Florida Contractor Practice Exam

Which of the following financial statements would most likely be necessary if you were certifying the financial condition of your company for 3rd party investors?

1. Cash

2. Reviewed

3. Compiled

4. Audited

The correct answer is: Audited

The necessity for an audited financial statement stems from the level of assurance it provides to third-party investors regarding the financial condition of a company. An audited financial statement is a thorough examination conducted by an independent auditor who assesses the accuracy and fairness of the financial records. This process enhances the reliability of the financial information presented, which is pivotal in fostering trust among investors or stakeholders who require assurance beyond standard financial reporting or reviews. When investors evaluate a company's financial health, they prefer documentation that assures them of the integrity of the reported figures. An audited statement not only conforms to generally accepted accounting principles (GAAP) or international financial reporting standards (IFRS), but the independent verification adds an extra layer of credibility, making it the preferred choice for serious investors seeking a deep understanding of the company's financial viability. In contrast, compiled and reviewed financial statements provide varying degrees of assurance, with a compiled statement offering no assurance and a reviewed statement providing limited assurance. Neither would typically meet the rigorous demands of third-party investors aiming for a comprehensive understanding of a company's financial condition.