When an organization is undergoing an audit or a review, it can be difficult to understand the differences between the two; after all both are known as assurance engagements, and need to comply with accounting standards for private enterprises (ASPE). Audits and reviews are closely linked but they fulfill different needs and are associated with different levels of assurances. Both types of engagements can become necessary for either internal reasons, such as shareholder assurances, or external reasons, such as bank assurance. In fact, a third-party audit or review process is necessary for the regulatory compliance of a variety of organizations, ranging from financial institutions to not-for-profit organizations. Here are the primary differences between audit engagements and review engagements.
Audits: Extensive Examinations, Highest Level of Assurance
Audits delve deeply into an organization’s financial records, going from the very bottom and working their way up. They will go through original documents to verify that the numbers reconcile each other and they will also make sure that each transaction meets a consistent set of policies. When inconsistencies are discovered, the audit procedure may report on these inconsistencies. Audits will ensure that all financial documents are held up to the generally accepted accounting principles and that the accounts are both balanced and appropriately tracked. An auditor’s job is not only to make sure that the results are correct but also to ensure that the company has the level of expected internal controls necessary.
Reviews: Limited Level of Assurance
Reviews provide a generalized overview of an organization’s financial situation, while highlighting any inconsistencies or potential issues. During a review, the reviewer will determine whether the financial documents in question appear to be plausible and within the realm of normalcy. A reviewer will identify areas of unusually high spending or areas that appear to have been outright mistakes — such as expenses being booked incorrectly and not in accordance with generally accepted accounting principles. Reviewers may also make suggestions regarding the improvement of accounting records.
Many organizations will find themselves needing to complete a review and/or audit periodically, but the process does not have to feel threatening. If you want to learn more about audit engagements and review engagements, contact HSS today. The tax and finance experts at HSS can walk you through the process and give you the information that you need to complete it quickly.