The most frequent use of a compiled financial statement by a small business is to obtain bank financing or comply with loan covenants. But what is a compiled financial statement and how is it different than an audit?
Difference Between Compiled and Certified Financial Statements
A certified financial statement has been audited or reviewed and certified as materially accurate by an outside accountant (CPA). A compiled financial statement has not been audited or reviewed by a third party, but rather it has been assembled from information provided by the business typically without verification. Small companies often release compiled financial statements to obtain bank financing or comply with loan covenants.
Components of a Financial Statement
A compiled financial statement typically includes a balance sheet, cash flow statement and income statement, but can omit the cash flow statement. The income statement reports the companies revenue or sales, expenses and net profit over a period of time, and the balance sheet reports a business’s assets, liability, and net worth as of specific point in time. The cash flow statement reports the change in a company’s cash over a period of time.
Financial statements are usually compiled on a quarterly and annual basis. Some jurisdictions actually require that financial statements be compiled on a quarterly basis or as needed.