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Review - Limited AssuranceA review is less extensive than an audit, but more involved than a compilation. A review engagement consists primarily of analytical procedures applied to the financial statements, and various inquiries of your company's management team. If the financial statements or supporting information appear inconsistent or otherwise questionable, additional procedures are performed. A review doesn't require a firm to study and evaluate your company's internal controls or verify data with third parties or physically inspect assets. Rather, a review report expresses limited assurance in the form of the statement: "We are not aware of any material modifications" for the financial statements to be in conformity with the Generally Accepted Accounting Principles (GAAP). Reviewed financial statements must include all required footnotes and other disclosures. Why might a business request a review engagement? It can be a good middle ground, providing the advantages of a CPA's technical expertise without the work and expense of an audit.
Compilation - Lowest Level of AssuranceA compilation financial statement presents information that is the "representation of management" and expresses no opinion or assurance on the statements. Compilations don't require inquiries of management or analytical procedures. Instead, the firm relies on their knowledge of accounting principles and a general understanding of your business.
Banks and other financial institutions often require compilations from an independent CPA as part of their lending covenants. |
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