- Monday–Friday, 8:30 a.m.–5:30 p.m.
- Tel: 213-738-6000
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- Email: [email protected]
- 3435 Wilshire Blvd Suite 600, Los Angeles, CA 90010
Different Financial Statement Services Provide Different Levels of Assurance
An audit, a review, and a compilation are not interchangeable. Each service has a different purpose, scope, level of assurance, reporting standard, cost, timing, and intended use. An audit provides reasonable assurance. A review provides limited assurance. A compilation assists management in presenting financial information but provides no assurance. The following frequently asked questions explain these differences, the responsibilities of management and the CPA, and several issues that should be considered before selecting a financial statement service.
An audit provides reasonable assurance that the financial statements are free of material misstatement. A review provides limited assurance. A compilation provides no assurance.
The three services differ in the procedures performed, level of assurance, cost, timing, and intended use of the financial statements.
Audit
An audit generally includes risk assessment, evaluation of relevant internal controls, testing of transactions and account balances, external confirmations when appropriate, analytical procedures, and other audit procedures.
An audit provides reasonable assurance, not absolute assurance.
Review
A review primarily includes analytical procedures and inquiries of management.
A review provides limited assurance and involves substantially fewer procedures than an audit.
Compilation
In a compilation, the accountant assists management in presenting financial information in financial statement form.
A compilation provides no assurance, and the accountant does not perform audit or review procedures.
Related Service
The appropriate service depends on who will use the financial statements, why they are needed, and whether a lender, investor, regulator, grantor, board, or other party has specified a required level of service.
An audit may be required when a higher level of assurance is requested. A review may be appropriate when limited assurance is sufficient. A compilation may be appropriate when financial statements are needed without assurance.
Before beginning the engagement, the business should confirm:
- Who will receive the financial statements
- The required reporting period
- Whether the requesting party requires an audit, review, or compilation
- The applicable accounting framework
- The submission deadline
- Whether comparative or consolidated statements are needed
ABC CPAs can explain the differences among the services, but the requesting party may determine the minimum acceptable level.
Related Service
No. An audit provides reasonable assurance, not absolute assurance, and does not guarantee that every error, fraud, illegal act, noncompliance matter, or internal control weakness will be detected.
Audits are planned and performed to obtain reasonable assurance that the financial statements are free of material misstatement, whether caused by error or fraud.
Audit procedures involve professional judgment, risk assessment, sampling, estimates, and other inherent limitations. Some misstatements may not be detected, particularly when they involve collusion, forgery, intentional concealment, management override, or transactions designed to avoid detection.
Management remains responsible for the financial statements, internal controls, and the prevention and detection of fraud.
Related Service
Management is responsible for the preparation and fair presentation of the financial statements, the selection and application of the applicable accounting framework, and the accuracy and completeness of the underlying records.
Management is also responsible for:
- Maintaining accounting records
- Providing complete and accurate information
- Establishing appropriate internal controls
- Making accounting estimates
- Reviewing and approving the financial statements
- Disclosing relevant transactions and commitments
- Preventing and detecting fraud
The accountant may assist with drafting or presenting the financial statements when permitted, but this assistance does not transfer management’s responsibility to the accountant.
The specific responsibilities of management and ABC CPAs are defined in the written engagement agreement.
Related Service
A CPA must be independent to perform an audit or review engagement.
A compilation may be performed when the accountant is not independent, but the lack of independence must generally be disclosed in the accountant’s compilation report.
Independence may be affected by financial interests, management responsibilities, certain business or family relationships, unpaid fees, or services that place the accountant in a decision-making role for the client.
Bookkeeping or financial statement preparation services do not automatically prevent a CPA from performing an assurance engagement, but independence and management responsibility issues must be evaluated before the engagement is accepted.
ABC CPAs determines independence based on the applicable professional standards and the specific facts of the engagement.
Related Service
Assurance Levels at a Glance
Audit
Assurance Level:
Reasonable assurance
An audit includes more extensive procedures than a review or compilation but does not provide absolute assurance.
Review
Assurance Level:
Limited assurance
A review primarily includes analytical procedures and inquiries of management and involves substantially fewer procedures than an audit.
Compilation
Assurance Level:
No assurance
A compilation assists management in presenting financial information in financial statement form without performing audit or review procedures.
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Explore Business Advisory ServicesWhich Financial Statement Service Do You Need?
The appropriate service depends on the intended users of the financial statements, the required level of assurance, applicable agreements or regulations, the reporting period, and the requesting party’s requirements.
Contact ABC CPAs to discuss whether an audit, review, compilation, or another financial reporting service may be appropriate for your circumstances.
- Email: [email protected]
- Tel: 213-738-6000
- 3435 Wilshire Blvd Suite 600, Los Angeles, CA 90010
- Monday–Friday, 8:30 a.m.–5:30 p.m.
Resource Center Notice
The information provided in this Resource Center is for general informational purposes and is not intended as legal, investment, valuation, or other non-CPA professional advice. Accounting and tax requirements may vary based on the facts, jurisdictions, entity structure, reporting period, and applicable laws and regulations. Information may also change after publication. You should consult the appropriate accounting, tax, legal, financial, or other professional adviser regarding your specific circumstances. Accessing or using this Resource Center does not by itself create a professional engagement with ABC CPAs.