“Understanding Reviewed Financial Statements: A Brief Overview”

QUESTION

Which of the following best describes a reviewed financial statement? Assembled and presented by the business’s management without review or evaluation by an external CPA Prepared by the business’s management and evaluated by an external CPA, who issues no opinion or assurance of quality or reliability Assembled and audited by an objective CPA, who provides an opinion on the accuracy of the statements Assembled by an external CPA based on information provided by the business’s management; the CPA provides no opinion or assurance of quality or reliability

ANSWER

A reviewed financial statement is a critical document in the world of finance and accounting, as it provides insight into a company’s financial health and performance. Understanding what a reviewed financial statement entails is essential for stakeholders, including investors, creditors, and regulators, as it helps them make informed decisions regarding their involvement with the business.

A reviewed financial statement can be best described as a document that has undergone a specific level of scrutiny and evaluation, typically by an external Certified Public Accountant (CPA), but without the level of assurance provided by an audit. Let’s delve into the options you’ve presented to determine which one best captures the essence of a reviewed financial statement:

Assembled and presented by the business’s management without review or evaluation by an external CPA: This option implies that the financial statement has not received any external scrutiny or evaluation by a CPA. This description aligns more with a “compiled” financial statement, where the CPA’s role is limited to formatting and ensuring mathematical accuracy but does not involve any level of review.

Prepared by the business’s management and evaluated by an external CPA, who issues no opinion or assurance of quality or reliability: This choice closely resembles a reviewed financial statement. In a review engagement, an external CPA performs analytical procedures and inquiries to provide limited assurance that the financial statements are in accordance with generally accepted accounting principles (GAAP) or another applicable financial reporting framework. However, they do not express an opinion on the statements’ quality or reliability.

Assembled and audited by an objective CPA, who provides an opinion on the accuracy of the statements: This description more accurately represents an audited financial statement. In an audit, a CPA conducts an in-depth examination of the financial statements, including testing transactions, assessing internal controls, and obtaining evidence to express an opinion on whether the statements are materially accurate and free from material misstatements.

Assembled by an external CPA based on information provided by the business’s management; the CPA provides no opinion or assurance of quality or reliability: This description is more aligned with a “compiled” financial statement, where the CPA’s role is limited to presenting the financial data in a formal format based on information provided by the company’s management. No review or assurance regarding the statements’ quality or reliability is provided.

In conclusion, a reviewed financial statement is best described as follows: “Prepared by the business’s management and evaluated by an external CPA, who issues no opinion or assurance of quality or reliability.” This description encapsulates the essence of a reviewed financial statement, where an independent CPA performs a review engagement to provide limited assurance on the financial statements’ conformity with accounting standards but does not express an opinion on their quality or reliability.