An audit is the highest level of assurance on an organization’s/business’s financial statement performed by a CPA. During the audit, the CPA performs certain inquiries and procedures in order to obtain “reasonable assurance” that the financial statements are free from material misstatement. At the conclusion of the audit, the CPA issues a formal report that expresses an opinion on whether the financial statements are presented fairly, in all material aspects, in accordance with the U.S. Generally Accepted Accounting Principles (GAAP) or other applicable financial reporting framework. In addition, the CPA will issue a report with any significant or material weaknesses in your system of internal control identified during the audit.
During the audit, the CPA obtains understanding of your organization’s/business’s internal control and assess fraud risk. The CPA corroborates the amounts and disclosures included in your financial statements by obtaining audit evidence through inquiry, physical inspection, observation, third-party confirmations, examination, analytical procedures and other procedures.
Compared to the review or compilation services, an audit requires more work and time spent by the CPA.
A review provides limited assurance on an organization’s/business’s financial statement performed by a CPA. During a review, a CPA conducts inquiries and analytical procedures to present reasonable basis for expressing limited assurance that there are no material modifications that should be made to the financial statements and they are in conformity with GAAP or other applicable financial reporting framework.
A compilation provides no assurance on an organization’s/business’s financial statements. During a compilation, a CPA assists the management in the presentation of financial information provided in the form of financial statements without expressing an opinion on them. During a compilation, the CPA is not required to verify the amounts included in the financial statements; therefore, there are no testing or analytical procedures performed during a compilation. Accounting standards require a CPA to read and assess whether the financial statements are free from obvious material misstatements and errors.
Preparation of Financial Statements
Preparation of financial statements in a non-attest service; therefore, does not require the CPA to be independent of the entity. Preparation of the financial statements service is preparing the financial data in accordance with an acceptable financial reporting framework and is primarily intended for the client use. Typically, preparation of financial statements is performed in conjunction with bookkeeping services and can be monthly, quarterly or annually. During the preparation of the financial statements, the CPA will not verify the accuracy or completeness of the financial information provided and the CPA is not required to issue a formal report on those financial statements.