How are my reviewed financial statements different from audited financial statements?
- A review is a lower level assurance engagement and an audit is a higher level assurance engagement. Meaning the auditor generally performs more work on an audit than a review.
- A review provides negative assurance, not an opinion, in the form of: nothing has come to the attention of the accountant to say that the financial statements are not plausible based on the information reviewed. An audit provides an opinion as to whether or not the financial statements present fairly in all material respects in accordance with accounting standards.
- There should be less likelihood of a material misstatement with an audit due to the more extensive work and testing involved. The auditor must obtain sufficient audit evidence to persuade him that there is not a material misstatement either by omission or fraud.
- A review consists only of inquiry, analytical procedures and discussion with management. An audit has a higher level of documentation and procedures to obtain independent evidence which will support his opinion on the statements. This may involve confirmation from external parties, observation, recalculation or reperformance of client procedures, and physical inspection of assets as well as analytical analysis and other inquiries made by the auditor.
- A company’s internal controls must be considered in an audit and but not required in a review. This can provide management with valuable insight by highlighting weaknesses and making suggestions for improvement of internal systems, however, the auditor does not specifically conclude on the effectiveness of those controls in their opinion.
An audit involves significantly more work and supporting evidence from the accountant which is reflected in the additional costs but this corresponds to a higher level of confidence in the statements. Usually reviewed financial statements satisfy the requirements of your bank or shareholders since they provide some level of assurance on the plausibility of the statements, the reviewed statements also save some costs since less work is completed by your accountant.
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