What is the difference between an accountant and a Certified Public Accountant (CPA)? An accountant usually majors in accounting in college. In order to become a Certified Public Accountant, the accountant needs to work for an accounting firm for a few years, acquire five hundred hours of auditing time, and pass a test from the American Institute of Certified Public Accountants as well as from their state. A CPA also must take 120 hours of continuing education courses every three years to maintain their license.
Only a Certified Public Accountant (CPA) can prepare audited financial statements on behalf of a business or non-profit organization. Audited financial statements are used to provide financial credibility, accountability and accuracy for a business. These audited financial statements help provide a basis for various business decisions to be made within and regarding a company. The purpose of audited financial statements is to provide interested parties The CPA will certify with a reasonable assurance that the company’s financial statements are free of material misstatements or false/missing information and meet the requirements of the US GAAP (Generally Accepted Accounting Principles).
A CPA can also prepare a reviewed financial statement. A reviewed financial statement is less involved and complex then an audited financial statement, though some testing is performed to verify information found in the financial statements. A report is created by the CPA which describes findings and limitations of the review. The only financial statement that a non-certified accountant can prepare is a compiled financial statement. A report is issued with the complied financial statement which indicates no audited or review methods were used, and the financial statements were compiled using only information provided by the business.
Audited financial statements are the most professional and accepted method to report financial accountability and accuracy to a company’s shareholders, bankers, creditors, government, and any other people with interest in the company.
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Neil Rischall is the CPA behind the CPABookkeepers site which has a wealth of information about audited financial statements as well as all services provided by a Certified Public Accountant.
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Internally-prepared, compiled, reviewed and audited are descriptions as to how financial statements were prepared and by whom.
In order from least formal (least reliable) to most:
1) Internally-prepared means just that. A company employee prepared the statements without audit or the advice of a public accountant.
2) Compiled – The company brings business records to an accountant who prepares the financial statements. The accountant does not test for accuracy of the records or guarantee proper accounting methods.
3) Reviewed – A public accountant performs some testing to ensure that financial statements are accurate and that proper accounting standards are followed.
4) Audited – This is the most formal and rigorous of the four methods. A public accountant issues a letter saying that the financial statements are accurate and that proper accounting policies and procedures are in place.
I am not exactly sure of the specific differences in the level of review and testing for reviewed and audited statements.
Of course, sometimes audited financial statements turn out to be unreliable.
Hope this helps.