As a private school leader, you are held accountable for exercising fiduciary responsibility and oversight, and one way to do this is by engaging a CPA firm to perform an independent financial audit, review or compilation.
Each of these services entails different procedures and provides different levels of assurance. As each school’s needs and requirements are unique, there is no one size fits all, and it is important to determine the best fit for your school.
An audit provides the highest level of assurance. Audit procedures can include inquiries of management, evaluating internal controls, performing analytical procedures, testing transactions and supporting documentation, as well as confirming certain account balances with third parties.
If the auditor obtains reasonable assurance about whether the financial statements as a whole are free from material misstatement, the auditor will issue an unqualified independent auditor’s report on the school’s financial statements.
If the auditor is unable to render an unqualified opinion due to scope limitations or material departures from accounting principles generally accepted in the United States (GAAP), the auditor may disclaim an opinion on the overall financial statements or issue a qualified or adverse opinion depending on the circumstances.
A review engagement is narrower in scope than an audit and provides limited assurance that there are no material modifications that should be made to the financial statements for them to be in conformity with the financial reporting framework.
A review provides less assurance to the user of the financial statements than an audit and does not require the CPA to obtain an understanding of the school’s internal controls, verify balances with third parties, test accounting records or examine source documents.
A compilation is simply that, a compilation of financial records into a format required by accounting standards. The CPA does not obtain or provide any assurance that there are no material modifications that should be made to the financial statements.
The CPA is not required to obtain an understanding of internal controls or verify the accuracy or completeness of the information provided. The compilation report states that the CPA did not audit or review the financial statements and accordingly does not express an opinion, a conclusion or any assurance on them.
When considering whether to engage a CPA to provide one of these services, it is important to identify the requirements and requests from lenders, Board members, Advisory Councils and others involved in the financial aspects of the school. It is also important to choose a CPA who is knowledgeable and has experience in the education industry.