There are 3 types of reports attached to financial statements: Audits, Reviews, and Compilations.
It is important for an owner or a board/management to understand the needs of the users of the organization’s financial information. Users can include shareholders, funders and lenders.
So what is the difference between them?
First, let’s define “Assurance” – Assurance is what the CPA aims to obtain in order to express a conclusion that will enhance the degree of confidence that the financial statements are free from material misstatement due to fraud or error.
AUDIT – Highest Level of Assurance. An audit is a methodical review and objective examination of the financial statements, including the verification of specific information.
REVIEW – Limited Assurance. Less extensive than an audit, but more involved than a compilation. Consists primarily of analytical procedures and various inquiries of the organization’s management team.
COMPILATION – Lowest Level of Assurance. Financial statements are compiled “on the basis of information provided by management” and express no opinion or assurance on the statements.
Which report do you need? This depends on the users of your financial statements and the requirements from your bank or other parties. Your accountant can also give you guidance on which report type will be most suitable.
Click the link on this page to find more detailed information about each financial statement.
