Introduction
A reviewed financial statement is an important tool for companies to understand their overall financial health. A review of a financial statement provides assurance that the information contained in the statement is accurate and reliable. It is often used by businesses to assess their performance and make decisions about their future operations.
Definition of a Reviewed Financial Statement
A reviewed financial statement is defined as “a financial statement prepared by management and reviewed by an independent accountant to provide limited assurance that no material misstatements exist” (Investopedia, 2020). In other words, it is a set of financial statements that have been examined by an independent third-party accountant to ensure that all figures are accurate. The review process is designed to identify any potential discrepancies or inaccuracies in the financial statements, thus providing users with greater confidence in the accuracy of the data.
Overview of Benefits
The benefits of a reviewed financial statement include:
- Provides assurance that the information contained in the financial statement is true and correct;
- Enables businesses to make informed decisions based on accurate information;
- Provides increased transparency, allowing stakeholders to see the true financial position of the company; and
- Allows companies to meet regulatory requirements and access financing.
According to a survey conducted by the American Institute of Certified Public Accountants (AICPA), 97 percent of investors view a reviewed financial statement as important or very important when evaluating a company’s financial performance (2020).
Exploring the Components of a Reviewed Financial Statement
A reviewed financial statement typically includes four components: balance sheet, income statement, cash flow statement and statement of changes in equity. Each component provides important information about the financial health of the company.
Overview of Contents
The balance sheet provides an overview of a company’s assets, liabilities and shareholders’ equity. The income statement shows the revenues and expenses of the company over a given period of time. The cash flow statement details the inflows and outflows of cash for a given period. Finally, the statement of changes in equity shows any changes in the owners’ equity during the same period.
Explanation of Each Component
The balance sheet is one of the most important components of a reviewed financial statement. It is a snapshot of the company’s assets, liabilities and shareholders’ equity at a single point in time. Assets are items owned by the company that can be converted into cash, such as cash, inventory and accounts receivable. Liabilities are obligations owed by the company, such as accounts payable and loans. Shareholders’ equity is the residual interest in the assets of the company that remains after deducting its liabilities.
The income statement is a summary of the net income or loss of the company over a period of time. It captures the revenues earned by the company and the expenses incurred during the same period. Revenues include sales revenue, interest income and other income. Expenses include cost of goods sold, administrative expenses, interest expense and other expenses.
The cash flow statement shows the sources and uses of cash for a given period. It captures the inflows and outflows of cash during the period, such as operating activities, investing activities and financing activities. Operating activities involve the day-to-day operations of the business and usually consist of cash receipts from customers and payments to suppliers. Investing activities include purchases and sales of long-term assets, such as property, plant and equipment. Financing activities involve the issuance and repayment of debt and the issuance of equity.
Finally, the statement of changes in equity shows the changes in the ownership of the company over a period of time. It captures the increase or decrease in the owners’ equity due to the profits or losses of the company, the issuance of dividends and the contribution of new capital from investors.
Understanding the Difference Between a Reviewed and Audited Financial Statement
It is important to understand the difference between a reviewed and audited financial statement. An audited financial statement is a more comprehensive review of a company’s financial statements than a reviewed financial statement. It involves a more extensive examination of the financial records and requires the auditor to follow generally accepted auditing standards.
Definition of an Audited Financial Statement
An audited financial statement is defined as “a set of financial statements that have been examined by an independent accounting firm to ensure accuracy and compliance with applicable reporting standards” (Investopedia, 2020). The auditor will examine the internal controls and procedures of the company to ensure that the financial statements are presented fairly and accurately.
Differences in Process and Results
The process of preparing a reviewed financial statement is less rigorous than that of an audited financial statement. The accountant performing the review will not examine the internal controls or procedures of the company, but instead will focus primarily on the accuracy of the information presented in the financial statements. As a result, the opinion expressed in a reviewed financial statement is less favorable than that expressed in an audited financial statement.
How to Prepare for a Reviewed Financial Statement
In order to prepare for a reviewed financial statement, it is important to gather all necessary information and documents. This includes financial statements, bank statements, payroll records, invoices, contracts and any other relevant documents. It is also important to understand the objectives of the review, including the scope and purpose of the review, the timeline for completion and the required level of assurance.
The Advantages of Working with an Experienced Accountant for a Reviewed Financial Statement
Working with an experienced accountant can provide many advantages when preparing for a reviewed financial statement. An experienced accountant can help ensure accuracy by reviewing the financial statements and providing advice on any areas of concern. They can also provide valuable insight into potential tax implications of certain transactions, as well as advice on how to improve the financial performance of the company.
In addition, an experienced accountant can provide access to expertise and advice on a variety of topics related to financial statements, such as budgeting, forecasting and financial analysis. This can be invaluable for businesses looking to gain a better understanding of their financial situation.
Tips for Interpreting a Reviewed Financial Statement
When interpreting a reviewed financial statement, it is important to check for consistency. For example, compare the current year’s financial statements to previous years’ statements to look for any discrepancies or changes. It is also important to pay attention to footnotes, which may provide additional information about certain items on the financial statements. Finally, compare the financial statements against industry averages or benchmarks to get a better understanding of the company’s performance.
Conclusion
A reviewed financial statement is an important tool for businesses to understand their financial health. It provides assurance that the information contained in the financial statement is true and correct, enabling businesses to make informed decisions based on accurate information. A reviewed financial statement is less comprehensive than an audited financial statement, but can still provide useful information for stakeholders. When preparing for a reviewed financial statement, it is important to gather the necessary information and documents, as well as understand the objectives of the review. It is also beneficial to work with an experienced accountant who can provide access to expertise and advice. Finally, when interpreting a reviewed financial statement, it is important to check for consistency, pay attention to footnotes, and compare against previous statements or industry averages.
Overall, a reviewed financial statement can provide valuable insights into a company’s financial performance, allowing businesses to make informed decisions based on accurate information. It is an important tool for assessing a company’s financial health and should be taken seriously.
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