Difference Between Audit and Review: Key Points

Understanding Audit Process

An audit is like giving an organization’s finances a thorough check-up. It’s more than just numbers; it involves collaboration and clear communication between the audit team and the folks at the organization getting audited.

Involvement of Audit Clients

The people being audited—let’s call them audit clients—are a big part of making an audit smooth and successful. They’re in the mix right from when the audit is just an idea to when the final report is wrapped up. They ensure the whole show runs like a well-oiled machine by working together with the audit team.

Stages Where Clients Matter Most:

Planning: The audit client steps in to outline what needs checking and shares useful info about how the place runs.
Fieldwork: This is where the clients dig up all necessary papers and data so auditors can get down to the nitty-gritty.
Reporting: At this stage, clients peek at the initial findings and pitch in on how to tackle recommendations.

Audit Stage	What the Client Does
Planning	Outlines scope, shares insights
Fieldwork	Provides paperwork, data
Reporting	Reviews findings, gives feedback

For a look at how auditing stacks up against other financial checks, take a gander at our piece on audit versus investigation.

Importance of Communication

When it comes to audits, communication isn’t just important—it’s like the secret sauce that keeps everything running smoothly. Solid communication keeps everyone in the loop, cuts down on crossed wires, and helps the process move along without a hitch.

Hallmarks of Good Communication:

Regular Updates: Keeping the client posted on how things are going and any hiccups.
Feedback Loops: Getting the audit client’s thoughts to tackle any worries without delay.
Final Reporting: Laying out the audit in a straightforward, no-nonsense report.

This ongoing chatter builds trust and openness, which are key to ironing out any kinks and making sure the audit hits the mark (CSU).

Check out other neat comparisons in our guides, like the one on audit plan versus audit program and balance sheet vs. financial statement.

Assurance Levels Comparison

When you’re trying to figure out financial statement services, it’s good to know the differences between audits, reviews, and compilations. Each offers different kinds of trustworthiness. So, let’s break down what each of these services is all about.

Audited Financial Statements

Audited financial statements give the most reliable level of assurance you can score from a CPA. An audit involves a deep dive into a company’s financial books, aiming to get “reasonable assurance” that those financial statements reflect the company’s actual financial condition according to standards like U.S. GAAP (Armanino).

Here’s what happens during an audit:

Understanding how the company’s internal controls work
Checking for potential fraud
Double-checking figures through external confirmations

Banks, creditors, and outside investors often require these audits because they offer top-notch assurance that the numbers aren’t wrong in any significant way (FML CPA).

Reviewed Financial Statements

Reviewed financial statements bring in a middle-ground level of assurance. Reviews aren’t as in-depth as audits and focus on pinpointing if any big changes need to be made in the financial statements (Armanino).

During a review, CPAs might:

Use analytical procedures to spot trends and variances
Talk with company management
Do a quick check of some data

This aims to give a limited assurance that no big modifications are required for the financial statements to fit the typical standards. Reviews usually cost less than audits and are the go-to for new companies that have big plans but not much cash on hand (FML CPA).

Compiled Financial Statements

Compiled financial statements give the smallest level of assurance. A compilation is more about the CPA putting together the financial statements with the information provided by the business, minus any verification or complex procedures (Frank Milone CPA).

Important bits about compilations:

No reassurance about the numbers shown
Doesn’t require the CPA firm to be independent
Cheapest option out there

A compilation works fine for internal use, or when no one expects much from those financial statements.

Assurance Levels Summary Table

Service Level	Scope of Work	Assurance Level	Typical Cost
Audit	Deep procedures, checks on internal controls, fraud assessment	Highest Assurance	High
Review	Check trends and talk to management	Middle Assurance	Medium
Compilation	Just putting info together, no checks	Zero Assurance	Low

Understanding these assurance levels helps make sure you’re picking the right service for what you need. Want to dig more into the differences between audit and review? Check out the difference between auditing and investigation.

Cost and Independence

Cost Differences Between Audits and Reviews

When looking at audits, reviews, and compilations, they kind of have their own price tags because each requires a different level of work.

Audits: These are the big-ticket items. They’re costly because auditors have to go into detective mode, digging deep, testing, verifying, and basically making sure all those numbers in your financial statements are spot on (Armanino). It’s like getting a gold medal in financial accuracy, which, let’s face it, doesn’t come cheap.
Reviews: If audits are the plush five-star hotels of financial assurance, then reviews are more like a cozy three-star. They’re kinder on your wallet, doing less intrusive checks but still giving a thumbs-up of moderate confidence for your figures. Perfect for startups or growing companies watching their dollars (FML CPA). But if you decide to upgrade from a review to an audit, be ready for some sticker shock since there’s more legwork involved.
Compilations: These are your budget motel equivalents. The accountants prepare your financial statements without trying to offer any guarantees. It’s a straightforward process with no detective work required, easy on time and easy on the budget (Armanino).

Service Type	Relative Cost	Assurance Level
Audit	High	Highest
Review	Moderate	Moderate
Compilation	Low	None

Independence Requirements for CPAs

Keeping it fair and square is key when Certified Public Accountants (CPAs) dive into audits and reviews. Independence is essential because it makes sure the accountants don’t play favorites, keeping the numbers honest and credible.

Independence in Audits: CPAs gotta stay on the straight and narrow. No buddy-buddy stuff with the business they’re auditing. A clear head and no personal stakes assure that their conclusions are unbiased and straight (Armanino).
Independence in Reviews: Like audits, reviews need that same level of distance from the business, ensuring no conflicts mess with the accountant’s judgment.

No need to stress independence in compilations because CPAs are just organizing and reporting data without offering any assurance. No assurance, no independence fuss—perfect for companies with cozy ties to their accountants or without hefty regulations to deal with.

When trying to pick between an audit, review, or compilation, think about what fits your organization best in terms of both cash and needs. Every service brings a different level of assurance, so find what clicks best for your situation and balance sheet. For a deeper dive into what might suit your financial plans, see our article on the difference between auditing and investigation.

Depth of Examination

Grasping what sets apart audits, reviews, and compilations is a must if you’re eyeballing financial reporting. These three amigos offer different levels of scrutiny and method.

Audit Scope and Procedures

Audits are the heavyweight champs of assurance. They’re all about snagging “reasonable assurance” that a company’s financial statements are on the up and up according to the rules like U.S. GAAP (Armanino). Here’s what’s involved:

An outsider auditor takes a look-see.
Digs deep into internal accounting and finances.
Rounds up evidence to back up what’s on the financial statements.
Sizes up how well internal controls are doing their job.

Audit Tasks	What’s Going On
Checking Internal Controls	Seeing if the company’s internal controls do their job right.
Deep Dive Testing	Backing up the numbers on financial statements with proper paperwork.
Number Crunching	Looking over account balances and transactions to spot anything fishy.
Double-Checking	Getting the lowdown on financial info from banks, customers, and the like.

Review Scope and Procedures

Reviews don’t go as deep as audits. They’re focused on noting if any big changes are needed for the financial statements so they’re ticking all the right boxes. Here’s what’s covered:

Running the numbers and looking for any funny business.
Chatting up company management for answers.
No strong opinions here, just a nudge toward assurance.

Review Activities	What’s Going On
Number Listening	Checking the finances for patterns and blips.
Management Chats	Talking with the bosses about money matters and guidelines.
Ratio Check	Checking how well the company holds up by scoping ratios.

Compilation Process

Compilations are all about putting together financial statements from the company’s own data. No promises on accuracy here, as the CPA doesn’t conduct any tests, chats, or reviews (FML CPA). Here’s the deal:

No poking or prodding of financial data by the CPA.
Just putting the numbers into financial statement format without fuss.
Friendly on the wallet because it’s less time-intensive.

Compilation Process	What’s Going On
Data Wrangling	Putting company-supplied numbers into financial statements.
Zero Assurance	No tests or number crunching here; just a presentation of the figures.

If you’re knee-deep in choices, check out the audit plan vs. audit programme info. If you’re still on the fence about what to pick, a good chat with your CPA might clear the haze.

Knowing these differences lets folks make a solid call on the right financial reporting method and level of assurance that fits their bill.

Value and Transition Considerations

Getting a handle on the importance of audits and reviews, plus what’s involved when switching between them, is a big deal for companies wanting to keep their financial reporting on point.

Value of Audits and Reviews

The worth of audits and reviews hinges on how much assurance is needed and how the financial statements will be used.

Attribute	Audit	Review
Assurance Level	Reasonable	Limited
Requirement	Stakeholders like banks and investors want higher assurance (FML CPA)	Growing businesses usually ask for moderate assurance (AICPA-CIMA)
CPA’s Role	Check internal controls, look at fraud risk, double-check numbers	Ask questions and do analytical stuff, then report what they find
Independence	Must have it (MBK CPAs)	Must have it too (AICPA-CIMA)

Audited financial statements give the strongest assurance that what’s shown is accurate. This matters to folks like banks and investors who rely on these figures to gauge a company’s financial health (Armanino). Meanwhile, reviews fit businesses that are growing fast and seeking more funding without diving into full audits.

Considerations for Transitioning Between Services

When switching from a review to an audit, or vice versa, keep these points in mind:

Growth and Money Needs: As a company grows and looks for extra cash, the expectation for detailed assurance grows too. This shift might mean moving from a review to an audit.
Cost Concerns: Audits can cost more because they dig deeper. Businesses have to balance the better insights gained from an audit against the heavier price tag. Check out our article on cost differences between audits and reviews for more info.
Rules and Compliance: Some laws might make audits necessary. Knowing what’s required helps companies avoid legal hassles. See our section on audit scope and procedures for more on this.
What People Want: Banks and investors often prefer audited numbers, so switching to an audit can help meet their expectations.
Business Shifts: Big changes, like mergers or expansions, might call for audits to verify everything financially.

When thinking about changing services, chat with a CPA to totally get what’s involved and make smart choices. CPAs offer advice that fits the business’s specific situation. For more about picking a CPA’s brain, look at our guide on consulting with a CPA.

These points help a business pick the right level of financial checking and reporting. To see other comparisons, check out our sections on the difference between auditing and investigation and difference between audit plan and audit programme.

Decision-Making Factors

Factors Influencing Audit, Review, or Compilation Choice

Deciding whether to go for an audit, review, or compilation is like picking a band for your financial party—each strums a different tune of assurance, cost, and examination level. So, how do you choose? Here’s the skinny:

Level of Trust:

Audit: This is the VIP treatment. Auditors give a thumbs-up (or down) on your financials, assuring they’re clear of major whoopsies. Perfect for businesses that have to tick regulatory boxes or flash investor confidence.
Review: This is the middle child—enough assurance to keep your cool, but not too intense. CPAs do a quick once-over, perfect for when you just need that peace of mind without a deep dive.
Compilation: This is the no-frills option. Your financials get arranged neatly without any probing. Suited for internal eyes only or when no one’s asking for assurances.

Service Type	Assurance Level	Cost	Scope
Audit	High	$$$	Thorough
Review	Medium	$$	Moderate
Compilation	None	$	Basic

Price Tag:

Audit: Top dollar here, given the deep dive and time needed.
Review: Easier on the wallet than an audit—good middle-ground.
Compilation: The budget-friendly choice, with minimal time and process.

Regulatory and Buddy Demands:

Sometimes, the ‘powers that be’ demand audits.
Investors or loan sharks might want audits or reviews to ease their financial jitters.

Business Vibes:

Match your pick with your company’s goals and who’s watching you. Chatting with stakeholders and number wizards helps wrap your head around what’s expected.

For more on matching numbers to needs, check articles on auditing vs. investigating and on asset vs. wealth management.

Consulting with a CPA

Hitting up a Certified Public Accountant (CPA) is like getting backstage passes—they show what’s the right fit between an audit, review, or compilation for your gig. A CPA sheds light on what’s crazy relevant to your company’s dance floor and what works regulation-wise.

Scouting What’s Needed:

A CPA steps in to assess what your biz needs and picks the service that vibes with your goals and laws. It’s like DJ picking—their choice is key to keep the party informed (AICPA-CIMA).

Difference Talk:

CPAs break it down so you’re not left wondering. Get the scoop on audits, reviews, and compilations so you can weigh the options.

Cost vs. Reward:

CPAs figure out the best bang for your buck, considering cash flow, expectations, and how much assurance ya want.

Playing by the Rules:

No one wants fines on their conga line. A CPA helps you stick to the straight and narrow regulation-wise, ensuring the choice holds up when heads turn.

For more on navigating similar choices, check out the articles on balance sheets and rates drama.

By ticking these boxes and chatting with a CPA, you’re set to make decisions that not just fit today’s needs but also groove with long-term financial moves.