For a CPA these three words have a very distinct meaning. But to the non-auditing world, these words can have very different meanings. As the client, you may have found yourself wondering what these words really mean. Should you look into a compilation, review or audit?
This article will provide a crash course in audit terminology. A brief explanation of the key characteristics and results of each service are listed below. It is important to understand the different levels of assurance, or certainty, for each service. Because when it comes down to as the client, what you are truly purchasing is assurance. Below the services are listed in order of complexity, along with a brief explanation of each.
The explanation in regard to a compilation can be very simple and brief. This is the lowest level of service, as such, there will not be any sort of assurance on any of the balances. This engagement simply entails that financial information is gathered into an acceptable format by the team assigned to the job.
With a review, it is important that you as the client understand that procedures will be performed in order to issue reviewed financial statements. Some assurance will be provided during a review, but still not as much as an audit. A simpler way to understand this is that information will be gathered from different points in time and compared. Understand that, additional review procedures will be done if something seems unusual or unexpected. A review lets users know that to the CPA’s knowledge there are no material modifications that need to be made.
When a CPA hears audit it is likely they will think “to provide an opinion on the fair presentation of the financial statements”, but to you, this may mean absolutely nothing. It is extremely important to understand that an audit does not provide absolute assurance. Absolute assurance can only be provided if an auditor were to be able to examine every transaction but only a calculated sample is examined. This makes absolute assurance unattainable, therefore, an audit provides reasonable assurance that there are no significant or material mistakes within the financial statements.
Moving up the ladder the services get more complex and take longer to explain because the services themselves become more complex and time-consuming. But by taking the time to explain these in a way that the non-auditing world can comprehend not only allows for you as the client to gain a better understanding of these services but also an appreciation of the services that are being provided to you.
Do you still have any questions on the differences between a compilation, review and audit? Feel free to ask them, and any other questions to a Henry+Horne professional. For more information, head over to our Audit services page.