Compilation, Review, or Audit: What Does Your Business Need?
If you own or manage a business, understanding the difference between a compilation, review engagement, and audit can help you choose the right level of financial reporting for your needs.
The biggest difference is the level of assurance provided. Your choice may depend on the size and complexity of your business, financing requirements, shareholder needs, or other reporting obligations.
Compilation engagement
A compilation engagement brings your financial information together into financial statements. The practitioner compiles information provided by management but does not perform procedures to provide assurance on that information.
- Level of assurance: None.
- May be suitable for: Businesses that do not require assurance on their financial information.
- What you receive: Compiled financial information and a compilation engagement report.
A compilation can be appropriate when financial statements are needed but a review or audit is not required.
Review engagement
A review engagement provides limited assurance on financial statements. It involves primarily inquiry, analytical procedures, and discussion with management to determine whether the financial statements appear plausible.
- Level of assurance: Limited.
- May be suitable for: Businesses whose lenders, shareholders, or other users require some independent assurance.
- What you receive: Financial statements and a review engagement report.
A review provides more assurance than a compilation, but involves less extensive work than an audit.
Audit engagement
An audit provides a higher level of assurance. Auditors perform procedures to obtain sufficient appropriate evidence to support an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.
- Level of assurance: Reasonable assurance.
- May be suitable for: Businesses that require audited financial statements for shareholders, lenders, investors, regulators, or other users.
- What you receive: Audited financial statements and an independent auditor’s report.
An audit is more extensive than a compilation or review and may include testing transactions, reviewing supporting evidence, and understanding relevant internal controls.
Which engagement is right for you?
There is no single engagement that is right for every business. The appropriate level depends on who will use your financial statements, what those users require, and the circumstances of your business.
If your financial statements are primarily for internal purposes, a compilation may be sufficient. If a lender or shareholder needs greater confidence in the financial information, a review or audit may be more appropriate.
Before choosing an engagement, speak with your advisor about your reporting requirements and how your financial statements will be used.
This article is provided for general information only and should not be considered accounting, legal, or tax advice. Your individual circumstances may differ. Contact your trusted advisor for guidance specific to your needs.
