Certified financial statement definition
/What is a Certified Financial Statement?
A certified financial statement is an income statement, balance sheet, and/or statement of cash flows that is issued along with an auditor’s report from a certified public accountant. In the audit report, the auditor attests to the accuracy of the financial statement. A financial statement can only be certified by an external auditor, not by an auditor who is an employee of the entity issuing the statement.
How Certified Financial Statements are Used
Certified financial statements are needed by the investment community and creditors who might otherwise be uncertain about the accuracy of an entity’s financial statements. A publicly held company is required to issue certified financial statements. Conversely, there is no need for certified financial statements when they are only used internally. Many businesses prefer to avoid obtaining certification if there is no specific requirement to do so, since the associated audit fees can be substantial.
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Examples of Certified Financial Statements
There are many situations in which certified financial statements may be used. Several of the more common scenarios are noted below:
Audited financial statements for a public company. A publicly traded company, such as a corporation listed on the NYSE, must file audited financial statements with the SEC. These statements are certified by an independent Certified Public Accountant who provides a formal audit opinion on their accuracy and compliance with Generally Accepted Accounting Principles (GAAP). The auditor’s report is included with the balance sheet, income statement, cash flow statement, and statement of shareholders’ equity. This certification enhances credibility and is often required for investor confidence, regulatory compliance, and public disclosure.
Bank loan application financial statements. When a private company applies for a significant loan, the lender may require certified financial statements to evaluate creditworthiness. A CPA audits or reviews the financial statements and certifies that they present the financial condition of the company fairly, in accordance with accounting standards. This provides the bank with assurance that the figures have been independently verified. The certified statements help the lender assess risk before approving the loan.
Nonprofit organization annual reports. Many large nonprofit organizations must provide certified financial statements to government agencies, donors, or boards of directors. These audited statements confirm that the nonprofit has properly accounted for grants, donations, and expenses in accordance with GAAP or another applicable framework. A CPA issues an audit opinion that supports transparency and fiduciary accountability. Certification is often a prerequisite for maintaining tax-exempt status or receiving future funding.
Financial statements for mergers and acquisitions. In a merger or acquisition transaction, the acquiring party may require certified financial statements from the target company to validate its financial position. A CPA audits the historical financial data to ensure that it is free from material misstatement. This certification reduces due diligence risks and supports valuation and negotiation efforts. Investors and legal advisors also rely on these certified documents during the decision-making process.