Financial statements refer to a set of reports issued by a company that present its financial activity and status.
The three main reports one will find in a set of financial statements includes a balance sheet, an income statement, and a statement of cash flows. In addition, a statement of retained earnings may be present or this may be incorporated as part of the income statement.
Companies will issue financial statements for several reasons the most important being so owners and managers can assess how the business is performing and make strategic planning decisions about the company’s future. Financial statements may also be required by banks, governmental units, or investors.
Financial statements can be internally prepared by the company or can be prepared by an outside CPA firm.
CPA firms may also issue a report on a company’s financial statements. There are generally three levels of reports that a CPA firm can issue: compilations, reviews, or audits. Each type of report will indicate the level or work and level of assurance the CPA firm can give on the reliability of the statements to the reader.