Audits vs. Reviews

Attribute	Audits	Reviews
Purpose	Verify compliance with standards and regulations	Assess performance and effectiveness
Scope	Comprehensive examination of processes and controls	Focused evaluation of specific areas
Frequency	Periodic, often annual or semi-annual	Can be ongoing or periodic
Independence	Usually conducted by external parties	Can be internal or external
Reporting	Formal report with findings and recommendations	Informal feedback or report

Introduction

When it comes to evaluating the financial statements of a company, audits and reviews are two common methods used by external parties to provide assurance on the accuracy and reliability of the information presented. While both audits and reviews serve a similar purpose, there are key differences in terms of scope, level of assurance, and procedures involved. In this article, we will compare the attributes of audits and reviews to help you understand the distinctions between these two types of engagements.

Definition

An audit is a comprehensive examination of a company's financial statements, internal controls, and accounting practices conducted by an independent auditor. The primary objective of an audit is to express an opinion on whether the financial statements are presented fairly in all material respects in accordance with the applicable financial reporting framework. On the other hand, a review is a less extensive evaluation of the financial statements performed by a CPA to provide limited assurance that the financial statements are free from material misstatement.

Scope

One of the main differences between audits and reviews is the scope of work involved. Audits require a thorough examination of the company's financial records, internal controls, and supporting documentation. Auditors are required to obtain sufficient and appropriate audit evidence to support their opinion on the financial statements. In contrast, reviews involve analytical procedures and inquiries to assess the plausibility of the financial information presented. Reviews do not require the same level of detail and testing as audits.

Level of Assurance

Another key distinction between audits and reviews is the level of assurance provided by each engagement. Audits provide a high level of assurance to users of the financial statements that the information is reliable and free from material misstatement. Auditors express an opinion on the fairness of the financial statements based on their examination. Reviews, on the other hand, provide limited assurance as the CPA only performs analytical procedures and inquiries to assess the plausibility of the financial information. Reviews do not provide the same level of assurance as audits.

Procedures

The procedures involved in audits and reviews also differ significantly. Audits require auditors to perform detailed testing of account balances, transactions, and internal controls. Auditors may also perform physical inspections, confirmations with third parties, and other substantive procedures to gather audit evidence. In contrast, reviews involve analytical procedures such as ratio analysis, trend analysis, and inquiries with management. Reviews do not require the same level of detail and testing as audits.

Reporting

The reporting requirements for audits and reviews are also distinct. Auditors issue a formal audit report that includes their opinion on the financial statements, a description of the audit scope, and any significant findings or issues identified during the audit. The audit report is addressed to the shareholders of the company and provides a high level of assurance on the financial statements. Reviews, on the other hand, result in a review report that provides limited assurance on the financial statements. The review report is less detailed and does not include an opinion on the financial statements.

Conclusion

In conclusion, audits and reviews are two common methods used to provide assurance on the accuracy and reliability of financial statements. While audits offer a high level of assurance and involve detailed testing and examination, reviews provide limited assurance and involve analytical procedures and inquiries. Understanding the differences between audits and reviews can help stakeholders make informed decisions about the level of assurance they require when evaluating financial information.