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Association Financial Management

"Choosing the Right Audit"
By Murray Greenberg, CPA, CVA

Every non-profit organization should perform a year-end audit, but determining which one is right for you can be a little tricky. First you must understand the difference between the three levels of financial statements; Compilation, Review and Audit in order to make an educated decision as to which one is right for your particular organization.


A compilation engagement is the preparation of financial statements based on information provided by the entity's management. A compilation is useful when limited, in-house capabilities for preparing financial statements exist.

The most significant advantage of a compiled financial statement is that it allows an accountant to render assistance with financial statements at reduced cost to a client by limiting the CPAs efforts to the mechanics of putting information in the form of the financial statements. A CPA does not have to be independent from the client to issue compiled financial statements; however, if the CPA is not independent that fact has to be disclosed in the CPA's compilation report. Further, the CPA has the option, but is not required, to disclose the reasons for independence impairment in the compilation report. If the accountant decides to disclose the reasons for independence impairment, all reasons must be disclosed.

A CPA's understanding of the accounting principles and practices used in the client's industry should be sufficient to enable compilation of the financial statements in the appropriate form.


A review engagement entails applying inquiry and analytical procedures to the financial statements. A review engagement requires the accumulation of review evidence that will provide the CPA with a reasonable basis for obtaining limited assurance that no material modifications need to be made to the financial statements.

The most significant difference between a compilation engagement and a review engagement is that inquiry and analytical procedures must be performed and properly documented before the CPA can express limited assurance on the financial statements. In addition, an accountant must be independent of the client for review engagements.

A review engagement requires a CPA to develop and perform analytical and inquiry procedures tailored to a client's specific industry, including the accounting principles and practices unique to such industry, and an awareness of the risk of material misstatement of the financial statements. The CPA should also have a general understanding of the client's operating characteristics and the nature of its assets, liabilities, revenues, and expenses. A CPA is not obligated to obtain an understanding of the client's internal control structure.


An audit engagement entails confirmation with outside parties, observation of inventories, and testing selected transactions by examining supporting documents. An audit opinion represents the highest level of assurance that the financial statements fairly represent the entity's financial position and results of operation in accordance with generally accepted accounting principles (GAAP). However, the auditor can only obtain reasonable, rather than absolute, assurance that a client's financial statements are fairly presented in all material respects.

Auditors must comply with AICPA's Code of Professional Conduct, which requires adherence to the Statements on Auditing Standards. The auditor must exercise professional judgment and due care in the selection and application of auditing procedures.

Audit engagements necessitate that auditors obtain a thorough understanding of the client's business and the industry in which it operates. The auditor must obtain an in-depth understanding of the client's internal controls, which are often documented in the form of questionnaires, flowcharts, or narratives, and assess the risk of fraud relating to the financial statements.

When choosing your accountant it is important that you feel comfortable working with him/her. It is important that the firm understands the laws and abides by generally accepted accounting principles and by generally accepted auditing standards.

Murray Greenberg is a Partner at Robin Kramer & Green, LLP. At RKG, he oversees audits and the preparation of financial statements and tax returns for both profit and non-profit organizations. Mr. Greenberg is a member of the Management Consulting Services Section of the American Institute of CPAs, the Pennsylvania Institute of CPAs, and the Florida Institute of CPAs. He is also a member of the National Association of Certified Valuation Analysts, the Construction Financial Management Association, the American Society of Association Executives and the Mid-Atlantic Society of Association Executives. Murray can be contacted at mgreenberg@rkgcpa.com.