When reviewing your company’s financial statements, there are several reviews that a certified public accounting firm can provide for your public company. The three most common audit and assurance services are audits, reviews, and compilations. But what are the differences? And which one should you choose for your company? Let’s explore the key differences between these three types of financial statement attest engagements.
Audit: Highest Level of Assurance
An audit is the highest level of assurance that a certified public accounting firm can provide. In an audit, the CPA will provide reasonable assurance on whether the client’s financial statements are free of material misstatement. During this engagement, they will need to obtain an understanding of the client’s business, its internal controls, and test transactions. The certified public accounting firm will also issue a report with findings and recommendations.
Independent Certified Public Accounting Firm Required
This high level of assurance requires the audit to be performed by an independent certified public accountant. This means that the accountant performing the audit has no financial or other interest in the client whose financial statements are being examined.
Due to the level of work involved, an audit is typically the most expensive type of financial statement engagement.
Review: Limited Assurance
A financial statement review is intended to provide lenders and outside parties with a basic level of assurance on a company or organization’s financial statements. The objective of a review is to offer limited assurance that there are no material modifications that need to be made to the financial statements.
Like an audit, the certified public accounting firm doing a review must be independent. However, the CPA will not issue an in-depth report on findings and recommendations because a review is narrower in scope than an audit and does not require the same level of testing. A review’s procedures are comprised only of analytics and inquiries.
Compilation: A Financial Information Summary
In a compilation, the CPA auditors will compile the financial statements based on information provided by management. The CPA will not express an opinion on the financial statements and will not perform any procedures to test transactions or verify the information.
While a compilation does not offer assurance, it can be a valuable service for small businesses that need financial statements but do not require the assurance of an audit or review. A compilation can help spot irregularities or other financial issues that a company may need to address.
Get Help From A Trusted Certified Accounting Firm
When choosing between an audit, review, or compilation, consulting with an experienced certified public accounting firm is essential. They can help you understand the key differences and recommend which type of financial statement engagement is right for your business.
With a diverse experience across multiple industries, Assurance Dimensions has earned a solid reputation for delivering independent assurance to help your company satisfy the requirements of creditors, vendors, lenders, shareholders, business acquisitions, and other business partners.
Request an audit quote today, and let us help you plan your next audit.
