Compilation against review against audit

Most businesses are quoted for more than they need

These three are often treated as grades of the same thing, cheap, better and best. They are not. They are different engagements providing different levels of assurance, and the right one is decided by whoever is going to rely on the statements rather than by preference.

A compilation presents information supplied by management and provides no assurance. A review provides limited assurance based mainly on enquiry and analysis. An audit provides reasonable assurance after substantive testing. If a lender asked for statements without naming a level, ask them. Buying an audit when a compilation satisfies the requirement is one of the more expensive mistakes a small business makes.

Three engagement levels compared

How to decide which one applies

How the work begins

1. 1

   Step 1: Confirm the intended user

   Who is asking, and what they actually require.

2. 2

   Step 2: Scope the right engagement

   Agreed in writing with responsibilities and limits stated.

3. 3

   Step 3: Deliver and explain

   The statements prepared and the level of assurance explained plainly.

What is the difference between a compilation, a review and an audit?

A compilation presents financial information supplied by management in statement form and provides no assurance. A review provides limited assurance, based mainly on enquiry and analytical procedures. Under Canadian Standard on Review Engagements (CSRE) 2400, the practitioner concludes whether anything has come to their attention that causes them to believe the statements are not prepared, in all material respects, in accordance with the applicable financial reporting framework. An audit provides reasonable assurance after substantive testing and third party verification, and results in an opinion. Cost rises accordingly, so the level should be set by whoever will rely on the statements.