What’s the difference between an Audit, Review and Compilation?
Sometimes, a third party will request a copy of your financials that have been reviewed or prepared by a CPA. These external parties are requesting “assurance.” They want to verify the financial integrity of your organization. This assurance certifies the correctness and validity of the financials reviewed by the CPA.
There are three levels of these services, with increasing assurance provided by the CPA: Compilation, Review and Audit.
Compiled Financial Statements
Compiled financial statements represent the most basic level of service we provide with respect to financial statements. In a compilation, we assist management in presenting financial information in the form of financial statements, without providing assurance that no material modifications should be made to the statements.
In a compilation, we don’t perform inquiries, analytical procedures, or other procedures ordinarily performed in a review; nor do we obtain an understanding of internal control, assess fraud risk, test records, or any of those procedures performed in an audit. As such, we do not provide assurance that no material modifications should be made to the financial statements.
The result of a compilation is generally considered an expression of “no assurance.” Compiled financial statements are often prepared for clients that do not need a higher level of assurance expressed by a CPA.
Reviewed Financial Statements
Reviewed financial statements provide the user with comfort that, based on our review, we are not aware of any material modifications that should be made to your financial statements for them to be in conformity with the applicable reporting framework.
In a review, we perform procedures like inquiries and analytical procedures that give us a reasonable basis for obtaining limited assurance that the financial statements do not require material modifications. As with a compilation, a review does not involve obtaining an understanding of your entity’s internal control, assessing fraud risk, testing accounting records, or other audit procedures.
Audited Financial Statements
The objective of an audit is to obtain a reasonable level of assurance about whether the financial statements as a whole are free of material misstatement.
This allows us as auditors to express an opinion about whether the financial statements are presented fairly, in all material respects.
In an audit, we corroborate the amounts and disclosures in the financial statements by obtaining audit evidence, performing analytical procedures, observations, confirmations, etc. We also obtain an understanding of your entity’s internal control and assess fraud risk.
For more information on the difference between financial statements view the following:
For additional reading on the difference between Audit, Compilation and Review, visit the American Institute of CPAs:
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