Does Your Winery Need Audited Financial Statements?
As a winery owner, you may have heard different terms thrown around when it comes to financial statements—audited, reviewed, compiled, prepared—but knowing which one you need and when can feel confusing. Whether you’re applying for a loan, seeking investors, or just want a clearer understanding of your finances, it’s helpful to know the differences between these.
At our firm, we specialize in prepared financial statements, and we’ll explain why. But to start, let’s walk you through each type so you can make the right choice for your winery.
Audited Financial Statements
Audited financial statements are the most comprehensive and offer the highest level of assurance. In an audit, the auditor thoroughly examines your financial records, tests transactions, and reviews the effectiveness of internal controls. Upon completion of the audit, the auditor will issue an opinion, which will accompany the financial statements. A clean “unqualified” opinion is the most desirable. When a clean opinion is issued, it means that the auditor provides reasonable assurance that the financial statements are free from material misstatement.
Because audits involve detailed testing, they are also the most time-consuming and expensive option. However, they give third parties—such as investors, banks, or regulators—the highest level of confidence in your financials.
When might your winery need audited financial statements?
Audits are typically required when large loans, major investors, or regulatory bodies are involved. Sometimes, a lender may ask for audited financials when a business is seeking significant capital. But here's the thing: many times, after some discussion, a lender may accept a lower level of assurance—like reviewed or even prepared financial statements. It’s always worth exploring whether an audit is truly necessary.
Reviewed and Compiled Financial Statements
Reviewed and compiled financial statements provide less assurance when compared to an audit. So, both are less extensive than an audit but still more formal than prepared financials.
In a review, the accountant performs some analytical procedures and makes inquiries of management to offer limited assurance that there are no material modifications that need to be made to the financial statements. A review is less thorough than an audit but more in-depth than a compilation.
In a compilation, the accountant simply organizes your financial data into a financial statement that conforms to Generally Accepted Accounting Principles (GAAP). The accountant does not perform any analysis or inquiries that would allow them to provide an opinion on the accuracy of the financial statements. So, there is no assurance provided in a compilation engagement. There’s no verification or testing of the numbers—it’s simply arranging the data into proper financial form.
When might your winery need reviewed or compiled financial statements?
If you’re applying for a smaller loan or dealing with certain investors, they might ask for reviewed or compiled financial statements. These options provide more formality than prepared statements, without the deep dive of an audit. Many times, though, lenders may not understand the difference between a compilation, a review, or a prepared statement. If your lender requests a compilation or review, it’s worth having a conversation to see if prepared financial statements will suffice.
The issue of independence
The accountant who performs audits or reviews for a client must be independent of the client. In a compilation engagement, independence is not required. However, the accountant does have to disclose if they are not independent. Since our firm handles the bookkeeping for our clients, we are not considered independent of your business and therefore cannot provide audited or reviewed financial statements.
Additionally, while we have CPAs on our team, we are not a registered CPA firm. This means we don’t go through the peer-review process that allows firms to offer these services.
All that said, we are happy to refer you to a trusted CPA firm that can help with these services if needed.
Prepared Financial Statements
In 2014, the accounting landscape shifted when the AICPA introduced prepared financial statements as a distinct service (Statement on Standards for Accounting and Review Services (SSARS) No. 21).
Prior to this issuance, CPAs offered only three levels of service: audits, reviews, and compilations. There was no framework for simply "preparing" financial statements.
The creation of the preparation engagement simplified the process for clients who need formal financial statements but don’t require the added cost or complexity of an audit, review or compilation. This change has been especially beneficial for small businesses, allowing them to obtain professionally formatted financials without the need for assurance and with no requirement for the accountant to be independent.
Prepared statements also offered flexibility in the financial reporting framework used, as they can be prepared on a basis other than GAAP. For instance, they may be prepared on a cash or tax basis.
Prepared financial statements are the most straightforward and the only financial statement service we provide at our firm. Under this type of engagement, we take your financial data and format it into formal financial statements (balance sheet, income statement, and cash flow statement). There’s no testing or assurance—it’s simply presenting the numbers from your accounting system in an organized, professional way.
When might your winery need prepared financial statements?
Prepared financials are a cost-effective option for wineries that don’t need formal assurance from a third party. In fact, many lenders, especially when dealing with smaller loans, are perfectly fine with prepared financial statements—especially when they come from a reputable accounting firm. If your lender or investor isn’t asking for audited financial statements, prepared statements are a great way to get your financials in order without the added expense of higher-level services.
We’re Here to Help!
Navigating the world of financial statements can feel confusing, but we’re here to help. We can assist you in understanding which type of financial statement is appropriate for your winery’s situation. We also know that most bankers don’t always grasp the technical differences between these levels of assurance, so it’s worth discussing your specific needs with them.
If it turns out that your winery does need compiled, reviewed, or audited financial statements, we can refer you to trusted firms that specialize in these services. But if prepared statements are what you need—and in many cases, they are—we’ve got you covered.
Feel free to reach out anytime with questions or if you need guidance in choosing the right type of financial statement for your winery!
