Which is the lowest level of financial statement preparation?

Which is the lowest level of financial statement preparation?

• A. Forecast
• B. Compilation
• C. Reviewed
• D. Audit

Answer: (B)

Levels of assurance on financial statements determine how much verification and confidence the CPA provides. In a compilation, the CPA uses information supplied by management to present the financial statements, with no procedures to verify accuracy or completeness, and no opinion or assurance is expressed. That lack of verification and endorsement makes this the lowest level of financial statement preparation. A review goes a step further, with inquiries and analytical procedures that provide limited, negative assurance—that nothing has come to attention suggesting material misstatement. An audit provides the highest level among these, with extensive evidence gathering and testing to offer reasonable assurance and to express an opinion on the financial statements. Forecasts or projections aren’t financial statements and aren’t attestation services, so they aren’t comparable to the levels of assurance described here.

Levels of assurance on financial statements determine how much verification and confidence the CPA provides. In a compilation, the CPA uses information supplied by management to present the financial statements, with no procedures to verify accuracy or completeness, and no opinion or assurance is expressed. That lack of verification and endorsement makes this the lowest level of financial statement preparation. A review goes a step further, with inquiries and analytical procedures that provide limited, negative assurance—that nothing has come to attention suggesting material misstatement. An audit provides the highest level among these, with extensive evidence gathering and testing to offer reasonable assurance and to express an opinion on the financial statements. Forecasts or projections aren’t financial statements and aren’t attestation services, so they aren’t comparable to the levels of assurance described here.