The Lowdown on Audit, Compilation, and Review Services

Compilation, audit, and review are three distinct types of financial statements that businesses can use to assess their financial performance. Each has its unique purpose and level of assurance, and it is essential to understand the differences between them to make the right choice for your business.

Read on for the lowdown on audit, compilation, and review services, and their key differences today.

Audit

An audit is the highest level of assurance that an accountant can provide to a business. The objective of an audit is to express an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. An audit provides the highest level of assurance because the auditor performs procedures to obtain evidence about the amounts and disclosures in the financial statements. 

An audit is typically required for public companies or private companies that have a large number of shareholders or debt holders. This provides credibility to the financial statements, which can be important for investors or creditors who are making decisions based on the financial statements. However, an audit can be costly and time-consuming, so it may not be necessary for smaller businesses.

Compilation

A compilation is the lowest level of assurance service that an accountant can provide to a business. This is also often used for internal purposes, such as providing information to management or securing financing. 

The objective of a compilation is to assist management in presenting financial information in the form of financial statements without providing any assurance that there are no material modifications that should be made to the statements. A compilation report will state that the financial statements are the responsibility of management and that the accountant has not audited or reviewed them. 

Review

A review is a middle level of assurance that an accountant can provide to a business. The objective of a review is to provide limited assurance that there are no material modifications that should be made to the financial statements. A review is less extensive than an audit, and the accountant performs analytical procedures and inquiries to obtain limited assurance that the financial statements are free from material misstatement. 

A review may be appropriate for businesses that do not need the highest level of assurance provided by an audit but still want some level of credibility to their financial statements. This is less costly and time-consuming than an audit, making it a more practical option for smaller businesses.

The Key Differences

The key differences between audit, compilation, and review are the level of assurance provided and the procedures performed by the accountant. A compilation provides no assurance that the financial statements are free from material misstatement, while an audit provides the highest level of assurance that the financial statements are presented fairly, in all material respects. A review provides limited assurance that there are no material modifications that should be made to the financial statements.

Another difference is the level of work performed by the accountant. A compilation requires the least amount of work because the accountant does not perform any procedures to obtain assurance about the financial statements. An audit requires the most extensive work because the auditor performs procedures to obtain evidence about the amounts and disclosures in the financial statements. A review requires less work than an audit because the accountant performs analytical procedures and inquiries to obtain limited assurance that the financial statements are free from material misstatement.

Finally, the cost and time required for each service differ significantly. A compilation is the least expensive and time-consuming because it requires the least amount of work. An audit is the most expensive and time-consuming because it requires the most extensive work. A review is less expensive and time-consuming than an audit, but more expensive and time-consuming than a compilation.

Conclusion

Choosing the right level of assurance for your financial statements is crucial to ensure that they meet the needs of your business. By understanding the differences between compilation, audit, and review, you can make an informed decision that meets your business’s needs and goals.

Do you need help reviewing financial statements? Ash CPA is here to help you get on top of your finances, give you more opportunities, and educate you–all at an affordable price! Contact us today to learn more about our services!