Audit vs Review
Audit and review are two terms most commonly used in the accounting field. Both are actually types of financial statements. The third type is the compiled financial statement. But in this article, we will only be talking about audit and review. The CPAs (Certified Public Accountants) are the ones responsible for preparing or assisting in the process of making financial statements. The CPAs create the type of financial statement report depending on their mutual agreement among their clients. However, the type of report is determined based on the following factors: client need, creditors or investors’ needs, business size and complexity, and more.
What is an audited financial statement?
It could be said that the audited financial statement is the CPA’s highest level of assurance services because in this type of financial report, the CPA does all of the steps included in a compiled financial statement and reviewed statement. In other words, all works done in compilation and review are also done in an audit. But of course, the CPA also works with the verification and substantiation procedures concerning the amounts owed, inventories, minutes and contracts inspection, and others. The CPA also does his very best to understand the client’s entity system with regard to internal control. In ending the report, the CPA would state that the audit was done in accordance with the accepted auditing standards, as well as expressing his views fairly regarding the client’s financial status and operational results – also known as positive assurance.
What is a review financial statement?
On the other hand, a review financial statement prompts the CPA to do the inquiry and analytical procedures aside from the process being done in the compilation type of report. When completed, the CPA is tasked to state that a review has been done which is in accordance with the AICPA professional standards. The CPA would also state that the review has less scope than in an audit, and that he did not become aware of any material modifications, and etc. This is called limited assurance. A CPA prepares this type of financial report for his clients who have outside investors, bank loans, trade creditors, etc.
Their Differences
The main difference between an audit and review lies in their objectives. For an audit, the objective should be in accordance with the generally accepted auditing standards. On the other hand, the objective of a review should be in accordance with the standards for accounting and review services. An audit also requires the CPA to express a positive assurance while in a review, it requires the CPA to express a limited assurance. Also, when it comes to an audit, the CPA would state his opinion about the financial statement as a whole; whereas, a review does not since it doesn’t undertake the process of understanding the entity’s system of internal control. In other words, an audit is more in depth than a review, which only spans a lesser area.
Summary:
Audit and review are two terms most commonly used in the accounting field. Both are actually types of financial statements. The CPAs (Certified Public Accountants) are the ones responsible in preparing or assisting in the process of making financial statements.
The main difference between an audit and review lies in their objectives. For an audit, the objective should be in accordance with the generally accepted auditing standards. On the other hand, the objective of a review should be in accordance with the standards for accounting and review services.
An audit also requires the CPA to express a positive assurance while in a review, it requires the CPA to express a limited assurance.
