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THREE QUALITIES There are three ?qualities? of nancial statements: Com- piled, Reviewed and Audited. Different factors dictate which level of quality is necessary as a reliable reporting tool. Client, lender or investor need, company size, rev- enue or type (the SEC requires that all public companies provide audited statements) all contributes to the level of quality required. Compiled statements require the accountant to have a working knowledge of the company and will draw the -nancial information for the statement from a general led- ger. Documentation of entries is not speci cally required and thus there is ?no assurance? that the statements con- form to generally accepted accounting principles. Reviewed statements offer ?limited assurance? inasmuch as the accountant performs inquiry and analysis of the en- tries. Assurance is provided that conformity to generally accepted accounting principles has been demonstrated.Audited statements are the highest level of assurance providing all the steps performed in compilation and re- view plus veri cation of the entries in the statements. This is an extensive process which, in addition, is expensive. However, to a lender or investor, the high quality of the nancial statements provided by the Certi ed Public Ac- countant is invaluable. From these statements, lenders and investors derive ?key? nancial ratios from the information being reported to determine the value and credit worthi- ness of the company. Sarbanes-Oxley does not require compliance by pri- vate companies with two exceptions: it is illegal to destroy documents to prevent use in a legal action and it protects whistle-blowers from company retaliation. That said, some best practices of SOX are being adapted by non-public companies with inherent bene ts: Creation of a code of ethics which informs employees and ownership alike of what behavior is and is not acceptable. An independent audit committee created and comprised partially of outside directors or those with nancial expertise which may increase the value of lower quality statements. Assumption of personal responsibility by top management for nancial reporting increases assurance to lenders and investors. A company that might be nearing an IPO or possible ac-quisition by a public entity may be more valuable because of selected SOX implementation. There is no doubt that more state and federal government regulation is headed towards both public and private businesses. Consult with your accountant or other legal or nancial professional to discuss how this may impact your company. FINANCECOLUMNRichard Paine is the National Fi- nance Manager, Commercial Ma- rine Group for TCF Equipment Finance, Inc. He can be reached at 516-431-9285 or rpaine@tcfef.com. 30 MNMarch 2013 MN March2013 Layout 18-31.indd 30MN March2013 Layout 18-31.indd 303/1/2013 11:15:43 AM3/1/2013 11:15:43 AM
