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.

RELATED FAQS
  1. How are the three major financial statements related to each other?

    Learn why investors analyze a company's financial statements, and how the income statement, balance sheet and cash flow statement ... Read Answer >>
  2. How do marketable securities impact a company's financial statements?

    Understand how the various components of the financial statements are impacted by investments in marketable securities owned ... Read Answer >>
  3. How do you find a company's P&L statement?

    Learn how to find a company's profit and loss statement, along with the other financial statements that companies regularly ... Read Answer >>
  4. How long should you keep bank statements?

    Bank statements should be maintained for at least one year in order to provide support documentation for tax returns, business ... Read Answer >>
  5. How do investors and lenders benefit from financial accounting?

    Read about the benefits of financial accounting, including access to information and transparency between companies and their ... Read Answer >>
  6. How are cash purchases recorded on a company's income statement?

    Take a deeper look at the treatment of cash payments on a company's financial statements, including how specific purchases ... Read Answer >>
Related Articles
  1. Investing

    12 Things You Need to Know About Financial Statements

    Discover how to keep score of companies to increase your chances of choosing a winner.
  2. Investing

    What Is The Difference Between A Cash Flow Statement And An Income Statement?

    A firm’s cash flow statement measures the sources and uses of its cash. The income statement shows how it is financially performing.
  3. Financial Advisor

    Financial Accounting

    Financial accounting is the process of gathering, recording, summarizing and reporting financial data relating to a business. The ultimate goal is to accurately report the financial picture and ...
  4. Investing

    Navigating Government And Nonprofit Financial Statements

    Learn how to trace where your tax dollars and charitable donations are going.
  5. Investing

    Sneaky Subsidiary Tricks Can Cloud Financials

    Use consolidated financial statements to uncover a parent company's true performance.
  6. Small Business

    Understanding Consolidated Financial Statements

    Consolidated financial statements are the combined financial statements of a parent company and its subsidiaries.
RELATED TERMS
  1. Financial Statement Analysis

    The process of reviewing and evaluating a company's financial ...
  2. Financial Statements

    Records that outline the financial activities of a business, ...
  3. Comparative Statement

    A statement which compares financial data from different periods ...
  4. Bank Statement

    A record, usually sent to the account holder once per month, ...
  5. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and ...
  6. Common Size Income Statement

    An income statement in which each account is expressed as a percentage ...
Hot Definitions
  1. Drawdown

    The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted ...
  2. Inverse Transaction

    A transaction that can cancel out a forward contract that has the same value date.
  3. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  4. Solvency

    The ability of a company to meet its long-term financial obligations. Solvency is essential to staying in business, but a ...
  5. Dilution

    A reduction in the ownership percentage of a share of stock caused by the issuance of new stock. Dilution can also occur ...
  6. Agency Problem

    A conflict of interest inherent in any relationship where one party is expected to act in another's best interests. The problem ...
Trading Center