally accepted accounting principles (GAAP), which are the standards issued by the American Institute of Certified Public Accountants, but they may also be prepared on other comprehensive basis of accounting, such as cash basis or tax basis, depending on the needs of the users of the financial statements.
Financial statements prepared in accordance with GAAP generally include the following statements:
a. Balance sheet
b. Statement of income
c. Statement of changes in owners' equity
d. Statement of cash flows
e. Notes to the financial statements
CPA's generally offer three levels of service in relation to financial statement preparation and reporting. Each of these services provides a different level of assurance by the CPA to the financial statement users. The three levels of service are compilations, reviews and audits.
Return to Top
What are Compiled Financial Statements?
A compilation is a presentation of financial statements, and other information, that is the representation of the management or owners of a Company. After becoming familiar with the client's industry, and having an understanding of how the client's transactions are recorded, the CPA compiles the information supplied by the client into proper financial statement form.
The CPA reads the financial statements to determine if they appear to be reasonable. If any obvious material errors, omissions or misstatements are noted, the CPA will discuss these items with the Company's management for clarification or adjustment to the statements. The Company's management is responsible for the accuracy and completeness of the financial statements. The CPA issues a report on the financial statement but, because they were not audited or reviewed, no opinion or assurance is expressed on them as to whether material or significant changes are necessary for them to be in conformity with GAAP.
Compilation standards allow the Company's management to omit note disclosures as long as there is no intent to mislead the users. The fact that management has elected to omit the disclosures must be included in the CPA's report in the financial statements. It is our firm's policy to include note disclosures on most year-end compilation financial statements because, we find that note disclosures make the statements more understandable for the users.
A compilation may be sufficient for privately held companies. However, if a company needs to provide some degree of assurance that its financial statements are reliable, it may be necessary to have reviewed financial statements prepared.
Return to Top
What are Reviewed Financial Statements?
A review is more comprehensive than a compilation. The CPA obtains a working knowledge of the entity's industry and acquires information on operations, products, services, etc.
The CPA reviews the information supplied by the client and then makes inquiries relating to accounting policies, record keeping practices, accounting practices, actions of the Board of Directors, and changes in business activities. Analytical procedures are then applied to identify unusual items or trends in the financial statements that may need explanation. If any material errors or misstatements are noted, the CPA will discuss these items with the Company's management for clarification or adjustments to the financial statements.
The Company's management is responsible for the accuracy and completeness of the financial statements. Management will be required to sign a representation letter acknowledging its responsibility regarding the financial statements.
Upon completion of a review, the CPA will issue a report that provides limited assurance that the financial statements are free of material misstatements, but, because the statements were not audited, no opinion on them is expressed.
If further assurance is required, it may be necessary to perform an audit.
Return to Top
What are Audited Financial Statements?
An audit provides the highest level of assurance that financial statements are presented fairly in conformity with generally accepted accounting principles. The client generally prepares the financial statement or provides a trial balance from which the statements are prepared.
The CPA obtains an understanding of the client's business and its industry, and of the client's internal control system. The CPA tests the internal control system to determine whether the system can be relied upon to reasonably prevent errors, fraud or misstatements from occurring.
The CPA will perform various procedures which may include analytical procedures, confirmations of information with third parties, such as banks, customers and creditors, observation of physical inventory counts, inquiry of Company personnel, and other tests and procedures as considered necessary to reduce the risk that the financial statements are materially misstated.
An audit is planned and performed to provide reasonable assurance that the financial statements are free of material misstatement.
If any material errors or obvious misstatements are in the data provided, the CPA will work with the client to clarify the numbers.
Upon completion of the audit, the CPA will issue a report. If there are any items not in accordance with generally accepted accounting principles, the CPA will issue a qualified report describing these departures from GAAP.
Return to Top
What is the current mileage reimbursement rate?
Beginning January 1, 2018 the standard mileage rate for the use of a car,
van, pickup, or panel truck is:
58 cents per mile for business miles driven.
20 cents per mile driven for medical or moving purposes.
14 cents per mile driven in service of charitable organizations
Return to Top
What is the current minimum wage?
Effective January 1, 2019, the Washington State minimum wage is $12.00 an hour.
Return to Top
How long do I keep financial records?
(See Records Retention Schedule as a download)
Return to Top
Can't find it, Ask US.
E-mail your question to us and we will respond to you within 24 hours.
Return to Top
Our favorite Links
The following list is a list of links we think you may find useful:
Center for Int'l Trade in Forest Products (CINTRAFOR) Trade Data
U.S. Small Business Administration
Occupational Safety & Health Administration
Bureau of Labor Statistics
US Census Bureau
National Fraud Info Center
IRS Forms
Social Security Administration
Washington State
Washington State Labor Market Information
Washington Manufacturing Services
Washington State Small Business Development Center
Washington Research Council
Washington State Labor & Industries
Washington State Department of Revenue
Manufacturing Extension Partnership
Return to Top
©Copyright 2000 Preszler, Larner, Mertz, & Co., LLP All Rights Reserved.
|
|
