The question regarding the difference between an audit, review and compilation of financial statements is common among most business owners attempting to decide the type of service to obtain to get their financial statements (namely, the statement of comprehensive income, statement of financial position and statement of cash flow etc.) checked. Though cost is a primary factor to consider when hiring such services, you need to consider the needs of investors and creditors, the size and complexity of your company and other factors to determine the type of service you need.
Note that financial statements are the best way of evaluating a company’s performance and determine its ability to pay debts. Therefore, they should be compiled, reviewed, and audited by a professional to ensure that they give the right picture of the business performance.
Financial statement compilation
The primary objective of compiling financial statements is to help the management present financial information without providing or obtaining assurance that no further modification is required for the financial statements. Here, the Chartered Accountant (CA) does not review or audit the accounts and does not offer a confirmation that the financial statements are in agreement with the selected basis of accounting. The CA is expected to prepare the financial statements but not to verify information.
Financial Statement Review
The primary objective of reviewing financial statements is to obtain assurance that these statements don’t require further material modifications and comply with the right accounting framework. To review the financial statements, the CA is required to make inquiries and analyze the financial statements. Though financial statement review does not provide the same degree of assurance as audit, some of the users of financial statements find it acceptable. A review is slightly costly as compared compilation but cheaper than an audit.
Financial statement audit
Audit offers the highest assurance degree to the company evaluators. Auditing is done by an independent CA. The CA is expected to use various techniques to check the accuracy of the details given the financial statements and give an opinion regarding the fairness of the statements. Additionally, the CA is expected to provide assurance that the data in the financial statements has been tested for accuracy.
Financial statements compilation, review, and auditing each has a different level of assurance and cost. Therefore, depending on the size and complexity of your business as well as the users of the financial statements, you can choose the right service. Whichever path way your company opt for, it will certainly require accounting services to have the financial statements ready before any work above can be done. Contact us today to obtain advice on this.