“Audit is the art of skepticism.” – Warren Buffet
“The auditor’s duty is to provide a report that is honest, transparent, and reflective of the company’s financial health, no matter the consequences.” – Sir David Tweediet
When and Why You Need an Audit or Review Engagement of Financial Statements
- Banks and Lending
Banks may require audited or reviewed financial statements as part of the lending agreement to ensure the financial health and credibility of your business. - Statutory Obligations
Governing bodies might require an audit or review of your financial statements or trust accounts to meet legal or regulatory requirements. - Funding and Stakeholders
Charities, foundations, and not-for-profit organizations may be asked to provide audited or reviewed financial statements to secure funding and demonstrate financial accountability to stakeholders. - Credibility of Financial Information
You may want to ensure the credibility of your financial information, providing assurance that your financial data is accurate and reliable. - Business Insight and Advice
An audit or review provides you with more than just assurance; it helps you understand your business better and provides valuable advice to improve operations and profitability.
Because audits and reviews require more work than compilations, they are generally more expensive. Many owner-operated businesses typically need a review engagement for their financial statements.
Audit
An audit provides the highest level of assurance an accountant can offer. The audit process enhances the reliability of your financial information by examining internal controls, conducting comprehensive audits, and involving third-party assurance services.
Review
A review offers a lower level of assurance than an audit, giving financial statement users “negative assurance”. This means that, based on the review, the accountant has not found anything that would lead them to believe that the financial statements are not fairly presented. A review involves inquiries with management, analytical procedures, and evaluating the evidence collected.
Compilation
A compilation involves the preparation of financial statements without providing any assurance on their reliability. The accountant’s role is limited to collecting, classifying, and summarizing financial data. Since no assurance is provided, compilations are typically less expensive but may not meet the requirements for certain purposes, such as securing financing or regulatory compliance.
Summary of Audit / Review / Compilation financial statements
| Nature of service | Audit | Review | Compilation |
| Objective | Express opinion on fair presentation | Add credibility – information is plausible | Arrange information in the form of financial statements |
| Comparative level of assurance provided | High | Moderate | None |
| Communication issued | Positive assurance opinion – “presents fairly” | Negative assurance: “nothing has come to my attention” | Caution on use: no opinion |
