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Navigating Revenue Recognition: Why Tech and SaaS Companies Need Specialized Audits

For technology and SaaS startups, financial reporting isn’t as simple as tracking cash in and cash out. With complex subscription models, deferred revenue, and bundled service contracts, adhering to ASC 606 (Revenue from Contracts with Customers) can become a compliance nightmare.

A specialized SaaS financial audit ensures that your revenue recognition policy aligns perfectly with regulatory standards. When VC investors or buyers look at your recurring revenue (ARR/MRR), they need to know those numbers are fully audited and audited correctly.

An independent review or audit by CPAs who understand the tech landscape protects your valuation, streamlines your upcoming series funding, and prevents catastrophic restatements down the road.

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Audit: Highest Level of Assurance

An audit is the highest level of assurance that a certified public accounting firm can provide. In an audit, the CPA will provide reasonable assurance on whether the client’s financial statements are free of material misstatement. During this engagement, they will need to obtain an understanding of the client’s business, its internal controls, and test transactions. The certified public accounting firm will also issue a report with findings and recommendations.

Independent Certified Public Accounting Firm Required

This high level of assurance requires the audit to be performed by an independent certified public accountant. This means that the accountant performing the audit has no financial or other interest in the client whose financial statements are being examined.

Due to the level of work involved, an audit is typically the most expensive type of financial statement engagement.

Review: Limited Assurance

A financial statement review is intended to provide lenders and outside parties with a basic level of assurance on a company or organization’s financial statements. The objective of a review is to offer limited assurance that there are no material modifications that need to be made to the financial statements.

Like an audit, the certified public accounting firm doing a review must be independent. However, the CPA will not issue an in-depth report on findings and recommendations because a review is narrower in scope than an audit and does not require the same level of testing. A review’s procedures are comprised only of analytics and inquiries.

Compilation: A Financial Information Summary

In a compilation, the CPA auditors will compile the financial statements based on information provided by management. The CPA will not express an opinion on the financial statements and will not perform any procedures to test transactions or verify the information. 

While a compilation does not offer assurance, it can be a valuable service for small businesses that need financial statements but do not require the assurance of an audit or review. A compilation can help spot irregularities or other financial issues that a company may need to address. 

 Assurance Report Types

Audit: Highest Level of Assurance

An audit is the highest level of assurance that a certified public accounting firm can provide. In an audit, the CPA will provide reasonable assurance on whether the client’s financial statements are free of material misstatement. During this engagement, they will need to obtain an understanding of the client’s business, its internal controls, and test transactions. The certified public accounting firm will also issue a report with findings and recommendations.

Independent Certified Public Accounting Firm Required

This high level of assurance requires the audit to be performed by an independent certified public accountant. This means that the accountant performing the audit has no financial or other interest in the client whose financial statements are being examined.

Due to the level of work involved, an audit requires more testing, inquiries and risk analysis making this engagement more time consuming and auditor hours.

Review: Limited Assurance

A financial statement review is intended to provide lenders and outside parties with a basic level of assurance on a company or organization’s financial statements. The objective of a review is to offer limited assurance that there are no material modifications that need to be made to the financial statements.

Like an audit, the certified public accounting firm doing a review must be independent. However, the CPA will not issue an in-depth report on findings and recommendations because a review is narrower in scope than an audit and does not require the same level of testing. A review’s procedures are comprised only of analytics and inquiries.

Compilation: A Financial Information Summary

In a compilation, the CPA auditors will compile the financial statements based on information provided by management. The CPA will not express an opinion on the financial statements and will not perform any procedures to test transactions or verify the information. 

While a compilation does not offer assurance, it can be a valuable service for small businesses that need financial statements but do not require the assurance of an audit or review. A compilation can help spot irregularities or other financial issues that a company may need to address. 

AUDITS & REVIEWS

HomeOwners Association Reports

Homeowners Assocations are non proft organzations. An HOA must keep an accounting of records and comply wth State rules for theirr financial Statements.  There are three levels of examination for financial statements that may apply to Homeowners Associations:

1. Audit. If an association’s governing documents require an audit, a licensee of the California State Board of Accountancy (a Certified Public Accountant) performs an extensive examination of the association’s financial records and issues a statement as to their compliance with generally accepted accounting principles (GAAP). An audit is performed in accordance with GAAS (generally accepted auditing standards) established by the American Institute of CPAs (AICPA). The auditing standards are described in Statements on Auditing Standards (SAS). An audit provides a “reasonable level of assurance” that the financial statements are materially correct. As a result, an audit requires more testing, inquiries and risk analysis making this engagement more time consuming and auditor hours.

2. Review. If an association’s governing documents are silent regarding an audit, the Davis-Stirling Act requires, at a minimum, a “review” of the finances for any fiscal year in which the association’s gross income exceeds $75,000. (Civ. Code §5305.) In a review, a CPA performs limited inquiries in accordance with GAAS (generally accepted auditing standards) established by the AICPA and gives “limited assurance” that the financial statement is materially correct. Reviewing standards are described in Statements on Standards for Accounting and Review Services (SSARS).

3. Compilation. A compilation is the lowest level of review in which a CPA assembles information provided by an association. The CPA need not be independent and is required to perform very few procedures. Further, the CPA takes little responsibility for the financial statement and gives no assurance as to compliance with GAAP

We can provide all 3 types of reports for your HOA as we are Peer Review qualified. We can also prepare the Tax Returns FORM 1120-H and State Form 199 as required as part of our engagement. Call us to discuss 310.312.8700