When evaluating financials, which type of statements is it sensible to also require tax returns?

When evaluating financials, which type of statements is it sensible to also require tax returns?

• A. compiled and reviewed
• B. audited
• C. unaudited
• D. none

Answer: (A)

Cross-checking financials with tax returns adds a valuable corroboration. Tax returns reveal what was reported to tax authorities, including income, deductions, and potential liabilities that can differ from GAAP-based figures due to timing differences or tax planning. When the financial statements are only compiled or reviewed, the level of assurance is limited or moderate, so having the tax returns provides an extra checkpoint to verify revenue and expenses before making a leasing decision. Audited statements already come with a higher level of verification, so while tax returns can still be informative, they’re not as necessary for verification purposes. None of the other options offers as practical an added corroboration as pairing tax returns with non-audit financial statements.

Cross-checking financials with tax returns adds a valuable corroboration. Tax returns reveal what was reported to tax authorities, including income, deductions, and potential liabilities that can differ from GAAP-based figures due to timing differences or tax planning. When the financial statements are only compiled or reviewed, the level of assurance is limited or moderate, so having the tax returns provides an extra checkpoint to verify revenue and expenses before making a leasing decision. Audited statements already come with a higher level of verification, so while tax returns can still be informative, they’re not as necessary for verification purposes. None of the other options offers as practical an added corroboration as pairing tax returns with non-audit financial statements.