Firstly Compiled Financial Statements – All companies need to have compiled financial statements, regardless of its size or type of ownership. Financial statements can be compiled internally or externally, but if an audit or independent review is not needed, the financial statements should be compiled externally by an independent accountant. Financial statements should be compiled following certain accounting standards, such as the International Financial Reporting Standards (IFRS). A compilation report, issued by the compiler, gives no assurance as to the accuracy of the financial statements.
Secondly, Reviewed Financial Statements – When reviewing financial statements, the accountant will carry out analytical procedures and inquiries – no tests of detailed transactions or documents are required. The scope of a review engagement is much more limited than an audit, and, as such, the level of assurance gained is lower as well. A review report will typically state that nothing came to the attention of the reviewers to make them believe that the financial statements are not fairly presented. Review engagements are performed in accordance with ISRE 2400 (Revised) – Engagements to Review Financial Statements.
Third and Finally, Audited Financial Statement – During an audit, more in-depth procedures are performed, including analytical and verification procedures. Verification procedures typically include the physical inspection of accounting records, supporting documents (e.g., invoices), and assets (e.g., inventory). Auditors need to gain knowledge about the background of the business and an understanding of internal controls followed within the company. An audit is the highest form of assurance and the opinion in the audit report will typically state that the auditors are satisfied that the financial statements are fairly presented. An audit is performed in accordance with the International Standards on Auditing, and only qualified auditors may carry out this level of assurance.
In Conclusion, any business may opt for a higher level of assurance, but never a lower form. For instance, if a company only requires an independent review, owners may still request an audit to be performed. This is called a voluntary audit or review.
If you’re still uncertain what is expected of you, feel free to contact us. We’ll help you to determine the level of assurance that is required for your company.