Audit, review, and compilation are three different levels of services provided by accountants or auditors when examining financial information. Each level offers a varying degree of assurance regarding the accuracy and reliability of financial statements. Let’s explore the differences between an audit, review, and compilation.
A compilation is the simplest and least extensive of the three services. In a compilation, the accountant or auditor takes the financial information provided by the company (e.g., trial balances, general ledger) and organizes it into financial statements without providing any assurance on the accuracy or completeness of the data. The accountant does not perform any verification or testing of the financial information. The end result is a set of financial statements that presents the data in a structured format but without any assurances on its accuracy.
A review is a step up from a compilation in terms of the level of assurance provided. In a review engagement, the accountant performs analytical procedures and inquiries to obtain a limited level of assurance that there are no material modifications needed for the financial statements to be in conformity with the applicable financial reporting framework (e.g., Generally Accepted Accounting Principles – GAAP). However, a review does not require the accountant to conduct in-depth testing or perform a comprehensive examination of the financial records, and the level of assurance is lower compared to an audit.
An audit is the most rigorous and comprehensive level of assurance. In an audit, the auditor examines the company’s financial records, internal controls, and supporting evidence. They do this to obtain reasonable assurance that the financial statements are free from material misstatements. The auditor uses various audit procedures, including tests of transactions, tests of balances, and physical inspections. They are able to gather sufficient evidence to support their opinion on the financial statements. The audit aims to provide users of the financial statements with a high level of confidence in the accuracy and reliability of the information presented.
In summary, a compilation simply organizes financial data while a review provides limited assurance on the financial statements. An audit offers the highest level of assurance by conducting a thorough examination of the financial records and providing reasonable assurance on the accuracy of the financial statements. If you need help figuring out which one you need done, then reach out to us below. Or if you want to get the process started with us give us a call today. You can also watch our video if you Click Here