Frequently Asked Questions
What is the difference between an audit, a review and a compilation?
Compilation: For a compilation, the CPA prepares (or compiles) the Association’s financial statements without providing any assurance as to whether the statements are reasonably stated or whether the statements are prepared in accordance with Generally Accepted Accounting Standards (GAAP). Essentially, the CPA will ensure the financial statements do not have any obvious material error, however the CPA will not grant any assurance as to their completeness or accuracy.
Review: For a review, the CPA uses inquiry and analytical procedures in order to evaluate account balances. Inquiry (asking questions of management) is used to develop an understanding of the association and its accounting procedures. Analytical procedures are used for the CPA to gain an understanding of any unusual items or occurrences and to get comfortable with the account balances as well as any significant variations between the account balances and expected amounts, usually based upon prior period and budgeted amounts. A review will give what is call “negative assurance” that the financial statements are free from material misstatement, meaning that in a clean opinion, the CPA will indicate that nothing came to his/her attention to indicate the financial statements are in error in a material way. A review is more in-depth than a compilation, yet does not involve the use of audit procedures. Since review procedures are more in-depth and require more time than compilations, fees will be higher than those of compilations.
Audit: An audit provides the greatest level of assurance of these three CPA service options. Audit procedures are in-depth and involve the testing of source documents including, but not limited to, third party confirmations, invoices, cancelled checks and account reconciliations. The CPA accumulates and evaluates such data as a way of supporting his/her opinion as to whether the financial statements are free from material misstatement. Unlike a compilation or a review, a CPA grants an opinion upon the conclusion of the audit as to whether the financial statements are free from material misstatement (positive assurance). Because of the extensive nature of the procedures performed and the time necessary for the CPA to grant an opinion, an audit is usually significantly more expensive than a review or compilation.
What documents are required for the completion of an association federal tax return?
In order to complete a standard Form 1120-H association federal tax return, the following is required:
Compilation: For a compilation, the CPA prepares (or compiles) the Association’s financial statements without providing any assurance as to whether the statements are reasonably stated or whether the statements are prepared in accordance with Generally Accepted Accounting Standards (GAAP). Essentially, the CPA will ensure the financial statements do not have any obvious material error, however the CPA will not grant any assurance as to their completeness or accuracy.
Review: For a review, the CPA uses inquiry and analytical procedures in order to evaluate account balances. Inquiry (asking questions of management) is used to develop an understanding of the association and its accounting procedures. Analytical procedures are used for the CPA to gain an understanding of any unusual items or occurrences and to get comfortable with the account balances as well as any significant variations between the account balances and expected amounts, usually based upon prior period and budgeted amounts. A review will give what is call “negative assurance” that the financial statements are free from material misstatement, meaning that in a clean opinion, the CPA will indicate that nothing came to his/her attention to indicate the financial statements are in error in a material way. A review is more in-depth than a compilation, yet does not involve the use of audit procedures. Since review procedures are more in-depth and require more time than compilations, fees will be higher than those of compilations.
Audit: An audit provides the greatest level of assurance of these three CPA service options. Audit procedures are in-depth and involve the testing of source documents including, but not limited to, third party confirmations, invoices, cancelled checks and account reconciliations. The CPA accumulates and evaluates such data as a way of supporting his/her opinion as to whether the financial statements are free from material misstatement. Unlike a compilation or a review, a CPA grants an opinion upon the conclusion of the audit as to whether the financial statements are free from material misstatement (positive assurance). Because of the extensive nature of the procedures performed and the time necessary for the CPA to grant an opinion, an audit is usually significantly more expensive than a review or compilation.
What documents are required for the completion of an association federal tax return?
In order to complete a standard Form 1120-H association federal tax return, the following is required:
- Association's tax ID number (if the association doesn't have one, we can assist in obtaining one)
- Association's year end profit & loss statement