Unaudited Financial Statements

Unaudited financial statements are complied from the data given by the business without any attempt to separately verify their accurateness. They are often referred to as management figures and may be prepared by anyone. If they are prepared by accountants (who generally are, but need not be, CPAs), the figures are complied with certain standards and the process is referred to as review. An attached standard paragraph makes clear that the statements, while prepared in accordance with generally accepted accounting principles, have not been independently verified and therefore the accountant cannot take responsibility for their accuracy:

Think that you have reviewed the associated balance sheet of the Johnson Corporation as of 31^st December, 1999 and the associated cash flows, retained earnings and statements of income for the year ended in conformity with the principles established by the American’s CPA’s.  All the information incorporated in these financial reports is the representation of the management of the Johnson Corporation.

A review generally includes principally of inquiries of the firm’s analytical and personnel methods applied to the financial information. It is significantly less in scope than the examination in accordance with the GAAP or generally accepted accounting standards, the aim of which is the expression of the opinion about the financial statements is taken as a whole. Therefore, you do not express such opinion and based on your review, you are not aware of any material changes which have to be made on the financial statements of the year 1999 in order for them to be in accordance with the GAAP.

Any deviation from generally accepted accounting principles would be noted and briefly explained.

Unaudited financial statements are the standard for the most privately held business. Much less expensive to prepare than audited statements, they adequately serve the purpose of summarizing the firm’s financial position, especially if prepared by any properly trained accountant. However, any one using them should be aware that they were not subjected to rigorous independent verification and may wish to undertake additional inquiries if facing a major financial decision.

Questionnaire:

• What are unaudited financial statements?
• What are the advantages of unaudited financial statements?