What are Audits, Reviews, and Compilations?
Audits
An audit is the most comprehensive type of assurance service and requires the auditor to express an opinion on a Company’s financial statements prepared in accordance with Generally Accepted Accounting Practices (GAAP). Audits are typically required as a result of financing, Investor, or governmental requirements. Typically, during an audit, an independent auditor evaluates a company’s internal accounting system and its financial records. The auditor will then issue a report containing the findings of their audit.
Reviews
A review is a more limited assurance service and involves the accountant performing analytical procedures on financial statements to get a general understanding of the company’s finances. An important difference between an audit and a review is that an audit provides more reasonable assurance, whereas a review does not and the accountant does not express an opinion. A review is also a potential requirement if the Company has financing.
Compilations
Compilation involves compiling a company’s financial information into general-purpose financial statements, such as balance sheets and income statements. A compilation may also involve helping clients plan their budgets or other documents they may be required to report. While compilations are less expensive than audits and reviews, they provide no assurance since no opinion is expressed on the financial statements or other documents.
When it comes to choosing between an audit, review, or compilation, business owners and managers should first consider the level of assurance they need. An audit provides the most comprehensive level of assurance, while a review offers an intermediary level of assurance. A compilation is the least expensive option but also provides no assurance since no opinion is expressed on the financial statements or documents. For businesses that need the highest level of assurance, an audit is the best choice. For those who only need minimal assurance and have tight budgets, a compilation may be sufficient. Those in between can opt for reviews to balance their needs with cost considerations. Depending on your Company’s situation, an audit may be required which makes the decision simple. Ultimately, it is important to consider all factors before making a decision.
