DIFFERENCE BETWEEN COMPILATION, REVIEW, AND AUDIT?

Compilation

• CPA reads the financial statements to see if free of obvious material errors.
• CPA issues formal report.
• No opinion is given.
• No assurance is given.
• CPA does not have to be independent, but must disclose if not.
• Least expensive of the 3 options.

Review

• CPA performs analytical procedures, inquiries, and other procedures.
• CPA is required to understand the industry in which you operate, and obtain knowledge about your specific company.
• CPA issues formal report concluding as to whether or not any material modifications need to be made in order for your financial statements to be in accordance with your reporting framework.
• Limited assurance is given.
• CPA must be independent.
• More expensive than a compilation, less expensive than an audit.

Audit

• CPA performs procedures in order to obtain “reasonable assurance” (defined as high but not absolute) about whether the financial statements are free from material misstatement.
• CPA obtains understanding of your business’s internal control and assesses fraud risk.
• CPA is required to obtain audit evidence through various procedures, such as inquiry, examination, and physical inspection.
• CPA provides formal report that expresses an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with your financial reporting framework.
• CPA is required to report any significant or material weaknesses in your system of internal control that are identified during the audit.
• CPA must be independent.
• Most expensive of the 3 options