Financial Statements including Audit and reviews



Financial statements are a formal representation of a company’s financial position. They are essential documents that require aggregating financial information in a standardized and comparable format, so they become meaningful to management, investors, and other stakeholders.

Preparing a financial statement is a straightforward yet painstaking process as one small mistake can alter the output. Therefore, financial statements must be prepared after following careful steps, which include:

Record financial transactions in ledgers (accounts receivable and payable)
Analyze financial information and prepare an unadjusted trial balance
Adjust the entries at the end of the accounting cycle to obtain an adjusted trial balance
Review the information from the corresponding sources and compile it in the form of financial statements to show the liquidity, performance, and cash follow of your business.

The quality of financial statements and, consequently, the quality of financial information affects business decision making, as well as the financial standing of your company. Legislature such as the Sarbanes-Oxley Act have legalized a general shift towards transparency of business information, which means greater accountability for businesses.

To comply with the ever-increasing demand for accountability, the executives of a company must ensure accounting assurance of the highest standards. When managers think assurance, they picturize audit. However, an audit is only one form of assurance. In fact, financial statement assurance is provided at multiple levels.

Here at SDABM, we provide financial reporting at 3 levels of assurance:

Audited Financial Statements

Audited financial statements, as the name implies, are financial statements that have been given an unqualified or qualified opinion by a certified public accountant (CPA). Simply put, audited financial statements are prepared in accordance with generally accepted accounting principals so that they provide comparable, relevant, and reliable financial information.

An audit is the highest level of assurance an accountant provides to confirm the validity, relevance, reliability, and material correctness of financial statements. An audit tells the investors, lenders, and other stakeholders that the financial statements of this company are free from material misstatements.

An audit is unavoidable for certain companies, such as publically traded companies. However, others may need an audit to prove their credibility. You may need audited financial statements in the following cases:

  • If you are a publically traded corporation
  • If you are planning an IPO in the near future.
  • If you want to borrow money from a lender that requires audited financial statements
  • If you receive public funding and want to maintain transparency
  • If you want to reassure your stockholders of material correctness

Reviewed Financial Statements

Reviewed financial statements are the second-tier of financial statement assurance – these statements are prepared in accordance with the financial reporting framework applicable in the company. A CPA conducts a limited investigation and utilizes limited analytical procedures to determine the credibility of the financial information provided in the financial statements.

Reviewed financial statements provide less credibility than audited financial statements because the CPA does not scrutinize the reliability, relevance, and fairness of the information as strictly as in an audit. While audited financial statements reassure stakeholders that the financial statements are free from material misstatements, a review provides limited assurance.

That said, in most cases, a review is sufficient to provide accounting assurance. At SDABM, we look at your business carefully before suggesting review over an audit.

Compiled Financial Statements

Compiled financial statements are statements that are prepared as per the information provided by the client. At our end, the goal is to obtain information from the management to compile the financial information in a form that is in accordance with generally accepted accounting principles. without providing any assurance.

Since the CPA does not verify the financial information, they cannot express an opinion on its material validity. However, sometimes assurance is not required. Some businesses require their information to be presented in a suitable format, so it’s easily understandable for internal and external stakeholders.

If your business wants to prepare financial statements according to the generally accepted accounting principles and doesn’t require any level of assurance, then opting compiled financial statements is the way to go.

Non Profit Audits

Non-Profit Organizations are exempt from tax, and therefore their accounting practices are closely monitored.

Not-for-profit organizations are more vulnerable to costly mistakes because they operate in an ecosystem based on donations and trust. Therefore, it is doubly important for the management of Non-Profits to record their accounting information accurately and maintain financial statements that are compliant with the generally accepted accounting principles.

A Non-Profit organization may need audited financial statements for several reasons. For example, they may receive a government grant which would require them to have audited financial statements. Or they may be required under state law such as California which requires a Non-Profit organization that received over $2,000,000 in grants or donations to have audited financial statements. At SDABM, some of the ways we help our clients stay in compliance of federal and state laws are the following:

  • Preparing the financial statements of non-profit organization in accordance with the generally accepted accounting principles
  • Preparing Audited financial statements and expressing an opinion
  • Separation of federal grant functions
  • Internal and external reporting
  • Determining if there is Unrelated Business Income which requires taxation
  • Determining the fair value of investments and the disclosures of them


An Employee Stock Ownership Plan or ESOP is a tax-qualified retirement plan designed to reward loyal and productive employees by making them beneficial owners of company stock. Essentially, employees become part-owners of the company.

Just like any other qualified retirement plan, ESOPs must also meet numerous legal and accounting standards. ESOPs are scrutinized by the relevant government bodies such as the Internal Revenue Service (IRS) and the Department of Labor (DOL) to ensure compliance.


Commonly, ESOPs are tax-deductible retirement plans – meaning that companies can claim a tax deduction of up to 25%. Therefore, tax authorities monitor ESOPs closely to rule out tax evasion and other fraudulent activities. In addition, these agencies may audit the plan to monitor the transaction and valuation of the stock to make sure that no inappropriate and illegal transactions are being made.


SDABM provides essential accounting and auditing services to companies that are considering ESOPs or those that already have one. We provide comprehensive services that go beyond numbers to consider the unique auditing needs of our client.

  • Our ESOP auditing services include:
  • Ensuring that financial information related to ESOP is in Generally Accepted Accounting Principles (GAAP) format
  • Auditing the financial statements of the ESOP company to ensure compliance with various regulatory bodies.
  • Provide advice to clients on the correct way to record ESOP transactions, including external and internal loans to the ESOP.
  • Advising clients on the tax benefits of ESOPs and how they can legally use these deductions to reduce their corporate income tax.
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