Audits are conducted in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
A review consists principally of inquiries of Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.
A compilation is limited to presenting in the form of financial statements information that is the representation of management (the owners). The report includes disclaimers that state that the financial statements have not been audited or reviewed, and there is no expression of an opinion or any other form of assurance on them.
Audit firm operating in a limited geographic area may have clients with operations or accounting functions in remote locations. In order to perform their audits more efficiently and reduce travel expenses, these firms may contract with a local accounting firm to perform procedures at their client locations on their behalf.
To insure against the risk that a construction contractor may become unable to fulfill the terms of their agreements to complete construction project, those who hire them often request that the contractors purchase Contract Surety Bonds. Under the terms of the typical Contract Surety Bond, if a construction contractor incurs financial hardship and is unable to fulfill the terms of their agreement, the surety bonding company will pay to have the project completed. Often, depending on the size of the contract, the surety bonding companies require the construction companies provide audited or reviewed financial statements. Though typically not complex, construction contractors do have unique financial statement reporting requirement, including supplementary schedules – the Schedule of Contract Revenue, Costs, and Gross Profit, and the Schedule of Contracts in Progress.
Franchisees obtain the right to operate a business that is identified or associated with the franchisor's trademark. As a condition of obtaining or commencing operation of the franchise, the franchisee makes a required payment or commits to make a required payment to the franchisor or its affiliate. The Federal Trade Commission requires franchisors to prepare and file a Franchise Disclosure Document that includes many disclosures, including the franchisor’s financial statements. The Federal Trade Commission requires that these financial statements be audited by a Certified Public Accountant. Franchise agreements typically allow for the collection of fees for the rights to use the franchisor’s trademark, consulting and training services, product sales, and ongoing royalties calculated as a percentage of the franchisee’s revenues. Therefore, the typical franchisor’s financial statements include royalty revenue, franchise, and product sales, inventory balances, and deferred franchise fees.
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