A:

All publicly-traded companies are required to provide financial statements, including a balance sheet, cash flow statement and income statement. To ensure that these statements are accurate and fall within the guidelines of generally accepted accounting principles (GAAP) they are audited and certified by an outside accountant. Financial statements that have been reviewed by an outside accountant are referred to as certified financial statements. However, financial statements are often released which have not been certified, known as compiled financial statements. The general reason for compiled statements being released (without being certified by an accountant) is for the timely release of financial information, as the certifying process can take a considerable amount of time.

Compiled financial statements, also referred to as unaudited statements, are not audited adequately and no opinion on the quality of the financial statements is given. Statements and guarantees about the accuracy of the financial statements are much less than that given by certified financial statements. Accountants that compile a company's financial statements are not required to verify or confirm the records and they do not need to analyze the statements for accuracy. However, in the event that an accountant finds erroneous, misleading or incomplete information in the financial statements they must notify management or abandon their involvement in assessing the company's financial statements. The accountant who is appointed to compile a company's financial statement must be familiar with the company and its main business processes.

Financial statements that are certified are the ones that an investor can trust to be the most accurate. These financial statements are reviewed and audited by a certified public accountant (CPA). The CPA offers their opinion on the quality and accuracy of the financial statements and performs a comprehensive analysis of the company. The accountant who certifies financial statements must follow the outlines provided by GAAP. Investors can use the certified financial statements with confidence when evaluating a company. When financial statements have been certified they have been reviewed to ensure the information is correct, true and reliable.

Although an investor can receive some helpful information from a compiled financial statement, it usually does not provide the certainty that is needed when deciding to invest money in a company. To have the confidence that the financial statements are accurate and reliable, an investor should turn to financial statements that have been certified by a CPA. Overall, certified financial statements can provide you with additional and more accurate information than compiled financial statements.

For further reading, see What You Need To Know About Financial Statements, Footnotes: Start Reading The Fine Print, and Show and Tell: The Importance of Transparency.

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